Claims And Issues

FILED Insurance RATE DOCTRINE? BE CAREFUL WHAT YOU RULE FOR, YOUR HONOR.

Filed rate increases for "revised homeowners' insurance rates and revised homeowners' R.insurance territory definitions" would have raised premiums in North Carolina 25% to 55%, depending on whether the policyholders paying the premiums were tenants, owners, or "condominiums."  The filed rate increases were at issue in an appeal from the North Carolina Insurance Commissioner's order disapproving the filed rates.  State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau, ___ S.E.2d ___, No. COA15-402, 2016 WL 4087919, at *1-*2 (N.C. Ct. App. August 2, 2016).

The 26 published pages of the Westlaw report of this decision reveal the complexity of insurance rate filings.  This case alone shows the impossibility of applying "the filed rate doctrine" as a defense to bar any claims that insurance rates include unauthorized charges such as kickbacks.

The complexity of insurance rate filings displayed across these 26 pages alone, completely repudiate any notion that something so abstract as a "doctrine" can even begin to describe insurance rate filings.  Perhaps such a "doctrine" exists and can be applied by Judges in utility or other rate cases, but it is not a "doctrine" which can stand in the insurance field, including lender force-placed insurance practices ("LFPI") cases but extending to all insurance cases of any kind that involve contentions of filed insurance rates.

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BREACH OF A CONDITION BARS "BAD-FAITH" INADEQUATE DEFENSE CLAIM …

But breach of which condition?

 

In Doe v. Onebeacon Am. Ins. Co., 639 F. App'x 627 (11th Cir. 2016), a panel of the Eleventh Circuit was confronted with many issues of Florida law surrounding a liability carrier's duty to defend and an insured's settlement without the carrier's consent.  The panel side-stepped all of those issues.

The Court held both that the insured breached a policy condition and also that there was insufficient evidence that the carrier provided a legally inadequate defense in the underlying case.  For either reason, the claim of a "bad-faith" or legally inadequate defense could not stand.  (In Florida, an inadequate defense is a breach of contract and cannot really be called "bad faith," although given the outcome in this case, the panel never had to reach this or any similar issue.)

It is difficult to determine from this brief opinion which condition the Eleventh Circuit panel was addressing.  The panel appeared to equate the policy prohibition on the insured's settlement without the carrier's consent, with the insured's duty to cooperate:

    As a matter of law, the insured—at the time it settled the case in advance of trial—breached its duty to cooperate with its insurer in the investigation and defense of the underlying tort claim.  So, the insurer has no duty to indemnify the insured in this case.

Doe v. Onebeacon Am. Ins. Co., 639 F. App'x 627, 628 (11th Cir. 2016).

In the final analysis, it does not matter which condition the insured breached in this case.  It may have breached one of them or it may have breached both of them.  In any case, there was no coverage and so there was no claim here, the Eleventh Circuit effectively held.

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IS "NOTICE AND REPAIR" A CGL "SUIT?"

"In 2003, the Florida Legislature enacted Chapter 558 of the Florida Statutes, establishing a notice and repair process to resolve construction disputes between property owners and contractors, subcontractors, suppliers, or design professionals."  Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., ___ F.3d ___, No. 15-12816, 2016 WL 4087782, at *1 (11th Cir. August 2, 2016).  The law was enacted to provide a more expeditious procedure of resolving construction disputes.

However, in 13 years no Florida Court ever addressed the question of whether "notice and repair" under Chapter 558 is a covered "suit" under a Commercial General Liability ("CGL") policy.  The Eleventh Circuit accordingly certified the following dispositive question in this insurance coverage case to the Florida Supreme Court:

Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a “suit” within the meaning of the CGL policies [at issue]?

Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., ___ F.3d ___, No. 15-12816, 2016 WL 4087782, at *7 (11th Cir. August 2, 2016).

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Postscript to help flood victims: ...

A Postscript to EMERGENCY INSURANCE RULE FOR LOUISIANA POLICYHOLDERS IMPACTED BY FLOODING … AGAIN, published here on Monday August 22, 2016.

A complete assembly of links to organizations that can help Louisiana flood victims is presented by the distinguished professionals at Political Connections in "Aid Across Acadiana."

Please.  Join the many people who are helping the Louisiana flood victims if you can!  Thank you.

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DUTY TO DEFEND UNDER MOST LIABILITY POLICIES DEPENDS ON CLAIMS ALLEGED …

... Liability insurance companies are generally against extrinsic evidence to decide the duty to defend in their insurance contracts, until some of them are in favor of extrinsic evidence to decide a lawsuit.

In Travelers Prop. Cas. Co. of Am. v. Federal Recovery Serv's, Inc., 156 F. Supp. 3d 1330 (D. Utah 2016), the Court had to determine whether there is a duty to defend under a cyberinsurance policy.  The law in Utah is that extrinsic evidence cannot be used to determine whether there is a duty to defend under a liability policy, unless the liability carrier wrote the insurance contract to allow or require extrinsic evidence to determine its duty to defend.  Most liability policies were not and are not written to permit extrinsic evidence to determine the duty to defend.

The Court in Federal Recovery Services was faced with claims alleged in the underlying case that the policyholder refused to return electronic data to its customer.  As in most cases in most Courts in the United States, the Court in that case determined the duty to defend by resort to the language of the insurance contract compared to the allegations of the claim against the insured.

The Court held that the carrier which issued a CyberFirst liability insurance policy did not have a duty to defend the claims alleged in the underlying case:

The duty to defend here is conditioned on “any claim or ‘suit’ seeking damages for loss to which the insurance provided ... applies.” … [T]he policy language indicates that the duty to defend is determined with reference to what a claim or suit seeks. Therefore, Travelers must defend a suit that alleges liability within the CyberFirst Policy. Thus, consideration of extrinsic evidence is irrelevant in determining Travelers’ duty to defend.

Travelers Prop. Cas. Co. of Am. v. Federal Recovery Serv's, Inc., 156 F. Supp. 3d 1330, 1336-37 (D. Utah 2016) (emphasis added).

Regardless of wishful thinking sometimes expressed by some people to the contrary after claims have been made, wishful thinking which often consists of opinions expressed in particular by some underwriting departments that are responsible for writing the language of liability insurance contracts as well as by some other non-judges, the question of whether a Court can even consider extrinsic evidence to determine a duty to defend may depend on the language in the insurance contract written by the liability carrier.

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EMERGENCY INSURANCE RULE FOR LOUISIANA POLICYHOLDERS IMPACTED BY FLOODING … AGAIN.

Hurricane Seen From Space.  Image Courtesy of NASA.

The Louisiana Insurance Commissioner has issued Emergency Rule 27 as a result of the recent devastating flooding in many places there.  Policyholders in certain parishes are being granted additional time to pay insurance premiums, certain policyholders are being given additional time to submit documentation in support of their claims, and all insurance companies' powers are suspended to cancel or terminate policies due to noncompliance with conditions by policyholders who live in areas ravaged by the flood waters.  Rule 27 is available on the Department's website at www.ldi.la.gov.

The Department issued a Press Release dated August 18, 2016 that described Emergency Rule 27 as reminiscent of rules issued by the Department after Hurricane Gustav in 2008 and again after Hurricane Isaac in 2012.  The Press Release would have been accurate if it had recited that Rule 27 is also similar to measures taken after Hurricanes Katrina and Rita in 2005.  See Dennis J. Wall, § 2:13, "Claims Handling Practices Issues:  Recent Catastrophes in Louisiana, Mississippi, and California," in Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters (Thomson Reuters West 2016).

People in Louisiana may well wonder whether they are doomed to ask this continuing question in our post-climate-change era about emergency insurance rules issued as a result of natural disasters like floods and hurricanes:  "Are we doing this again?"

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COMPUTER MODELS NEED "BIBO": "BETTER INFO IN, BETTER INFO OUT."

Image courtesy of NASA.

Based on computer models filled with facts predating current climate change facts, the National Oceanic and Atmospheric Administration ("NOAA") reports a stunning repudiation of existing modelling.  The recent flooding in Louisiana is the eighth (8th) time since May, 2015 that so much rain fell in so short a time that it exceeded the NOAA computer predictions of events that would take place once every 500 years.

To put it another way, 8 times in the last 15 months rainfall exceeded the amount that NOAA's computer would have predicted had a 0.2% chance of happening.  Jonah Engel Bromwich, "Flooding in the South Looks a Lot Like Climate Change" (New York Times Online, Tuesday, August 16, 2016).

Time to update the computer models to model present-day realities with "Better Information In, Better Information Out."  That prescription goes for computer models used to predict hurricanes and to justify insurance premium rate requests as well.  See, for example, "ROCKY MOUNTAIN GANG PROBABLY PREDICTS NO HURRICANES IN ROCKY MOUNTAINS ... Not So Many in Other Areas of the Country Where Hurricanes Have Actually Been Seen in the Past," and sources cited in this article, which was posted here on August 12, 2014; and see this Postscript to it, "P.S. NOAA's CLIMATE PREDICTION CENTER," an article posted here on August 18, 2014.

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CYBER-RISKS, CYBERINSURANCE … AND STANDING.

Standing to sue is a foundation question which must be answered before proceeding with any claim for recoverable damages from a breach of cybersecurity.  It is accordingly also a foundation issue in any claim for insurance coverage for a breach of cybersecurity.

As a District Court succinctly put it in a case of claims for alleged damages resulting from cyber-theft:

    Theft of electronic data has become commonplace in our digital economy, victimizing millions of Americans each year. But while the resulting harm to consumers can be catastrophic, not all data breaches result in legally actionable injuries. As a result, when consumers whose data has been compromised seek redress in the courts, it must be determined whether their alleged injuries are sufficiently specific and concrete to give them standing to sue. That is the task presently before the Court in this case.

Attias v. CareFirst, Inc., No. 15-cv-00882 (CRC), 2016 WL 4250232, at *1 (D.D.C. August 10, 2016).

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LIFE INSURANCE EXPOSED.

Wondering why life insurance premiums are on the rise?  Answers are explored in terms easy for me and for your clients to understand, by Julie Creswell and Mary Williams Walsh in "Why Some Life Insurance Premiums Are Skyrocketing" (New York Times Online, published in Sunday "Business Day" Section, August 14, 2016; posted on Saturday, August 13, 2016), or accessible in your browser by pasting http://www.nytimes.com/2016/08/14/business/why-some-life-insurance-premiums-are-skyrocketing.html?ribbon-ad-idx=4&rref=business&module=ArrowsNav&contentCollection=Your%20Money&action=click&region=FixedLeft&pgtype=article.

 Many "what," "when," "who," "how" -- and also why" -- type of questions were addressed several months ago in an article that is still timely, again in an easy-to-understand way, by Tara Siegel Bernard, "Life Insurance Buyer's Guide:  What Type, How Much and Who Will Benefit" (New York Times Online, posted February 19, 2016), and once again as an alternative to clicking on a hyperlink you can post the web address in your internet browser:  http://www.nytimes.com/2016/02/20/your-money/life-insurance-buyers-guide-what-type-how-much-and-who-will-benefit.html?ref=business.

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NOT RAIN NOR HAIL (NOR GLOOM OF DISREPAIR) …

LED THESE INSTRUCTIONS ASTRAY.

Ms. Maria Amplatz is a landlord of residential rental properties in Minnesota.  She was issued a commercial property insurance policy that provided coverage against hail and windstorm damage.  She made a claim as a result of alleged damage to her properties from a hail storm in Amplatz v. Country Mut. Ins. Co., 823 F.3d 1167 (8th Cir. 2016).  Her carrier paid for exterior damage but refused to pay for interior damage under the circumstances of that case.

The Eighth Circuit affirmed the District Court's denial of Ms. Amplatz's motion for a new trial and for the entry of judgment in her favor.  The Court's ruling in that appeal appears to be totally consistent with the majority views on the insurance coverage questions presented.

The Court held that jury instructions in that case fairly and adequately charged the jury with the coverage issues involved because, taken together, the instructions tracked the provisions of the insurance policy at bar:

Instruction number eleven covered policy provisions, explaining that the policy “provides coverage for damage to [the policyholder's] properties caused by windstorm or hail,” and that interior damage is covered “if that damage was caused by rain or snow AND if the building or structure first sustained wind or hail damage to its roof or walls through which the rain or snow entered.” Further, instruction thirteen covered Amplatz's duty to prevent further damage to her property. Taken as a whole, the jury instructions fairly and adequately presented the issues in the case to the jury.

Amplatz v. Country Mut. Ins. Co., 823 F.3d 1167, page numbers not yet provided by Westlaw but see text under "Headnote 11" (8th Cir. 2016) (capitalization in original).

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APPRAISAL, VALUE, SETTLEMENT "OFFER": CROP INSURANCE CARRIER'S ALLEGED CONTRACT BREACH.

Here is an example of how claims handling can affect the resolution of an insurance coverage question.

In an unusual move, a crop insurance carrier offered to pay its insured's claim without waiting for the insured to agree.  As things turned out, the insured did not agree with its carrier's offer.  The insured disputed value.  As noted by the Eighth Circuit in this case, the dispute over value was "likely sufficient" by itself to trigger an appraisal.

However, in this case there was evidence in the record that the carrier and the insured continued to negotiate settlement of the claim and that the insured was "led to believe" (presumably by the carrier) that the carrier might even up the value of its offer.

This evidence was summarized somewhat ambiguously by the Eighth Circuit but it was enough to foreclose summary judgment for the carrier when the insured in this case did not demand an appraisal as the policy allowed.

There was also a legal dispute about which one of these two parties had the burden to demand an appraisal -- the carrier or its insured -- but regardless of who bore the burden, the appellate court saw a genuine issue of material fact which prevented the entry of judgment for the carrier on the insured's breach of contract claim.  Bruhn Farms Joint Venture v. Fireman's Fund Ins. Co., 823 F.3d 1161, page numbers not provided by Westlaw but paragraphs falling within "Headnotes 7 and 8," which Westlaw has provided (8th Cir. 2016).

The Court also discussed and applied the Iowa law of insurer bad faith in this case which recognizes an insurance carrier's right to debate claims that are fairly debatable.  In this case, however, the same record raised genuine issues of material fact which prevented the entry of summary judgment in favor of the crop carrier at bar:  "Numerous instances of conduct by the insurance representative and adjusters at the very least raise jury issues on bad faith, most specifically the delay in adjusting the fields and then, for the next several months, leading Bruhn [the policyholder] to believe that the claim would be favorably settled without having to go through the hassle of a joint appraisal."

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INSURANCE, WAIVERS, AND THE CFPB'S PROPOSED ARBITRATION RULE.

What follows is a Public Comment I am submitting today to the Consumer Financial Protection Bureau concerning the CFPB's proposed Arbitration Rule and Interpretation.  Leave a Comment by sending the CFPB an EMail of your own.  The EMail Address is on my Comment below.  The deadline for Public Comments is August 22, 2016.

 

August 5, 2016

[email protected].

Re:      Docket No. CFPB-2016-0020 or RIN 2 3170-AA51.

Comment of Dennis J. Wall to Consumer Financial Protection Bureau's Proposed 12 C.F.R. § Part 1040; specifically, Comment adding text to proposed Rule and to Interpretation of Proposed 12 C.F.R. § 1040.2.

 To the Consumer Financial Protection Bureau:

     My proposed Comment offers brief additions to the CFPB's proposed Rule and Interpretation of 12 C.F.R. § 1040.2.  It will add a new "b" to proposed § 1040.2, so that the existing subsections/Definitions in § 1040.2 will each be renumbered by one, with "Consumer" now Definition (c), "Provider" becomes Definition (d), and "Pre-dispute arbitration agreement" ends the proposed  Definitions with subsection/Definition (e).

    Here is my proposed text addition to become §1040.2(b):

(b)  Business of insurance has the same definition as in 12 U.S.C.A. § 5481(3).

    Here is my proposed addition to the CFPB's Interpretation of § 1040.2--Definitions:

2(b) Business of Insurance

 Whenever a separate charge is made for the creditor's contractual agreement to cancel or waive all or part of any remaining amounts due on a finance agreement in the event that the subject of the sale or lease contract suffers a total physical damage loss or unrecovered theft, as a result of which the consumer does not maintain collateral protection insurance as required by the contract or fulfill guaranteed asset protection obligations assumed in the sale or lease contract, the inclusion of the charge for the waiver agreement in the sales or lease transaction is not the "business of insurance." 

This language is based partly on the prevailing and generally understood definition of "GAP (or guaranteed asset protection) Waiver" employed, for example, in Revenue Ruling 01-16-1 issued by the Nebraska D.O.R. on March 7, 2016.  As you know, GAP Waivers are most often found in automobile financing agreements.

            My proposed Interpretation is not limited to a GAP Waiver in an automobile financing agreement.

            I am offering this proposal as a result of my research into arbitration agreements in the context of insurance.  See Dennis J. Wall, "More Than Just Coverage Questions:  Preemption and Validity Issues of Arbitration Provisions and Class Action Waivers in Insurance Policies" (Lexis-Nexis New Appleman on Insurance, forthcoming in October, 2016).  Judges, lawyers, and litigants often conflate provisions with insurance that are nothing of the kind.  This occurs most often when the provision at issue carries within itself the word or the sound of "insurance."  Agreements to waive "collateral protection insurance" requirements and "guaranteed asset protection" obligations are not themselves insurance or the business of insurance.  The brief additions to the proposed Rule and Interpretation that are suggested in this proposal will leave no foothold for anticipated contrary contentions.

    To say again, what is at issue extends beyond simply GAP Waivers in automobile financing agreements, to reach any creditor's contractual waiver of creditor's rights upon a consumer-debtor's failure to maintain collateral protection insurance or to perform any guaranteed asset protection obligations under any loan agreement for the sale or lease of any financial product or service by a consumer, in any instance when the subject of the contract has suffered a total physical damage loss or unrecovered theft.  In addition to addressing the context of this broader issue, this proposal reaches beyond Waiver agreements made at the time of the originating/initial sale or lease agreement.  It addresses any contractual Waiver agreement, including one for which the creditor imposes a charge at any time during the sale or lease relation.

    This Interpretation applies whenever such a charge is included in the cost of "credit," see 12 U.S.C.A. § 5481(7), in connection with a sale or lease to a consumer-debtor, i.e., whenever such a charge is included in the cost of any "financial product or service" defined by 12 U.S.C.A. § 5481(15)(A).

     In sum, a creditor's waiver of a consumer's default in obtaining collateral protection insurance or of a consumer's failure to perform GAP obligations are not parts of "the writing of insurance or the reinsuring of any risks by an insurer" and so are not any part of the "business of insurance" as defined in 12 U.S.C.A. § 5481(3) and thereby excluded from the CFPB's jurisdiction.  See 12 U.S.C.A. § 5481(15)(C).  A creditor's waiver of a consumer's default in obtaining collateral protection insurance or of a consumer's failure to perform GAP obligations are instead well within the CFPB's jurisdiction.   This proposal leaves no opportunity for a reasonable contrary contention by offering brief additions to the CFPB's proposed Rule and Interpretation.

     Thank you for your consideration of these matters.

 

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DEFENDING PROFIT-MAKING "CAREER COLLEGE" MARKETERS.

A for-profit marketer of "career college" services ("career college" in this case including what once was called "technical college") and its subsidiary provider of "post-secondary" courses were sued for alleged wrongful advertising in marketing education services for allegedly little or no education, as the Court put it, "for alleged wrongful advertising in connection with services they performed (or did not perform) to students at career colleges."   Education Affiliates, Inc. v. Federal Ins. Co., No. -JFM-15-1624, 2016 WL 4059159, at *1 (D. Md. July 28, 2016).

Their D&O liability carrier refused to defend them against these claims.  Not surprisingly, a Court held that under the universal liability insurance policy provision that provides virtually everyone with a defense regardless of whether the claims to be defended are false or not, so these defendants also were entitled to a defense under their liability policy.   Education Affiliates, Inc. v. Federal Ins. Co., No. -JFM-15-1624, 2016 WL 4059159, at *2-*3 (D. Md. July 28, 2016).

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JUDGE RAKOFF DEFINES SUPERSTORM SANDY EXCLUDED "FLOOD" UNDER AMTRAK'S POLICIES.

Judge Jed Rakoff applied a policy's limiting language of "flood" without objection in National R.R. Passenger Corp. (a/k/a "Amtrak") v. Arch Specialty Ins. Co., 124 F. Supp. 3d 264, 267 n.3 (S.D.N.Y. 2016) (case involved New York substantive law), appeal docketed, No. 15-2358 (2d Cir. July 24, 2015):

Defendant Westport Insurance Co. issued a policy that defines flood as “surface water, flood waters, waves, tide or tidal waters, sea surge, tsunami, the release of water, the rising, overflowing or breaking of defenses of natural or manmade bodies of water or wind driven water, regardless of any other cause or [e]vent contributing concurrently or in any other sequence of loss.” Insurers' 3/9/2015 56.1 Statement ¶ 9. Amtrak does not dispute that this definition covers at least some of the damages it sustained during Superstorm Sandy.

Judge Rakoff did not say so, but the above-quoted "flood" definition appears to come from Westport's "flood" exclusion which plainly comes equipped with an Anti-Concurrent Case Exclusion.  As Judge Rakoff pointed out in his opinion, there were two definitions of "flood" under Amtrak's many insurance policies at issue in that case.

"The Court finds that both definitions of the term 'flood' unambiguously encompass inundation of normally dry land that is caused by storm surge."    National R.R. Passenger Corp. (a/k/a "Amtrak") v. Arch Specialty Ins. Co., 124 F. Supp. 3d 264, 269 (S.D.N.Y. 2016), appeal docketed, No. 15-2358 (2d Cir. July 24, 2015).

The District Court accordingly denied Amtrak's motions for summary judgment, and granted in part and denied in part the carriers' motions for summary judgment.  The Second Circuit's docket shows that it has set oral argument in the appeal in this case for August 19, 2016.

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