Claims And Issues

ANTI-CONCURRENT CAUSE EXCLUSION DEFEATS EFFICIENT PROXIMATE CAUSE IN NEVADA.

The efficient proximate cause doctrine, at least in the context of insurance coverage, may be less clear after a recent Federal decision than it was before that decision.  In a footnote, a Federal District Judge wrote that the efficient proximate cause doctrine as applied to insurance coverage questions under Nevada law "holds that unless the insurance policy provides otherwise, the claim 'that sets others in motion' is the one that is relevant to decide coverage."  Probuilders Specialty Ins. Co. v. Double M. Constr. dba Classic Homes, 116 F. Supp. 3d 1173, 1181 & n.3 (D. Nev. 2015), appeal docketed, No. 16-15619 (9th Cir. April 7, 2016).

The Court's opinion does not appear to reflect an attempt to identify potentially excluded "earth movement" as "the claim 'that set others in motion'" but applied and upheld the anti-concurrent cause exclusion embedded in the policy's "earth movement" exclusion regardless.

In this Nevada case, the Federal Judge may have applied a different notion of "efficient proximate cause" which he found in the law of many other jurisdictions, where many Courts hold that an anti-concurrent cause exclusion is written to exclude coverage for loss caused concurrently by two or more causes, neither one of which alone would be the efficient proximate cause of the loss.  As the District Judge in this Nevada case saw it, the efficient proximate cause doctrine of insurance coverage is applied in many other jurisdictions "to settle whether there is insurance coverage when both covered and non-covered damage contributed to the loss."    Probuilders Specialty Ins. Co. v. Double M. Constr. dba Classic Homes, 116 F. Supp. 3d 1173, 1181 & n.3 (D. Nev. 2015), appeal docketed, No. 16-15619 (9th Cir. April 7, 2016).

Whatever Nevada law's treatment may be of the efficient proximate cause doctrine, it has been said that one of the apparent purposes of the anti-concurrent cause exclusions is to contract around the efficient proximate cause doctrine.  See generally Dennis J. Wall, §§ 7:3, "Efficient Proximate Cause Doctrine" & 7:5, "ACCC or 'lead-in language,'" in DiMugno, Plitt & Wall, Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters" (2016).  That is what the District Judge said in this case that Nevada law allows, and so that is what the District Judge allowed in this case.

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A NEW AND LIMITED SETTLEMENT WITHOUT CONSENT IN PENNSYLVANIA: REASONABLE?

In Babcock & Wilcox Co. v. American Nuclear Insurers, 131 A.3d 445 (Pa. 2015), the Pennsylvania Supreme Court fashioned a new and hybrid test to measure settlements made by the insured without the carrier's consent.  The new test does not require a showing of bad faith.  The most the insured can recover if successful is the policy limit.

The new test of reasonableness applies only where the liability carrier is defending the insured under a reservation of rights, and the insured reaches a settlement with the injured claimant for covered claims after the carrier refuses to settle.

In the light of previous decisions under Pennsylvania law, the Pennsylvania Supreme Court reworked a test established in Arizona in a case called Morris:

[W]e adopt a variation on the Morris fair and reasonable standard limited to those cases where an insured accepts a settlement offer after an insurer breaches its duty by refusing the fair and reasonable settlement while maintaining its reservation of rights and, thus, subjects an insured to potential responsibility for the judgment in a case where the policy is ultimately deemed to cover the relevant claims.

Babcock & Wilcox Co. v. American Nuclear Insurers, 131 A.3d 445, 462 (Pa. 2015).

Unlike an extracontractual or bad-faith-in-settlement claim, the maximum amount that the insured can recover in such a suit is capped at the policy limit:

In contrast, if an insurer breaches its duty to settle while defending subject to a reservation of rights and the insured accepts a reasonable settlement offer, the insured need only demonstrate that the insurer breached its duty by failing to consent to a settlement that is fair, reasonable, and non-collusive, as described above, rather than demonstrating bad faith by the insurer, as the damages sought are subject to the policy limits to which the insurer originally contracted.

Babcock & Wilcox Co. v. American Nuclear Insurers, 131 A.3d 445, 462-63 (Pa. 2015).

The Court immediately applied the new standard of liability to the case before it.  The insureds "ARCO and B & W, respectively in 2008 and 2009," presented settlement demands to the liability carrier which refused to give consent to settle.  The insureds went ahead and settled "with the class action plaintiffs for a total of $80 million, which was substantially less than the $320 million of potential coverage."  Babcock & Wilcox Co. v. American Nuclear Insurers, 131 A.3d 445, 448 (Pa. 2015).

The Court held that the settlement for the covered claims in this case was reasonable and reinstated the trial court's judgment in favor of the insureds' recovery of the sums they paid in settlement even without the carrier's consent.

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PAYDAY LOANS: THE NEW INSURANCE?

Payday lending can have bad effects on payday borrowers and two of the major complaints about payday lending are that payday lending is not regulated at all, or that payday lending is not regulated sufficiently to protect payday borrowers.  See generally Mehrsa Baradaran, "How the Other Half Banks" (2015).

Sometimes payday borrowers get payday loans because they have no other way to pay for their car insurance.  For their part, payday lenders complain that regulation of their lending practices will cause them not to make payday loans.

That is a general overview of the payday lending situation.  In reality and in particular, payday lenders often know that the reason at least some payday borrowers are agreeing to pay a lot of interest to payday lenders in a short time on small amounts is that the money is going to pay the borrowers' auto insurance premiums.  This often happens over and over, with the same payday borrower taking out more and more payday loans to keep the insurance in place on their cars.  See also Stacy Cowley, "Payday Loan Limits May Cut Abuse But Leave Some Borrowers Looking" (New York Times Online/Dealbook posted July 22, 2016), or use your web browser to locate the article at http://www.nytimes.com/2016/07/23/business/dealbook/payday-loan-limits-may-cut-abuse-but-leave-some-borrowers-looking.html?ref=business&_r=0.

Here is one possible solution both to consumers' and payday lenders' complaints about regulation at one and the same time.  When a payday lender knows that the purpose of a particular payday loan is to keep the payday borrower's car insurance alive, and when the car is collateral for that payday loan, there is not a paper's edge worth of difference between the loan and collateral protection insurance or a title loan.

So here's one solution for that particular situation:  Give the payday borrower the same protection as she would have if this were collateral protection insurance or a title loan.  If you want to make money that way, then be treated the same way that other people are who make money that way.  Treat the payday loan as collateral protection insurance or a title loan, wherever collateral protection insurance and automobile title loans are examined by the local Insurance Commissioner.  A payday lender in that situation ought to file for rate approval just as other insurers do.

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INITIATING SETTLEMENT NEGOTIATIONS CAN AVOID EXTRACONTRACTUAL, "BAD FAITH" EXPOSURE.

The question of extracontractual exposure can be a jury question when the claimant's damages are great and the insured's likely liability is in excess of policy limits.  Extracontractual, "bad faith" exposure can be a claim that goes to the jury in this context, even if initiating settlement negotiations when there is no settlement demand may not be conceptualized by lawyers of a given jurisdiction as a "legal duty."   This is the majority rule and it plays out in many cases, in many places.  See, e.g., Stalley v. Allstate Ins. Co., No. 6:14-cv-1074-Orl-28DAB, 2016 WL 1752764, at *8-*9 (M.D. Fla. April 29, 2016) (denying liability insurer's motion for summary judgment because fact issues remained including whether carrier "should have resolved issues of damages and coverage" and whether it should have offered to settle claim within policy limits before it ultimately offered to do so, under Florida law which follows rule quoted by Court that "'[w]here liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations.'"); Kleinsasser v. Progressive N. Ins. Co., No. CIV-16-102-M, 2016 WL 1583664, at *2-*3 (W.D. Okla. April 19, 2016) (denying liability insurer's motion for judgment on the pleadings as to plaintiff automobile driver's bad faith claim based on the carrier's settlement of the automobile passenger's claim under Oklahoma law, including quotation by the Court that Oklahoma law imposes "'an affirmative duty to initiate settlement negotiations if an insured's liability is clear and injuries of a claimant are so severe that a judgment in excess of policy limits is likely.'").

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SORRY, AMICI, THE DISTRICT, AND NEW YORK CITY:

SUPREME COURT OF FLORIDA, SPLIT ON AMBIGUITY, IS APPARENTLY UNITED ON NO EXTRINSIC EVIDENCE … YET, IF EVER.

In a decision that attracted at least 3 "friend of the court" briefs, and lawyers from places as far from Florida as Washington, D.C. and New York City, as well as from Fort Lauderdale, Hollywood, Miami, Plantation, Tallahassee, West Palm Beach, and Bay Harbor Islands, the Supreme Court of Florida split 4-to-3 on grounds that were much narrower than the amici wanted.

The four-Justice majority was actually even narrower than that.  The Southern Third official report of this decision was just released on Westlaw.  The decision provided answers to questions certified by the Eleventh Circuit Court of Appeals, which received its answers in an unofficial report a while back.

Normally, Florida Supreme Court decisions are officially published in Southern Third sooner than three years after they are rendered.  The fact that this decision was finally officially published after three years may reflect that someone was waiting for a vote or two to change; if so, they were disappointed.

Three Justices concurred in the majority opinion, held that the insurance policy at bar was ambiguous, and being ambiguous should be interpreted "against the insurer and in favor of coverage without resort to consideration of extrinsic evidence."  Washington Nat'l Ins. Corp. v. Ruderman, 117 So. 3d 943, 952 (Fla. 2013). 

A fourth Justice voted with the majority's answers to the Eleventh Circuit's certified questions but only concurred in the result.

For their part, the 3 dissenting Justices remained unanimous that "[t]he insurance policy is not ambiguous."  Washington Nat'l Ins. Corp. v. Ruderman, 117 So. 3d 943, 952 (Fla. 2013) (Polston, C.J., dissenting).

None of the Justices voted in favor of admitting extrinsic evidence to interpret an insurance policy, whether the policy is ambiguous or not.

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TOO SCARED TO TRY: FEDS BEG WALL STREET TO SETTLE …

…All the Big Cases.

This article is being posted simultaneously on Insurance Claims Bad Faith Law Blog and on Insurance Claims and Issues Blog.

HSBC was accused by the Federal Government of what amounts to laundering money for terrorists.  The Feds settled the HSBC matter although they had good chances of success if they went to trial against HSBC and especially against many of its officers and employees.  What trial lawyer would not want to have the prosecution side of a case against terrorists and their sympathizers?  Apparently the Feds.  See Gretchen Morgenson in her "Fair Game" column published in this morning's Sunday New York Times, "A Bank Too Big to Jail" (posted Online on July 15, 2016), which you can also post in your browser at http://www.nytimes.com/2016/07/17/business/a-bank-too-big-to-jail.html?ref=business&_r=0.  Ms. Morgenson's column features an unofficial report released by Republican staffers of the U.S. House Financial Services Committee without the Committee's approval.  Although obviously partisan, it appears that this investigative report offers a lot of actual evidence and not just opinions.

For example, after the Feds decided not to take the HSBC case to trial, they wanted so much to settle with HSBC that they offered immunity from prosecution to HSBC's officers and employees if only HSBC would settle.  The HSBC settlement apparently offers a lesson in settling on unfavorable terms.  Anyone who has ever settled a case knows that once the other side of a negotiation knows that your side wants to settle badly, that is exactly how your side will almost certainly end up settling, which is badly.

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A STEP CLOSER TO SUMMARY JUDGMENT ON A MOTION TO DISMISS.

Federal Court Building, New York City.

Image courtesy of the New York Public Library Collection.

A Federal Court may have taken a step closer to summary judgment on a motion to dismiss.  Federal Courts notoriously consider extrinsic evidence when passing on Rule 12(b)(6) motions to dismiss for failure to state a claim.  However, although such motions are no longer viewed as addressed to the face of the complaint, Rule 12(b)(6) is now a "Roberts Rule" and among other documents which the District Judge may consider on a motion to dismiss are documents she thinks are "integral" to the complaint and relied on in it, whether or not the documents are attached to the complaint.

The FDIC alleged in the main case here that the defendant broker arranged the mortgage loan in question based on the broker furnishing false information.  The FDIC sued the broker to recoup monies expended on the strength of the false information, because the simple act "of supplying the false and misleading information" was allegedly a breach of a Master Broker Agreement with the AmTrust Bank of Cleveland, Ohio.  (The FDIC was suing as receiver standing in the shoes of the AmTrust Bank.)

However, the actual sources of the false information were allegedly several "individuals engaged in a fraudulent scheme to obtain a home mortgage loan."  The broker sought indemnity from the individual defendants in the event it, the broker, was found liable.  One of the individual defendants filed a motion to dismiss under Rule 12(b)(6) for failure to state a claim.

The broad reach of extrinsic evidence was expanded to include "the Closing Documents" and "the Deed" involved in the real estate transaction in this case.  Federal Deposit Ins. Corp. v. US Mortgage Corp., 132 F. Supp. 3d 369, 380, 381-82 (E.D.N.Y. 2015).  The individual defendant's motion to dismiss was granted as a result of the District Court considering this and other evidence in passing on the motion to dismiss.

Whatever distinctions there might once have been between a motion to dismiss and a motion for summary judgment became increasingly harder to detect once the Roberts Rule of extrinsic evidence went into effect.  The decision in this case seems to be a part of that trend.

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COVERAGE DISPUTE NOT ARBITRABLE AS A DISPUTE OVER VALUE.

In an opinion recently released by Westlaw, U.S. Magistrate Judge Laurel Beeler ruled that a dispute over whether a claim is covered is not a dispute over value of the claim subject to an insurance policy's arbitration agreement.  This is one of many cases in which the parties have agreed to have Judge Beeler as their presiding Judge in cases pending in the Northern District of California.  This is by no means a reflection on the District Judges there, whose reputation as a group is also high.  It is instead a testimony to her very high reputation in the Northern District of California.

Matson Terminals, Inc. is an insured employer under an "Excess Workmen's Compensation and Employers' Liability Policy" issued by Insurance Company of North America.  The policy's Endorsement Number 6 relates to permanent total disability and death claims of Matson employees.  The dispute at bar involved a dozen disabilities claims which Matson submitted to INA for coverage, in effect, for reimbursement under the insurance policy of sums paid by Matson to the injured claimants.

Each claimant was a Matson employee who incurred compensable covered injuries during the policy period.  Matson paid out certain "statutory compensation and medical benefits."  INA paid all these claims submitted by Matson.  Matson Terminals, Inc. v. Insurance Company of N. Am., No. C 13-05571 LB, 2014 WL 1219007, at *2 (N.D. Cal. March 21, 2014).

In addition, a Special Trust Fund established under the Federal Longshore and Harbor Workers' Compensation Act paid out "compensation benefits to each of the Claimants, discharging Matson's legal liability for providing such benefits."  Matson and its employees were subject to the LHWCA at the time.  Matson was obligated to pay "annual assessment payments" for "more than half of the Special Fund's payments to the Claimants."  Matson Terminals, Inc. v. Insurance Company of N. Am., No. C 13-05571 LB, 2014 WL 1219007, at *2 (N.D. Cal. March 21, 2014).

INA denied coverage for the "Special Fund assessments."  Matson filed suit under the insurance policy seeking to compel INA to arbitrate the matter.  The policy contained an arbitration agreement that in the event Matson and INA disagreed over the value of a claim, they would arbitrate the value.  Matson contended that INA treated its claims as having a value of Zero.  INA contended that instead it had denied all coverage under the policy, and that the policy's arbitration agreement does not cover coverage disputes (pun intended).

The Court in this case agreed with INA. 

As Judge Beeler put it:  "Indeed, INA denied Matson's claims because it believes that Matson's payments to the Special Fund are administrative assessments and are not 'losses' that are covered by the Policy."  The Court agreed with INA's position "that a dispute over whether a claim is covered under the Policy is not within the narrow scope of the arbitration agreement, which requires arbitration only when the parties 'cannot agree upon the Annuity Value or Value of the Claim.'”  Matson Terminals, Inc. v. Insurance Company of N. Am., No. C 13-05571 LB, 2014 WL 1219007, at *5 (N.D. Cal. March 21, 2014).

Had the arbitration agreement in the insurance policy at issue in this case been written more broadly, there might well have been a different result.  However, the Court in this case began and ended its analysis by applying the touchstone of interpreting arbitration provisions, which is that the particular wording of the particular arbitration agreement at bar governs its interpretation.  The wording determined the outcome.

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WHEN PENALTIES BEGIN ON LENDER TITLE POLICY CLAIMS.

RM Kids is not a daycare center.  It is a lender.

RMK's predecessor, Peachtree Bank, lent money to a party to buy property.

Later, after RMK succeeded to the Bank's position (or, actually, succeeded to the position of RBC Bank which had purchased Peachtree Bank's loan), RMK foreclosed.

The question was when penalties could possibly begin for the title insurance company's denial of coverage:  Was it the date that Peachtree Bank closed on the loan, or the date that RMK foreclosed on the property?

Following the majority view on the question, the Court held that Georgia law in this case would pick the latter of the two dates, the date that RMK foreclosed.  When RMK foreclosed and its interest in the property was actually calculated, that is when RMK's damage was determined and its claim to penalties was complete.  Thus, the date of foreclosure was the date that the penalties period began to run on alleged bad-faith failure to timely pay the lender's title policy claims in this case.    Old Republic Nat'l Title Ins. Co. v. RM Kids, LLC, ___ S.E.2d ___, Nos. A16A0257 & A16A0258, 2016 WL 3563732, at *4, *9 (Ga. Ct. App. June 29, 2016).

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RUTGERS AND NORTHEASTERN SCHOOL OF LAW AMONG SEPTEMBER SYMPOSIUM SPONSORS.

Among other sponsors, the Rutgers Center for Risk and Responsibility and the Northeastern University School of Law are sponsoring a symposium on The Demise of the Grand Bargain: Compensation for Injured Workers in the 21^st Century. The symposium will be held on Friday, September 23, 2016, at Rutgers Law School’s Camden campus. It promises to be an exciting event, examining the past, present, and future of workers’ compensation and other responses to workplace injuries. More information is here:  Download Grand Bargain Symposium Flyer June 2016.

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ROCKY MOUNTAINS FORECASTING HURRICANES IN ATLANTIC. THEY'RE AT IT AGAIN.

The Rocky Mountain Gang is at it again.  See Barry K. Sullivan, "Atlantic Hurricane Outlook Raised by Colorado State Forecasters" (Bloomberg Online, posted July 1, 2016).  Here is the web address of the report:  http://www.bloomberg.com/news/articles/2016-07-01/atlantic-hurricane-outlook-raised-by-colorado-state-forecasters.

What we colloquially refer to here as "the Rocky Mountain Gang" is the paid group of forecasters assembled at Colorado State University to predict hurricanes in Florida and the other Atlantic and Gulf Coast areas.  George W. Bush and his Administration were the first to think it is a good idea to pay the Rocky Mountain Gang for this service.  With Federal Tax Dollars of course.  So far they are still about the only people who think it is a good idea. 

There are a few flies in the trough, however.  There already is a Federally-funded Hurricane prediction center located in the National Climatic Data Center in Asheville, North Carolina, a division of the Federal National Oceanic and Atmospheric Administration.

Another fly in the ointment is that while the Colorado State forecasters are at least consistent, they are consistently wrong.  There are too many examples to list here.  Take a look in the "Catastrophe Claims" and "Hurricanes" categories of this blog.

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HAPPY INDEPENDENCE DAY! CONTRACTORS' FIRE COVERAGE IN HOMES UNDER CONSTRUCTION!

A contractor brought suit against its builder's risk insurer after the carrier denied coverage for damage to parts of a home under construction and to certain personal property.  The damage was caused by a fire, and the resulting damage from the fire was partly covered under a homeowner's insurance policy bought by the prospective home-purchasers who had not yet closed on the house.

A jury returned a verdict in favor of the builder's risk insurer and against the insured contractor.  The trial court entered judgment on the verdict, which was affirmed on appeal.

The contractor and the mortgagee both appealed to the Wisconsin Supreme Court.  The Supreme Court granted their petitions for review, reversed, and remanded.

The Wisconsin Supreme Court held that the existence of the homeowners' policy did not nullify all coverage under the builder's risk policy in this case, despite a condition in the builder's risk policy that effectively terminated its coverage if "permanent property coverage applied" to the interests in the damaged property.  Whether and when "permanent property coverage applied" so as to trigger the condition is ambiguous, in the eyes of the Wisconsin Supreme Court, and therefore must be interpreted in favor of coverage.

Further, although the prospective purchasers in this case bought homeowner's insurance while their home was under construction, builders are entitled to a reasonable expectation that their builder's risk policies will apply to homes under construction and before closing.  The homeowner's policy in this case was therefore not "permanent property coverage [that] applied" to foreclose the contractor's coverage under its builder's risk policy.  Fontana Bldrs., Inc. v. Assur. Co. of Am., No. 2014AP821, ___ N.W.2d ___, 2016 WL 3526408, ¶ 69 at *16 (Wis. 2016).

HAPPY FOURTH OF  JULY!  Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Insurance Claims and Issues" (forthcoming Thomson Reuters 2016).  All rights reserved.