Claims And Issues

EXPERT PHYSICIAN BASES CAUSATION OPINION ON PLAINTIFF'S ACCOUNT, WITNESS EXCLUDED.

The case of Carmody v. State Farm Mut. Auto. Ins. Co., No. 6:14-cv-830-Orl-37KRS, 2015 WL 5542534 (M.D. Fla. September 18, 2015) is not being decided in a vacuum.  The plaintiff in that case claims uninsured motorist benefits from the defendant.  After entering a Case Management and Scheduling Order which set out deadlines including for expert witness disclosure as is usual under such orders, the Court sanctioned the plaintiff "for his untimely and insufficient expert witness disclosures" including by limiting the testimony of one Dr. Masson, whom the plaintiff disclosed as a "treating physician," to "'opinions formed based on observations made during the course" of Dr. Masson's treatment of the plaintiff.  Carmody v. State Farm Mut. Auto. Ins. Co., No. 6:14-cv-830-Orl-37KRS, 2015 WL 5542534, *1 (M.D. Fla. September 18, 2015).

After taking Dr. Masson's deposition, the defendant filed a motion to exclude his opinion testimony on causation.  Dr. Masson testified in his deposition that he relied on an MRI study done on a date he did not know when, and on "the history provided to him by Plaintiff."  Dr. Masson further testified that he did not review the plaintiff's prior medical reports or the plaintiff's medical history, and that he did not talk to plaintiff's "prior doctors of therapists before making his causation opinion."  Carmody v. State Farm Mut. Auto. Ins. Co., No. 6:14-cv-830-Orl-37KRS, 2015 WL 5542534, *3 (M.D. Fla. September 18, 2015).

The Court observed that "Courts frequently exclude causation opinion testimony from expert witnesses who -- like Dr. Masson -- based their opinions on a plaintiff's account of the facts without consideration of other possible causes of an injury."  Carmody v. State Farm Mut. Auto. Ins. Co., No. 6:14-cv-830-Orl-37KRS, 2015 WL 5542534, *3 (M.D. Fla. September 18, 2015).  The Court was aware too of Dr. Masson's testimony that "the injuries he found during his physical examination of Plaintiff were 'consistent with the story the patient gave [him].'"  Carmody v. State Farm Mut. Auto. Ins. Co., No. 6:14-cv-830-Orl-37KRS, 2015 WL 5542534, *3 n.3  (M.D. Fla. September 18, 2015).

Based on the law, "and a careful review of the record -- particularly Dr. Masson's deposition," the Court granted the defendant's motion in this insurance case.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements).  All rights reserved.  

FLORIDA COURT CONFUSES ALL RISKS POLICY WITH NAMED PERIL POLICY …

Cites "efficient proximate cause doctrine."

In a recent and as-yet officially unpublished opinion, a panel of Florida's Second District Court of Appeal apparently reached a correct result for the wrong reasons.  The panel said that "[b]ecause the [policyholders] failed to establish below that their loss was covered by a peril caused by their [all-risk] insurance policy, we affirm."  Peek v. American Integrity Insurance Co. of Florida, No. 2D14-780, 2015 WL 5616294, *1 (Fla. 2d DCA September 25, 2015)(stated not released for publication in permanent law reports and subject to revision or withdrawal).  Actually, the record quoted by the panel establishes both that the policyholders in this case met their all-risks burden of proof and that the insurance carrier also met its burden to prove that an exclusion applied to bar coverage for claimed loss resulting from Chinese Drywall.

"At trial, the [policyholders] established through their own testimony and that of a representative of [the insurance carrier] that they suffered a loss to their property within the insurance policy period."  Peek v. American Integrity Insurance Co. of Florida, 2D14-780, 2015 WL 5616294, *1 (Fla. 2d DCA September 25, 2015).  A policyholder claiming coverage under an all-risks policy has the burden of proof on the initial issues of coverage that the policyholder's property suffered a loss during the policy period, as the panel recognized.  Peek v. American Integrity Insurance Co. of Florida, 2D14-780, 2015 WL 5616294, *3 (Fla. 2d DCA September 25, 2015).  Therefore, as the panel opinion confirms, in this case the record establishes that the policyholders met their initial burden of proving coverage.  Simply put, an all-risk insurance policy basically covers all risks unless specifically excluded.

In this case the record also clearly establishes that the insurance carrier also met its own burden, which was to prove the applicability of one or more exclusions.  The carrier denied coverage on the bases of "policy exclusions for latent defects, corrosion, pollutants, and faulty, inadequate, or defective construction materials and contended that the Chinese drywall fit the definitions of all of these exclusions."  It introduced the testimony of an expert botanist that the Chinese Drywall used in the construction of the policyholders' home, and damages resulting from it for which the policyholders claimed coverage here, "that it was a faulty, inadequate, or defective construction material."  He further testified that the Chinese Drywall emitted gases which caused the corrosion damage complained of by the policyholders here, and "that the Chinese drywall itself was a pollutant due to its emission of noxious and destructive gases."  The policyholders did not put on any evidence to rebut this testimony.  Peek v. American Integrity Insurance Co. of Florida, 2D14-780, 2015 WL 5616294, *1-*2 (Fla. 2d DCA September 25, 2015).

On this record, the trial court granted the carrier's motion for directed verdict and entered judgment that the carrier did not breach the all-risks insurance contract.  The Second District panel affirmed.  Despite some regrettably loose language, the panel clearly affirmed on the basis that the carrier had proven that the exclusions on which it relied to deny coverage, applied to the policyholders' claimed loss in this particular case as a matter of applying the all-risks contract language to the record evidence -- and regardless of any confusion about the "efficient proximate cause doctrine" here.  In reaching its contract conclusion, the Florida appellate court panel joined the majority of U.S. Courts which have addressed the question.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, co-author of Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters including § 7:12, Faulty Workmanship/Materials (Thomson Reuters West May 2015).  All rights reserved.  

FEWER HOUSING STARTS, FEWER APARTMENT STARTS: FEWER HOMEOWNERS POLICIES?

 

August brought a lower number of new housing starts and also new apartment construction starts everywhere except in the Southern United States.  Construction was down in the Northeast, the Midwest, and the West.  In other words, new housing construction was down in August in all the rest of the United States outside of the South.  "Fewer Starts in Housing, But Analysts Are Upbeat" p. B7, col. 6 (Associated Press copyrighted story published in New York Times Nat'l ed., "Business Day" Section, Friday, September 18, 2015).

A home lender's vice president is quoted in the linked report as saying that "[t]his is a mere blip on the radar."  Let's hope so if we want homeowner's insurance policies.  Fewer homes means fewer homeowner's policies in basic and simple terms.  That may increase the cost and limit the availability of renter's insurance, too.  Here's how.

Although even the fact that new construction of apartment buildings decreased, this event does not mean that there will not likely be some kind of insurance to be sold that would cover housing.  Renter's insurance will not likely be totally eliminated simply because renters are going to be renting in existing buildings, rather than renting in new buildings.

The availability of renter's insurance for rented space in old buildings may be limited, however, by the age and condition of older buildings which may present greater risks than new construction.  Or the premiums may be higher.  Either way would present one more burden on people looking for a place to live that they can afford.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, co-author of "Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters" (Thomson Reuters West May 2015).  All rights reserved.  

MORE HEALTH INSURANCE, SAME POOR AND UNEMPLOYED: "RECOVERY" STUMPS "EXPERTS."

 

 Algae Bloom / NASA

There are fewer people without health insurance since the Affordable Care Act took effect.  Robert Pear, "Health Care Gains, But Income Remains Stagnant, the White House Reports" p. A22, col. 1 (New York Times Nat'l ed., Thursday, September 17, 2015).

Eager to support the concept that the national economy has "recovered," so-called "experts" are stumped by the continuing low numbers for median family income and by continuing high numbers of people who are actually unemployed (including in the headcount not only people who are still looking for a job, who are counted in the official unemployment statistics, but also people who have stopped looking for a job since about 2008, and who are not included in the official unemployment stats).

The reality of course is that health insurance is up and uninsured numbers are down because the Affordable Care Act spurred or enabled policyholders and insurance companies to get and issue health insurance coverage.  There is nothing comparable to the ACA which would raise the average household income or lower the number of people in poverty.

The economy is too important to be left to the economists and politicians, you might say.  At least it's too important to be left to the economists and politicians who have been in charge of the economy all this time.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of "Litigation and Prevention of Insurer Bad Faith" (3d Edition, Thomson Reuters West, in 2 Volumes and 2015 Supplements).  All rights reserved.  

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EXPERTS IN AN INSURANCE CASE: GENERAL RULES AND A SPECIFIC CASE.

Stormy Seas in the Stars/NASA

In Seahorn Investments, LLC v. Federal Ins. Co., No. 1:13CV320-HSO-RHW, 2015 WL 5297264 (S.D. Miss. September 10, 2015), the Court applied all the recognized requirements of designating expert witnesses and providing their reports and conducting the examinations that lead to their proffered opinions.

The District Judge was confronted with motions to exclude the testimony of three of Plaintiff Seahorn's proffered experts named Stuart, Gurtler and Lyon in a case in which the plaintiff claimed insurance coverage for damages after Hurricanes Katrina and Isaac had passed through.  In passing upon the motions to exclude, the District Judge seems to have reproduced much of the experts' respective reports and deposition testimony.

The proffered expert testimony of Mr. Stuart on causation was excluded and Mr. Stuart himself was excluded as an expert witness in the case.  Primarily, the record showed to the District Judge very clearly that someone else wrote Mr. Stuart's report.  The court referred to his report being "ghost written," but by any name the report was written by someone other than Mr. Stuart.  Seahorn Investments, LLC v. Federal Ins. Co., No. 1:13CV320-HSO-RHW, 2015 WL 5297264, *9-*10 (S.D. Miss. September 10, 2015).  Mr. Stuart's "Supplemental Report" was no help to him and his testimony surviving the motion to exclude, because in the eyes of the District Judge, Mr. Stuart's Supplemental Report in this case should have been disclosed and produced either with Seahorn's initial expert disclosures at the outset of the case or at the latest by the expert designation deadline.

Next in line came the defendants' motion to exclude Mr. Gurtler and his expert testimony.  The District Judge granted the motion to exclude to the extent that Mr. Gurtler based his own expert testimony on Mr. Stuart's now-excluded opinion reports and examination, which appear to have related primarily to alleged failure of trusses.  However, the court denied the motion to exclude Mr. Gurtler's opinions relating to "the cause and cost of damages to the interior flooring (as opposed to the trusses)."  Seahorn Investments, LLC v. Federal Ins. Co., No. 1:13CV320-HSO-RHW, 2015 WL 5297264, *12-*13 (S.D. Miss. September 10, 2015).

Last but not least, the court dealt with the defendants' motion to exclude the remaining expert, Mr. Lyons, and his expert testimony.  Although the court in this case announced that it was ruling to grant the motion to exclude in part and deny it in part, the court apparently did not state which part of Mr. Lysons's proffered expert testimony would be excluded.  The District Judge made it clear as to which part of the Lyons testimony would not be excluded at this stage, namely, Mr. Lyons's testimony as to the "flooring" which relied on Mr. Gurtler's' "damages assessments on the flooring."

 It is noteworthy that the Gurtler-Lyons shared damages assessments appear to have involved use of "the Xactimate computer software."  Seahorn Investments, LLC v. Federal Ins. Co., No. 1:13CV320-HSO-RHW, 2015 WL 5297264, *13-*14 (S.D. Miss. September 10, 2015).

See also 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 8:17, Experts in Third-Party Insurance Bad Faith Cases:  Specific Cases and General Rules (Thomson Reuters West 2011, 2015 Supplement); 2 id. § 12:18, Experts in First-Party Insurance Bad Faith Cases:  Specific Cases and General Rules.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.  No Claim to Original U.S. Government Works.  Listen to a special podcast of "Litigation and Prevention of Insurer Bad Faith" here.

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BANKS CDS INSURANCE POLICIES IN SETTLEMENT … WHAT'S THE DEAL?

A $2 Billion lawsuit filed by investors against large banks is reportedly being settled.  See Nathaniel Popper, "Banks to Settle With Investors in Suit Over Crisis" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 12, 2015).  The investors filed suit over the banks' use and alleged misuse of credit default swaps ("CDS"), a form of credit insurance unregulated by State Insurance Commissioners.  The plaintiffs alleged that the banks conspired to close the CDS market to competitors, thereby driving up prices paid by the investors-plaintiffs.

 One of the investors' attorneys claims that the banks are making changes which will make the CDS market more transparent as a part of the settlement.  Id.  However, the settlement terms are not reported.

 The operational manual for settlements involving investment banks and the Great Recession calls for secret provisions and sealed side-agreements.  It may be worth keeping a close eye on the Court File in this case.

 

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WHAT HATH Rothstein WROUGHT?

Not Mr. Rothstein, of course, but the case which bears his name decided on July 22, 2015:  Rothstein v. Balboa Ins. Co., 794 F.3d 256 (2d Cir. 2015).

Find the shadow of the space station crossing the moon in this photograph/Image by NASA.

This decision has drawn a lot of attention.  In Rothstein, a panel of the Second Circuit applied its understanding of the filed rate doctrine to bar claims alleged by mortgagors.  The case was filed against many defendants, including mortgage lenders and their servicers and insurance companies.  All defendants other than the insurance companies settled with the plaintiffs.

The Rothstein decision came in an appeal from a denial of motions to dismiss filed by the insurance companies which provided force-placed insurance policies to the lenders' servicers.  The insurance companies charged premiums which allegedly included unauthorized discounts to the lenders' servicers in exchange for their exclusive business, but which were included in the force-placed insurance premiums charged to the plaintiffs-mortgagors.  Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713 (2d Cir. July 22, 2015).

By the time this appeal reached the Second Circuit panel, only the insurance companies and the plaintiffs were left in the case, all the other defendants having settled with the plaintiffs.  Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *1-*2 (2d Cir. July 22, 2015).

At times, the panel decision appears to over-reach.  It often reads as though the defendants-appellants who claimed the immunity of the filed rate doctrine were not the ones who filed for the insurance premium rates, but they are.  Still, the panel purported to rule irrespective of the parties in the appeal before them:

    We hold that a claim challenging a regulator-approved rate is subject to the filed rate doctrine whether or not the rate is passed through an intermediary. The claim is therefore barred if it would undermine the regulator's rate-setting authority or operate to give the suing ratepayer a preferential rate. Applying this analysis, we conclude that Plaintiffs' claims are barred and, accordingly, reverse and remand for dismissal of the case.

Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *1 (2d Cir. July 22, 2015).

The panel based this ruling on an understanding that to the extent the filed rate doctrine depends on a principle of "nonjusticiability … it is squarely for the regulators to say what should or should not be included in a filed rate."  Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *4 (2d Cir. July 22, 2015).   The panel repeated this understanding with the observation that "under the nonjusticiability principle, the question is reserved exclusively to the regulators."  Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *4 (2d Cir. July 22, 2015).  The panel's result may or may not have been correct in that case, but if it was the correct result, it was a lucky one with all respect.  The reasons given for the result are incomplete.

The question of reasonable and nondiscriminatory rates is "reserved exclusively to the regulators" only if the enabling statute provides the regulators with the power to approve or decline rate requests.  For example, the insurance regulators in North Dakota are not given those powers and so the filed rate doctrine has been held inapplicable in insurance cases there.  In other jurisdictions, it is an open question whether the filed rate doctrine applies to insurance rates at all.  To paraphrase the Rothstein panel, the question of whether a rate is immunized by the filed rate doctrine is reserved exclusively until after an examination of the enabling statutes in the given jurisdiction.  If the statutes enable the regulators to approve and deny rates including the rates at issue, then courts apply the filed rate doctrine and decline to entertain the case; if the statutes do not enable the regulators to do so, then the courts decline to apply the filed rate doctrine and entertain the case.  See Rios v. State Farm Fire & Cas. Co., 469 F. Supp. 2d 727, 735-36 (S.D. Iowa 2007).

The panel did not discuss the regulators' powers in Rothstein.  The insurance company defendants contended that their lender force-placed insurance premium rates included the unauthorized charges at issue, and that the charges were approved by the Texas Department of Insurance, the New Hampshire Insurance Department, and the New York State Department of Financial Services.  None of the rate filings seems to have been reviewed in Rothstein.  Similarly, none of these regulators' powers were mentioned and none of their enabling statutes were discussed by the panel in Rothstein.  Parenthetically, the panel did mention a New York regulation "restricting the practice" of "loan tracking services" charged by force-placed insurance providers, but the panel did not address the New York regulator's authority to issue the regulation other than to recite that the regulation was issued.

Instead, the Rothstein panel fixated on whether the filed rate doctrine could be raised to bar the claims of people who are not the "ratepayers," i.e., who are not the people who paid the filed rates.  The panel in Rothstein lost sight of the main legal issue of whether the filed rates actually were within the power and authority of the regulators to approve (and the factual issue of whether the charges at issue were actually included in each of the rate requests that were filed in Texas, New Hampshire, and New York).   The panel's reasoning is consistent with applying the defendant insurance companies' affirmative defense to the claims alleged by the plaintiffs in Rothstein and then finding that the Rothstein plaintiffs had failed to meet their newly 'force-placed' burden of proof to prove a negative, i.e., that the filed rate doctrine should not be applied.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All Rights Reserved.  No Claim to Original U.S. Government Works.

LABOR DAY, LOW UNEMPLOYMENT, LOW WAGES, INSURANCE RE-EXAMINED.

 

On Insurance Claims and Bad Faith Law Blog yesterday, I shared some thoughts about the "fortuitous" requirement and its mother, the "known loss doctrine."  I wondered what some effects might be of applying those claim-denial concepts to insurance underwriting, specifically, to the calculation of retroactive premiums including below-market wages in the calculation.

I would like to extend the discussion on this Labor Day to include any claim or premium rate based on below-market wages.  Worker's compensation insurance premiums, for example.  Or business interruption claims for lost income over and above basic expenses such as below-market payroll at an insured restaurant.

Punitive damages are often and generally uninsurable, at least when clearly assessed on the ground of the policyholder's proven bad conduct.  Where punitive damages are uninsurable it is because public policy forbids insuring them, forbids providing bad actors with (insurance) money for their bad conduct.  Suppose that paying below-market wages in a given industry located in a particular place rises or falls to the same level of public policy against their insurability.  Suppose the public policy is based on the same notion that forbids paying bad actors with insurance money to do bad things, in this case, paying below-market wages.

It seems that then there will be a good argument against insurability for at least a part of the restaurant's business interruption claim in our hypothetical.  To the extent that the business interruption carrier can prove that the basis of the restaurant's claim should rest on market wages, the restaurant's business interruption claim would begin with a higher basis or expense factor, before awarding the difference between expenses and lost profits when calculating the available amount of business interruption coverage.   The difference between the policyholder's below-market payroll in this example, and what the policyholder would have paid if the restaurant had paid wages at the prevailing market rate, would represent an amount that is uninsurable and so would rightly be deducted from the lost profits before calculating the claimed lost income.

Thinking along these lines requires thinking outside the box of rules which worked pretty well until they didn't.  This seems to be true of jobs and wages information generally.  A lower unemployment rate coupled with an increase in the number of jobs added to the 'labor market' is treated as good news signaling a recovering economy.  See Neil Irwin, "The Upshot / Steady Jobs Data Puts Onus on the Fed," p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 5, 2015).  The lower unemployment rate, it is hardly mentioned, is skewed by the large number of people who have dropped out of the 'labor market' because they are no longer looking for work after looking for years, and so they are no longer counted as being in the market to provide labor.  They are just not counted in the official unemployment rate, thus skewing the percentage of unemployed people lower than it is in reality.

It goes without mention in the popular press reports, but it is possible if not likely that more jobs on the market at lower wages does not represent the number of people who have found jobs.  People may be working more than one job in even greater numbers than were known or suspected to be the case, because prevailing average wages are so low for the newly offered jobs.  To say again, this is never mentioned, not even suggested, but it fits the evidence.

Further, the fact that wages have actually decreased in relative terms is treated not as a bad thing, but as a good thing because average "hourly earnings rose a healthy 0.3 percent."  Neil Irwin, "The Upshot / Steady Jobs Data Puts Onus on the Fed," p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 5, 2015).  Apparently this is to be treated as a good thing because a 0.3 percent rise in average hourly earnings was "unexpected" by whoever is supposed to expect such things.  For workers paid by the hour, a raise of 3/10 of one percent seems like many things, but "healthy" is probably not one of them.  SeeNelson D. Schwartz, "Low-Income Workers See Biggest Drop in Paychecks" (New York Times Online, posted on Tuesday, September 2, 2015).

 

To say again, thinking along the lines explored here requires thinking outside the box of rules which worked once upon a time but not now. The previous rules and models do not work now because they are not based on the reality of the present.  New rules and different ways of thinking which reflect the reality of the present day are required.  The old rules and previous ways of thinking have brought us to where we are today, thereby proving if more proof was required, that they have stopped working.

 

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WHEN IS AN ISSUE "ACTUALLY LITIGATED" EARLIER AND PRECLUDED LATER?

Night Clouds/NASA.

Issue preclusion is sometimes still called "res judicata."  Both terms refer to issues determined in an earlier case and which a party in a later case argues should be precluded or barred from further determination.  One of the standard elements of issue preclusion is that "the issue sought to be precluded must have been actually litigated in the prior action."  Continental Western Insurance Co. v. Federal Housing Finance Agency, ___ F. Supp. 3d ___, 2015 WL 428342, *4 (S.D. Iowa February 3, 2015).  [Emphasis added.]

In the Continental Western case, the parties did not dispute that "the issues raised by Continental Western in this case were actually litigated and essential" in an earlier case.  Continental Western Insurance Co. v. Federal Housing Finance Agency, ___ F. Supp. 3d ___, 2015 WL 428342, *10 (S.D. Iowa February 3, 2015).  The Court in this case accordingly dismissed Continental Western's complaint "on the basis of issue preclusion."

Parenthetically, the Court's ruling in this case is an example of how rulings are necessarily made in litigated cases.  The fact that earlier litigation of the same issues was "undisputed" in this case illustrates once again that, perhaps due to the limitations of the adversarial system of adjudication, Judges rarely go beyond what the parties tell them before the Judges make their decisions.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government Works.

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