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Image of Indiana State House, by Library of Congress.
In Foster v. Principal Life Insurance Co., No. 14-3203, 2015 WL 7567512 (7th Cir. November 25, 2015), the Seventh Circuit reversed a District Judge's grant of a defendant's motion to dismiss. The District Court ruled that the plaintiff's claim was "derivative" of a claim alleged in an earlier lawsuit which was settled. The Seventh Circuit held that this ruling was made up and further that there was no bar to the instant claim on any recognized or recognizable ground:
On appeal, Foster contends that his claim against Principal was not derivative of his earlier claims against Pace. He notes that the district court cited no legal doctrine underlying its finding that the claim was barred as “derivative,” and so he postulates various legal bases on which the court might have relied, such as res judicata and collateral estoppel. Foster maintains, and we agree, that the requirements of res judicata and collateral estoppel cannot be met under the facts presented here. Indeed, Principal does not attempt to defend the district court's rationale that the claim was “derivative” and conceded at oral argument that neither res judicata nor collateral estoppel apply in these circumstances. Nor is there any indication that Principal was somehow released by the terms of Foster's confidential settlement agreement with Pace and Pace employees in the earlier litigation.
Foster v. Principal Life Insurance Co., No. 14-3203, 2015 WL 7567512, at *4 (7th Cir. November 25, 2015). Sometimes the best offense is a good offense, as in this case. After they dismantled the spurious "derivative" ground for the District Judge's ruling to bar Mr. Foster's claim, Mr. Foster's attorneys set out every possible valid reason for the District Judge's ruling and then dismantled them each and all in turn, one by one.
And Principal's lawyers in this case acted with integrity, too, in their behavior shown in the Court's opinion quoted above.
To say again, sometimes the best offense is a good offense.
Business models centered around insurance frequently dominate the economy. Stories of new models are published every day. One such story involves lender force-placed insurance practices, but this is only one of the stories of business models that dominate the economy. Another story, but again only one story among many such stories, involves crop insurance subsidies.
Crop insurance subsidies do not really subsidize the costs of growing crops. Crop insurance subsidies instead apparently subsidize crop insurance companies. Crop insurance subsidies provide a return on investment that the insurance carriers offering crop insurance policies cannot get otherwise. The margin is paid with your taxes.
And there is no evidence that crops are affected one way or the other. But people are affected.
The story of crop insurance subsidies and the apparent windfall to crop insurance carriers is the subject of a New York Times report. The story tells itself with these quotes from a much longer news article, available here:
Federal crop insurance is a public-private program. The government subsidizes insurers, many of them subsidiaries of multinational companies, to cushion farmers against losses from drought, floods, other natural disasters and low market prices.
Taxpayers cover about 60 percent of farmers’ premiums, while insurers get federal reimbursements for their operating costs. A target rate of return on their investment is set at 14.5 percent — “higher than that of other private companies, on average,” the Congressional Budget Office reported.
The provision in the October budget deal cut that rate to 8.9 percent. The outcry from farm-state lawmakers was immediate.
Can you help? Each year I receive about two dozen copies of Books and Supplements (Pocket Parts) that I wrote. I just received a dozen copies for example of a book I co-authored, "Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters" published by ThomsonReuters this month. The copies I am talking about are called "author's copies". I have donated them to law libraries at Courts and at Universities for years now. However, for a library that has no space to shelve another print book, receiving a print copy of a book can be something they simply cannot handle. Instead of a joy, it can be a headache for them.
So, believe it or not, donating my author's copies is becoming more of a burden each year as I search more and more law library catalogs online. I learn with each search that more and more libraries simply do not have the budget even to maintain donated print books and so they do not want print books. As a result, I have nearly exhausted the supply of online law library catalogs that are available to search in my effort to make donations of my books.
So, can you help? Do you know of organizations equipped to accept and distribute donations of print law books to libraries (law libraries, public libraries)? Or do you know of libraries that want donations of print law books?
Please Reply to me by EMail at [email protected] or by social media on the social media outlets where I am going to link this blog post.
Thank you.
Dennis Wall
Please Read The Disclaimer. Copyright 2015 Dennis J. Wall. All rights reserved.
As parties and lawyers who appear in Federal Court know very well, U.S. Magistrate Judges are likely to rule their case without them even seeing a Federal District Judge. Unless they appeal decisions of U.S. Magistrate Judges.
In fact, some Magistrate Judges apparently think that their decisions must have been correct if those decisions were not appealed to a District Judge:
Furthermore, the court notes that Mid Century did not appeal this court's ruling to the district court which certainly would be the normal course if a litigant thought it was right.
Gowan v. Mid Century Insurance Co., No. 5:14-CV-05025-LLP, 2015 WL 7274448, at *4 (D.S.D. November 16, 2015)(Duffy, U.S.M.J., ruling against the non-appealing insurance company on a motion for sanctions against it in a worker's compensation bad faith case).
Litigants and their counsel in actual cases know very well that "certainly" the economics of appeal are a factor in making the decision whether to appeal, not simply the right-or-wrong of the situation. Even when the decision is whether to appeal to the District Judge, let alone to the Circuit Court of Appeals.
So, Policyholders, Carriers, and their Counsel be advised: Another factor in your decision whether to appeal rulings of Magistrate Judges to District Judges in Federal Court must be how the Magistrate Judge in your case is likely to interpret your decision not to appeal her ruling.
Two experts on cause and origin of a fire were permitted in the case of Scottsdale Ins. Co. v. Deere & Co., No. 6:14-cv-01183-JTM, 2015 WL 7274036 (D. Kan. November 16, 2015). Deere proffered the two experts; Scottsdale tried to have at least one of them excluded as "'excessively cumulative and minimally probative'". The Court in this case ordered, based on Scottsdale's showing, that it will permit both of them to testify, or at least that it will not exclude the testimony of either expert at this stage.
The U.S. District Court in Kansas, following Federal procedural law and the Federal Rules of Evidence, held that the decision to allow both experts to testify is within a Federal Court's discretion and, here, their testimony was not "needlessly cumulative." Scottsdale Ins. Co. v. Deere & Co., No. 6:14-cv-01183-JTM, 2015 WL 7274036, at *3 (D. Kan. November 16, 2015).
The Federal Court's holding of course applies to all proffered expert testimony, including the proffered testimony of expert witnesses in insurance cases.
The GAO found in its report in late 2014 that only the Department of Homeland Security ("DHS") had "fully implemented policies on contractor oversight," and "had consistently planned and executed assessments of their policies," and "had consistently reviewed its assessments."
These findings support the need for at least the following questions on any application for cyber insurance (among other questions on the application, of course):
Does the applicant have policies in place on contractor oversight?
Does the applicant consistently plan and execute assessments of its policies on contractor oversight, and if the answer is "yes," state how often these assessments are planned and executed: _______________.
State how often the applicant reviews its assessments of its policies on contractor oversight: _________________.
As is usually the case, the application should of course provide that false or incomplete and misleading answers to the questions on the application are grounds for the insurance company rescinding the insurance, in this case for cyber insurance.
Before concluding this article, it is worth revisiting FISMA. The FISMA or Federal Information Security Act of 2002 was mentioned above. Two things were reported in the two above RegBlog posts over one year apart that bear mention about compliance with this federal law:
FISMA mandates that both the National Institute of Standards and Technology ("NIST") and the General Services Administration ("GSA") should provide "guidance" to federal agencies "on how to establish effective oversight of contractors …." Further, RegBlog reports that unspecified "[f]ederal law" mandates that the Office of Management and Budget ("OMB") and the DHS "provide guidance to agencies about enhancing their cybersecurity and reporting compliance." Whether the mandated "guidance" is actually the same or duplicative in each case is not clear. What is clear, according to the GAO, is that the OMB's and the DHS's "guidance" are both "often incomplete or unclear."
Despite the FISMA mandate that federal agencies assess their risks and conduct risk management activities in response to threats to cyber security, "[l]ess than two-thirds of the agencies covered in the GAO report," said RegBlog this month -- on November 10, 2015 -- "had fully assessed their risk factors during 2013 and 2014." Which leads to an interesting overall question of insurance coverage for cyber insurance policies:
What are the risks to cyber security that cyber insurance is being asked to cover, and how do applicants seeking cyber insurance manage those risks, if at all?
Indiana Statehouse. Image provided by Library of Congress.
The two steps are reasonableness in the delay and prejudice in the lateness of the notice.
These are the steps summarized by the Supreme Court of Appeals of West Virginia in a recent case involving questions of late notice under a liability insurance policy. The Court summarized its long-standing rules on this subject into the aforementioned two steps:
Thus, it is apparent that a two-step inquiry determines whether late notice precludes coverage. First, we must consider the length of the delay and whether the delay was reasonable. If the delay was not reasonable, the inquiry ends, and coverage will be foreclosed. However, if the delay was reasonable, then the burden shifts to the insurer under the second part of the analysis. If the insurer can demonstrate prejudice from the late notice, coverage is precluded. If the insurer cannot show that it was prejudiced by the late notice of its insured’s claim, though, coverage is not barred by the insured’s failure to provide timely notice.
Travelers Indem. Co. v. U.S. Silica Co., ___ S.E.2d ___, 2015 WL 7045391, under the Court's heading, "III. Discussion" (W.Va. November 10, 2015)(page numbers not provided by Westlaw before citation). [Emphasis added.]
The Court left no doubt in this case that its two-step analysis of late notice is progressive, meaning that if the first step of this condition precedent is not satisfied, that ends the matter and the second step is never reached in such a case. The case at bar was such a case, the Court said:
In the case sub judice, we conclude that U.S. Silica has failed to demonstrate that its explanation for its significant delay in notifying Travelers of the silica claims was reasonable—both because the delay was substantial and because its proffered reason to excuse its delay, i.e., that it was unaware of the subject policies, is not reasonable. Absent a demonstration of reasonableness, the burden does not shift to the insurer to prove that it was prejudiced by the delayed notice, and the inquiry necessarily ends with a finding that coverage is precluded by the insured’s failure to comply with the policy’s notice provision.
Travelers Indem. Co. v. U.S. Silica Co., ___ S.E.2d ___, 2015 WL 7045391, see concluding paragraphs at the end of the Court's "III. Discussion" (W.Va. November 10, 2015)(page numbers not provided by Westlaw before citation). [Italics by the Court.]
Green Tree Servicing argued recently in the U.S. District Court for the Northern District of Florida that the District Court should dismiss Mr. and Mrs. Charles and Wendy Edwards's charges that Green Tree accepted "kickbacks" from a provider of force-placed insurance policies, and made Mr. and Mrs. Edwards pay for the cost of the kickbacks.
In its defense, Green Tree raised an out-of-Circuit decision by an appellate panel in Cohen v. American Security Insurance Co., 735 F.3d 601 (7th Cir. 2013), in which the Seventh Circuit panel ruled in a case decided under Illinois law that "kickbacks" are the product of nonactionable "divided loyalties" rather than the product of unauthorized charges unrelated to the costs of insurance. See "ACTIONABLE KICKBACKS ARE UNEARNED CHARGES, NOT UNACTIONABLE "DIVIDED LOYALTIES".
After rejecting this kind of revisionist justice, as most judges have, certainly most judges outside of the Seventh Circuit and also outside of Illinois, a District Judge in North Florida moved on to address a case decided by a panel of the Eleventh Circuit Court of Appeals under Alabama fiduciary law.
The District Judge "distinguished" an Eleventh Circuit panel's Feaz decision which rested on unique Alabama fiduciary law. In actuality, the District Court rightly distinguished Feaz completely out of relevance to lender force-placed insurance practices except, perhaps, those practices permitted under Alabama law, in Edwards v. Green Tree Servicing, LLC, No. 5:15cv148-MW/GRJ, 2015 WL 6777463, at pp. *7, *9 (N.D. Fla. October 22, 2015):
Moreover, Feaz [v. Wells Fargo Bank, N.A., 745 F.3d 1098 (11th Cir. 2014)] does not, as Green Tree Servicing argues, preclude the claim. Feaz did not address a claim similar to the Edwards', as Feaz's implied-duty claims against Wells Fargo concerned the amount of insurance that was force-placed, rather than the choice of a policy that included “kickbacks” in the price. Feaz, 745 F.3d at 1110. Moreover, Feaz was decided under Alabama law. Under Alabama law, unlike Florida law, “‘sole discretion’ means an absolute reservation of a right[;][i]t is not mitigated by an implied covenant of good faith and fair dealing in contracts.”
* * *
Green Tree's reliance on Feaz is, again, unpersuasive. Feaz dealt with a claim of breach under fiduciary duty under Alabama law which, unlike Florida law, does not contain an exception for “special circumstances” that create a fiduciary relationship that would not otherwise exist.
Now Mr. and Mrs. Edwards have the opportunity to put on proof of their claims including proof of the existence and extent of the kickbacks that Green Tree allegedly accepted from the force-placing insurance company, and which Green Tree then allegedly made the homeowners pay as a part of their insurance premiums.
In a restoration of the actual definition of "kickbacks" as unearned charges and fees unrelated to the costs of insurance, the U.S. District Court for the Northern District of Florida became the latest court to firmly reject the revisionist definition of "kickbacks" as meaning only something called "divided loyalties" pushed by a panel of the Seventh Circuit Court of Appeals in Illinois. The Northern District's decision came in the recent case just reported on Westlaw of Edwards v. Green Tree Servicing, LLC, No. 5:15cv148-MW/GRJ, 2015 WL 6777463 (N.D. Fla. October 22, 2015).
The discredited revision of "kickbacks" came in Cohen v. American Security Insurance Co., 735 F.3d 601 (7th Cir. 2013). Under that definition of kickbacks-as-divided-loyalties, a lender and its mortgage servicers can never have divided loyalties taking kickbacks, as in that case under Illinois law which, research reveals, is about the only place, if any, where that particular re-definition is actually persuasive.
I did not know that there is apparently support in more than one jurisdiction for the proposition that the standard mortgage clause is a separate and distinct contract between the homeowner's insurance company and the homeowner's mortgagee. My quick and earnest research disclosed that courts in other States say the same thing that I read to this effect in the case of Avila v. Citimortgage, Inc., 801 F.3d 777, 780 n.2 (7th Cir. 2015)(case involved Illinois substantive law).
That came as a surprise. I always thought that in order to form a contract the law requires two contracting parties. Here one of the contracting parties seemingly has no interest in an insurance contract for which that party paid a premium, i.e., gave consideration for the contract. That missing contracting party in the case of the standard-mortgage-clause-as-separate-contract situation is of course the policyholder who is here also the homeowner with a mortgage.
So, the mortgagee which gave no consideration to the insurance company is a party to a contract with the insurance company even though no consideration passed between them?
I can understand if the courts label the mortgagee as an "incidental beneficiary" capable of enforcing the contract under a standard mortgage clause. But is it correct as a matter of contract law to say in this situation bereft of consideration, that there is a separate and independent contract aside from the insurance policy?
And if there is such a separate and independent contract, what is this agreement all about other than the payment of insurance proceeds to the mortgagee under an insurance contract paid for by someone else, namely, the homeowner?
This whole thing bears a closer look. Parenthetically, when Judge Sykes wrote the opinion upholding Mr. Avila's complaint for breach of contract against Citi in this case, she carefully pointed out that "[w]e do not, of course, express any view on the ultimate merits of Avila's claim." Then she proceeded to suggest at least three defenses potentially available to Citi on the ultimate merits of Avila's claim.
Apparently, Judge Sykes was under the impression that Citi and its lawyers needed her help, perhaps thinking that they might overlook those defenses if she did not point them out.
Judge Sykes did not offer any advice at all to Mr. Avila or his lawyers, however.
BUT WAS HE AN EXPERT ON THE CARRIER'S AFFIRMATIVE DEFENSE THAT "THERE WAS NO REALISTIC POSSIBILITY OF SETTLEMENT WITHIN THE POLICY LIMITS"?
In a recent decision, a U.S. District Judge painted a lawyer out of the picture of bad faith experts, by ruling that the particular lawyer is not qualified as he "has only worked as an attorney specializing in insurance law." The District Judge clarified what she meant by "an attorney specializing in insurance law" by highlighting the particular expert's lack of experience in bad faith claim handling.
She underlined as it were the record facts that the lawyer in question "never represented a party in an insurance bad faith suit," and that he never "presented a seminar" or spoke at any "professional conference on the subjects of 'insurance bad faith' or 'insurance claims handling practices,'" and finally that he never wrote a book or even an article about bad faith or claims handling. Lopez v. Allstate Fire & Cas. Ins. Co., No. 14-20654-Civ-COOKE/TORRES, 2015 WL 5584898, *5 (S.D. Fla. September 23, 2015).
Further, his deposition testimony and presumably his report did not display facts tending to show that his opinions are based on reliable principles and methods, i.e., as the District Court wrote, they are not the product of a reliable methodology, and furthermore the "majority" of the lawyer's opinions are "not helpful" to the trier of fact; apparently many of the lawyer's opinions "amount to applying the facts of this case to Florida law". Lopez v. Allstate Fire & Cas. Ins. Co., No. 14-20654-Civ-COOKE/TORRES, 2015 WL 5584898, *6-*7 (S.D. Fla. September 23, 2015).
Fair enough as far as those observations go. But nine days before this ruling barring the lawyer-expert's testimony, the District Judge held that the carrier's Eleventh Affirmative Defense was legally valid:
Defendant's Eleventh Affirmative Defense states:
There was no realistic possibility of settlement within the policy limits pursuant to DeLaune v. Liberty Mutual Ins. Co., 314 So. 2d 601 (Fla. 4th DCA 1975), because of Plaintiffs' attorney['s] [name omitted] deliberate scheme to try and manufacture a reason to reject Allstate's good faith offer to settle Plaintiffs' claims as evidenced by his intentionally withholding pertinent information that was requested by Allstate, by feigning outrage over reasonable questions asked by defense counsel [name withheld], by feigning outrage over the “Colossus” letter which he knew was a letter that was automatically computer generated sent out on every file, by misrepresenting that the Colossus letter was an attempt to settle the claim, and by otherwise acting in a manner so as to obstruct and/or delay settlement of the claim.
Lopez v. Allstate Fire & Cas. Ins. Co., No. 14-20654-Civ-COOKE/TORRES, 2015 WL 5320916, at *3-*4 (S.D. Fla. September 14, 2015). Yet when the District Judge ruled nine days after holding the above-quoted Eleventh Affirmative Defense to be legally valid, she quoted but never directly addressed the following opinion of the carrier's lawyer-expert which seems to be at least potentially admissible evidence in proof of this defense:
(6) The claim handling by Mr. Kalbac [referring to the injured claimant's attorney in the underlying case with a perhaps unfortunate choice of words] created an impediment and obstacle to resolution of all of the claims under the various coverages of the Allstate policy. From the testimony, it appears that Mr. Kalbac failed or refused to recognize separate and distinct elements of the two tort claims he was presenting and failed or refused to recognize the differences between the first party personal injury protection coverages and the bodily injury liability coverage. Mr. Kalbac's insistence that personal injury protection benefits be paid without documentation of covered losses being incurred (and in fact before any such losses were incurred) and his apparent advice to his client (or acquiescence in his client's erroneous understanding) that the personal injury protection limits were just another source of cash to be paid to [the spouse of the decedent and an injured claimant in her own right in the underlying case, along with their son] made it impossible for Allstate to accomplish its goal of paying the full liability limits to each claimant on each of the two separate liability claims.
Lopez v. Allstate Fire & Cas. Ins. Co., No. 14-20654-Civ-COOKE/TORRES, 2015 WL 5584898, *4 (S.D. Fla. September 23, 2015).
Although the District Judge did not refer to this proffered opinion directly, and although even if the "majority" of an expert's opinions may not be admissible that does not mean of course that by that act or fact all of the expert's opinions are inadmissible, here the District Judge referred to the quoted opinion indirectly when she confused the plaintiff's attorney's name with the expert's name and said that the expert, Mr. Kadyk, "opines on the inferences to be drawn from various facts in this case, such as that Mr. Kadyk [sic] created an impediment and obstacle to resolution of all of the claims …." Lopez v. Allstate Fire & Cas. Ins. Co., No. 14-20654-Civ-COOKE/TORRES, 2015 WL 5584898, *7 (S.D. Fla. September 23, 2015).
With respect, that is what all experts do: They opine on the inferences to be drawn from various facts in each case. It may be as the District Judge wrote earlier in her opinion, that this particular expert's proffer was fatally flawed because this expert's testimony and report did not display the facts upon which he based his opinions. However, the expression of opinions about inferences to be drawn from facts is what experts do.
And attorneys have been permitted for nine years to testify to their opinions as experts about whether there was no realistic possibility of settlement within the policy limits in Florida. Dennis J. Wall, 1 Litigation and Prevention of Insurer Bad Faith, § 8:17, at 679 n.16 (West 3d Edition 2011, with 2015 Supplement).
Of at least equal significance here, experienced attorneys have testified as expert witnesses on insurance claim handling issues, among other issues, in bad faith suits across the nation for decades. See id.
It may be too late for the carrier in the Lopez case pending in South Florida, and for the carrier's attorneys in that case who unlike the plaintiff's attorneys are not from South Florida, but this recent unreported Lopez decision in the U.S. District Court for the Southern District of Florida simply does not change the law in existence outside of this case, because among other things this unreported decision simply does not even address the governing legal authorities.