Claims And Issues

FLORIDA FREE MARKET RESTRICTIONS MUST COME FROM LEGISLATORS, NOT COURTS.

Hurricane photographed from space.  Image provided by NASA.

So says Florida's First District Court of Appeal in Security First Insurance Co. v. State Office of Insurance Regulation, ___ So. 3d ___, 2015 WL 3824166 (Fla. 1st DCA June 22, 2015), rehearing and certification denied with opinion, ___ So. 3d ___, 2015 WL 6446925 (Fla. 1st DCA October 26, 2015).

Security First Insurance Company filed the lawsuit after the Florida Office of Insurance Regulation (i.e., the Florida Insurance Commissioner) denied its request to restrict the freedom of Security First's policyholders to assign post-loss insurance claims without its consent on homeowner's policies issued by Security First.  Homeowners frequently assign claims to contractors to pay for post-loss repairs, for example.  Many policyholders under other insurance policies make post-loss assignments for similar reasons.

In this decision, both in the "merits appeal" and in the later denial of rehearing and certification, the First District pointed to "an unbroken string of Florida cases over the past century holding that policyholders have the right to assign such claims [i.e., post-loss claims] without insurer consent."  The appellate court made it clear that under the time-tested doctrine of separation of powers, it is the Florida Legislature's place to restrict capitalism in Florida in such a case and not the place of the Florida Courts to do so.

The case is discussed in "Court Says Lawmakers Must Sort Out Benefits Issue" p. A12, col.1 (Orlando Sentinel "Business" Section Tuesday, October 27, 2015).

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, Co-Author of "Catastrophe Claims / Insurance Coverage for Natural and Man-Made Disasters" (Thomson Reuters May, 2015).  All Rights Reserved.

CYBERSECURITY AND CYBER VULNERABILITY: CODED CONDUCT FOR CYBERINSURANCE.

"Security is a way of living. If they are not being careful, not modifying their behavior, all the security tools in the world will not get the job done."

Wael Yousif, Chair of Valencia College, Florida's Network Engineering Program, quoted by Marco Santana, "Threat of Cybercrime Creating Wary Consumers" p. A12, col. 1 (Orlando Sentinel, Friday, October 23, 2015).

To the extent that cybersecurity can be achieved, it requires a change of approach, a change in behavior, according to experts on computer users and usage. "They have to understand that the solution is behavior-based more than anything else." Wael Yousif, Chair of Valencia College, Florida's Network Engineering Program, quoted in Orlando Sentinel, supra.
How counterintuitive this must be for some computer users, particularly those who indulge in the false belief that technology provides solutions to all problems, and most particularly to problems involving technology. If computer users pay for cyberinsurance, they need to be aware of their own apparent need to modify their own behavior more than anything else, to paraphrase the experts -- and they need to be aware also that insurance companies know this too and write their cyberinsurance policies with this knowledge in mind.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, Co-Author of "Catastrophe Claims / Insurance Coverage for Natural and Man-Made Disasters" (Thomson Reuters May, 2015).  All Rights Reserved.

Cyberinsurance. Cyberinsurance?

Image provided by NASA.

There is definitely a frenzy over issuing cyberinsurance policies.  What is not so certain is what risks they may cover.

Reportedly "at least 50 companies in the U.S. alone" are issuing and marketing cyberinsurance policies.  See Lynn Brezosky, "Cybersecurity Insurance Market Still on Training Wheels / But Companies Urged to Get Clear Picture of Coverage" (San Antonio Express-News online on Friday, O tober 16, 2015)(subscription required by the San Antonio Express-News to read this complete article).

As reported by Malia Herman, the "Threat of Data-Privacy Litigation Fuels [School] District Insurance Purchases." Education Week (published online on October 19, 2015).  Ms. Herman also offers a working definition of "cyberinsurance" as experienced by several policyholders (all school districts) which have purchased it:

1. First of all, it is an additional policy or coverage besides GL or general liability, property, and worker's compensation insurance coverages, for example.
2. "Cyberpolicies typically cover data breaches whether they are accidental, such as an employee losing a laptop or emailing sensitive information to the wrong person, or via a coordinated hacking attack."
3. "Cyberinsurance covers all notification costs, as well as the cost of investigating how the breach occurred, who could be affected, and legal assistance to determine notification requirements."  

This has not been the experience of all cyberinsurance policyholders, however.  Not everyone is convinced that insurance is the answer to address cyber risks.  Watch the video and read the story of one Palo Alto, California CEO who has looked at the risks and the insurance, and concludes that due largely to rising premiums and decreasing coverage in the current market, cyberinsurance is not a good way to go.  Palo Alto CEO:  Insurance Not the Answer to Cybersecurity (CNBC October 12, 2015). The CEO of "Palo Alto Networks" is presumably familiar with the risks of data security breaches.  In his view, insurance companies on the other hand do not know what risks are involved and so they cannot provide the coverage to meet risks that the insurance industry simply does not understand.

 More to come.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, Co-Author of "Catastrophe Claims / Insurance Coverage for Natural and Man-Made Disasters" (Thomson Reuters May, 2015).  All Rights Reserved.

 

LEAKING SINK IN UTAH IS EXCLUDED, BUT NOT "MORAL HAZARD."

Streaks on Mars possibly caused by water.  Image by NASA.

In a recent decision, coverage was excluded for damage caused to a cabin in Utah by a sink that leaked for a long time.  The homeowner's policy at issue contained a standard exclusion for damage caused by "seepage or leakage over a period of weeks, months or years … from within, or around any plumbing fixtures."  There was an exemption or exception to the exclusion for "sudden and accidental" escape of water.  The U.S. Magistrate Judge considering the situation held on competing motions for summary judgment that the exclusion applied, that the exception to the exclusion did not apply, that since there was no claim to coverage available there could be no bad faith claim either, and that the insurance company's motion for summary judgment should accordingly be granted.  Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392 (D. Utah. September 29, 2015)(Wells, USMJ).

Allstate's denominated "expert" wrote in her report that the policy exclusion of damage which results from seepage or leakage of water "'is considered a morale [sic] hazard" and so is not covered. 

Balderdash.

Far from inventing an imagined 'drafting history' of the exclusion, the Court applied the plain language of the policy and controlling case law from Utah to reach its conclusion that the exclusion applied to the undisputed material facts in the record.  The Court in Utah also cited and consulted case law decided on similar facts in Michigan and Oregon.

However, the Court never returned to the so-called expert "morale [sic] hazard" testimony of Allstate's expert. 

Anyone that thinks this decision was based on "moral hazard," like the kind of moral hazard perpetrated by investment banks and hedge funds that helped to cause the Great Recession, is not experienced either with insurance coverage or with insurance policies.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, Co-Author of "Catastrophe Claims / Insurance Coverage for Natural and Man-Made Disasters" (Thomson Reuters May, 2015).  All Rights Reserved.

EXPERTS' OPINIONS BASED ON HOMEOWNER'S CONCLUSION FACT-LESS AND WEIGHTLESS.

A Washington State appellate court issued an "Unpublished Opinion" which was made available by Westlaw in Firey v. Orozco, No. 33232-2-III, 2015 WL 5893664 (Wash. Ct. App., Div. 3, October 1, 2015).  The appellate court's decision was to affirm the trial court's crucial refusal to give any weight to the opinions of two experts retained by the plaintiff homeowner.  Although the trial judge read these opinions, the trial court gave them little weight before granting the defendants' ultimately dispositive motion for summary judgment.

The trial court ruled that because the two experts relied on the homeowner's opinion that the defendants' construction work was defective, and because the homeowner's opinion was inadmissible since she was not qualified to render it nor was it a fact, both experts' opinions were entitled to no weight.   Firey v. Orozco, No. 33232-2-III, 2015 WL 5893664, *4 (Wash. Ct. App., Div. 3, October 1, 2015).

The reasons for the appellate court's affirmance of the trial court's ruling are all set forth here:

Here, the trial court considered the experts' declarations, but determined that the facts underlying the opinions were too speculative and therefore the opinions were insufficient to create a genuine issue of material fact. We agree. There is a central deficiency in these experts' declarations: It is obvious that both experts rely on the undocumented recollections of Ms. Firey as to the scope of work performed by each defendant and the resulting condition of the house after each defendant ceased its work. Neither expert saw the house immediately after Ms. Firey fired K & T Construction or after Crown Mobile ceased working. The pictures supposedly supporting their opinions are undated. The inadequacies of the two experts' factual foundations are further heightened by the undisputed fact that the two experts did not make any personal observations concerning either defendant's work until after several other contractors performed work, resulting in the likely alteration of K & T Construction's and Crown Mobile's work. Similar to Miller [Miller v. Likins, 109 Wash. App. 140, 149, 34 P.3d 835 (Wash. Ct. App. 2001)], we hold that the trial court properly determined that the experts' opinions were speculative because they lacked an adequate factual foundation and were, therefore, insufficient to create a genuine issue of material fact.

Firey v. Orozco, No. 33232-2-III, 2015 WL 5893664, *7 (Wash. Ct. App., Div. 3, October 1, 2015).

Although these rulings came in an "Unofficial Opinion," and although they did not come in an insurance case, the rulings both of the trial court and of the Washington State appellate court are persuasive and in line with rulings on expert testimony in insurance cases across the nation.

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), including Sections 8:17 and 12:18 addressing the issues surrounding expert testimony.  All rights reserved.

MILLIONS FOR CLASS ACTION ATTORNEY'S FEES & EXPENSES. MORE WITH INTEREST.

In Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *1 (D. Minn. August 20, 2015), a controversy arose after the maker of the Sleep Number bed was sued in a class action and its defense attorneys including local counsel "billed Select Comfort for a total of $1,033,780 in attorney's fees and costs".

Arrowood , Select Comfort's CGL carrier, together with two other insurers of Select Comfort, paid $557,252 to the lawyers.  However, in Select Comfort's eyes Arrowood was the reason that it hired its own independent class action defense counsel.  Select Comfort sensed a "conflict" on the part of the lawyers selected by Arrowood to defend Select Comfort in the class action.  Uncomfortable with all these arrangements, Select Comfort sued and recovered a jury verdict for among other things "the $407,000 difference from Arrowood."   Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *2 (D. Minn. August 20, 2015).

Not comfortable yet, Select Comfort requested also that Arrowood be required to pay prejudgment interest and post-judgment interest on the $407,000 recovery, and an additional $849,208 in attorney's fees and costs that Select Comfort's attorneys apparently charged for suing Arrowood, plus prejudgment and post-judgment interest on that amount also.  Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *3 (D. Minn. August 20, 2015).

The Federal District Court resolved these attorney's fees claims, first, by awarding prejudgment interest on the jury award of defense fees and costs, citing Minnesota law to the effect that prejudgment interest in such cases is imposed not so much to make the policyholder whole, as to 'encourage' settlement of such disputes.  The prejudgment interest on this award amounts to an additional $292,633.

The next thing the Federal District Court awarded was post-judgment interest on the $699,633 total of the $407,000 jury award plus the prejudgment interest ordered by the District Court for $292,633.  So, the District Court awarded interest on interest in this way.

Next, the Federal District Court awarded the $849,208 requested by Select Comfort for the attorney's fees and expenses it was charged for suing Arrowood.  The only thing that Select Comfort requested but did not get in this entire case was prejudgment interest on the award of fees and expenses it claimed for suing Arrowood to recover many of the other amounts, all listed above.

The bottom line of what the District Court awarded:  Select Comfort was awarded by the District Court the sum of $1,548,841 representing various kinds of attorneys' fees, defense expenses, some prejudgment interest, and some post-judgment interest.  Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *10 (D. Minn. August 20, 2015).

Oops, that's not the complete bottom line, actually.  Select Comfort received $557,252 for its class action defense fees and costs before it litigated the awards ultimately made by the District Judge in this case.

The bottom line of these amounts?  So, venturing a guess based on arithmetic, Select Comfort received or will receive over $2Million for class action defense fees and expenses, and for successfully suing one of its CGL carriers over those class action fees and expenses.

The moral of the story?  When a policyholder has been sued in a class action, be very careful about supposed conflicts in legal representation, as Select Comfort claimed in this case, as well as being very careful about denying defense coverage outright, either of which may leave the policyholder free in many jurisdictions to hire its own independent class action defense counsel -- people who are familiar with very large numbers, indeed.

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), which present many Sections on Attorney's Fees issues, featuring in particular Sections 13:12, 13:13, and 13:14 in Volume 2.  All rights reserved.

NEVADA UNTIMELY DISCLOSURE OF EXPERT IN FEDERAL COURT LEADS TO DISQUALIFICATION.

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The Federal Court in Nevada emphasized that the plaintiff in the case of Cohan v. Provident Life & Accident Ins. Co., No. 2:13-cv-00975-LDG(CWH), 2015 WL 5458682 (D. Nev. Signed September 16, 2015), is a medical doctor.  The District Judge emphasized this fact to in turn emphasize the Magistrate Judge's conclusion in the case that the plaintiff was intimately involved in discovery, presumably including the discovery dispute at issue in this decision.

The nature of the plaintiff's occupation ultimately had no effect whatsoever on the outcome of the defendant's motion to disqualify a late-filed plaintiff's expert witness.

Here is how that discovery controversy came about.  Think about the events involved during these timeframes to "see" what the parties, the Magistrate Judge and the District Judge, and the other lawyers in the case had to think about at the time.

The plaintiff changed treating physicians a little less than one month before the parties were due to designate experts under a Court Order.

Plaintiff's attorney became aware of the change a little later, some 3 weeks before the deadline.

The lawyer first arranged a meeting with the new treating physician-expert nearly 4 weeks after the deadline passed.

The new treating physician-expert was still not designated as of the time that the lawyer met with him.  At their meeting, the expert told the lawyer that he, the treating physician-expert, was not yet in a position to give an opinion when or whether the plaintiff would be able to work.  Cohan v. Provident Life & Accident Ins. Co., No. 2:13-cv-00975-LDG(CWH), 2015 WL 5458682, *1 (D. Nev. Signed September 16, 2015).

By this time, seven or eight weeks had passed, depending on which starting point is used, whether the starting point is the date the new expert was retained or the date when the attorney found out that the new expert was retained.  The next thing that happened was that the plaintiff's attorney and the defendant's attorney agreed to request an extension of the deadlines for discovery and for the filing of dispositive motions.  According to the District Judge who later reviewed the record, the lawyers acknowledged in their stipulation that the deadlines for designating experts had already passed and that their stipulation would not extend the deadlines for designating experts.

Nearly a month more passed after the stipulation was filed jointly requesting that the parties' deadlines for discovery and for filing dispositive motions be extended.  Then, the plaintiff's attorney filed a "Supplemental Disclosure of Expert Witnesses, designating [the new treating physician] as an expert …."  Cohan v. Provident Life & Accident Ins. Co., No. 2:13-cv-00975-LDG(CWH), 2015 WL 5458682, *1 (D. Nev. Signed September 16, 2015).

The defendant filed a motion to strike the supplemental disclosure.  The Magistrate Judge held a hearing on the motion.  The Magistrate Judge entered an order that the motion be granted, and the plaintiff objected.  On review by the District Judge of the Magistrate Judge's order, the plaintiff argued on the basis of two unpublished decisions, one authored by the same Magistrate Judge in a different case, and one decided by a Federal Court in California.  As the District Judge viewed these two decisions, neither one stood for the propositions for which the plaintiff submitted them.  Cohan v. Provident Life & Accident Ins. Co., No. 2:13-cv-00975-LDG(CWH), 2015 WL 5458682, *1 (D. Nev. Signed September 16, 2015).

The District Judge relied instead on a decision of the Ninth Circuit Court of Appeals and denied the plaintiff's objection to the Magistrate Judge's order that the admittedly late-designated expert should be stricken.

 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), including Sections 8:17 and 12;18 addressing Expert Witness issues in third-party and first-party insurance cases, respectively.  All rights reserved.

FLORIDA'S WAR ON EQUITY, CONTINUED?

In Florida Peninsula Ins. Co. v. Ken Mullen Plumbing, Inc., 171 So. 3d 194 (Fla. 5th DCA 2015), a panel of Florida's Fifth District Court of Appeal reinstated a first-party insurance company's third-party complaint against a plumber.  The third-party complaint included an alleged cause of action in equitable subrogation.

The insurance carrier paid on a water damage claim under a homeowner's policy.  Thereafter, the insurance carrier filed a third-party complaint against the plumbing company which allegedly caused the water damage.  However, the kicker was that the homeowner's damage was not fully paid at the time that the carrier filed its third-party complaint.

The trial judge granted the plumbing company's motion to dismiss the equitable subrogation count in pertinent part, on the ground that the insured homeowner had not been fully compensated for the water damage.  On appeal, the Florida appellate panel reversed and reinstated the third-party claim for equitable subrogation, in pertinent part.

The basis for the appellate panel's decision seems a bit murky.  In allowing the cause of action in equitable subrogation to go forward, the panel's opinion seems to have relied on the language of Florida's third-party practice rule.  That rule allows a third-party complaint to be filed against a nonparty who "is or may be liable" to the defendant/third-party plaintiff for all or a part of the original plaintiff's complaint against it.  Florida Peninsula Ins. Co. v. Ken Mullen Plumbing, Inc., 171 So. 3d 194, 197-98 (Fla. 5th DCA 2015).  In so ruling, the panel joined other Florida district courts of appeal on one side of a split among Florida's district courts of appeal.

However, the panel's opinion also included language summarizing the approach collectively taken by other DCA's "which permits pleading a third-party action for equitable subrogation before the underlying debt has been paid."  Florida Peninsula Ins. Co. v. Ken Mullen Plumbing, Inc., 171 So. 3d 194, 197 (Fla. 5th DCA 2015).  [Emphasis added.]  To the extent that this panel's opinion mirrors the ruling of two judges on a different panel in an opinion explored on Insurance Claims and Issues Bad Faith Blog on Sunday, October 4, 2015, perhaps there is a "war" in Florida on equity's requirement that the victim, i.e., the one which is the creditor in a subrogation action, must be fully compensated before subrogation will be available in equity.

Allowing a subrogation action to go forward in favor of the party which paid money to the creditor because the subrogation plaintiff had an obligation to pay under an insurance contract or for any other reason, does nothing for equity or for the creditor-victim.  Certainly, judges may have the power to order subrogation to go forward even when the creditor has not been fully compensated but they have no right if that is how they rule, to call their rule "equitable" subrogation.

Rather, equity clearly would seem to require that if the requirement of full compensation of the creditor-victim is discarded, that an appropriate substitute be put in place.  An appropriate substitute might include requiring that any recovery in the subrogation action, in which the subrogation plaintiff "stands in the shoes" of the creditor-victim, to be paid first to the creditors-victims until they are fully compensated.  Any remaining proceeds would be paid to the subrogation plaintiff only after the victim is fully compensated.  Under such an arrangement, that might be an equitable way to "punch" the subrogation plaintiff's "ticket" to claim standing to sue because it "stands in the shoes" of the victim.

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), including Section 7:9, Actions by Excess Carriers -- Subrogation.  All rights reserved.