Claims And Issues

BAD FAITH ISN'T ENOUGH? INJURY IN FACT AND STATUTES.

As promised, here and also on Claims and Bad Faith Law Blog, FROM THE 2018 SUPPLEMENT:

 

Litig. & Prev. Ins. Bad Faith § 9:14.50 (3rd ed.)

Litigation and Prevention of Insurer Bad Faith, Third Edition

A pdf of this new section can be accessed here or on my website at www.dennisjwall.com.

  

July 2018 Update

Dennis J. Wall

Part III. First-Party Claims

Chapter 9. Standards of Insurer Conduct

[NOTE:  FROM THIS POINT THROUGH THE END OF THE PIECE, THE FOLLOWING HYPERLINKS ARE PROVIDED VIA THOMSON REUTERS AND REQUIRE A WESTLAW ACCOUNT TO ACCESS THEM.]

• 9:14.50. “Injury in Fact”: What happens to bad faith statutes?

Claims handling and penalties statutes regulating the business of insurance may not any longer provide causes of action to many policyholders and claimants.

In 2016, the Roberts Court grafted a requirement onto the U.S. Constitution which is not found in it—standing — but which is instead found in the Court's cases. Cases decided in lower courts since the Roberts Court raised standing to a constitutional prerogative are divided over whether Congress and State Legislatures can provide standing by providing remedies for statutory violations.

In Spokeo, Inc. v. Robins,¹ the Court raised the judge-made doctrine of standing to constitutional status. “Standing to sue,” the Court recognized, “is a doctrine rooted in the traditional understanding of a case or controversy. The doctrine developed in our case law,” said the Court in Spokeo, Inc. v. Robins.²

One of the elements of standing is “injury in fact,” which the Spokeo Court raised to “a constitutional requirement” which bars legislatures from conferring standing on people and organizations in most cases. To establish injury in fact, a person invoking a statutory remedy now must meet a newly-found constitutional requirement that she or he had a legally protected interest that is concrete and individualized to her or him, and that the harm is “actual” or “imminent,” not “conjectural” or “hypothetical.”³The Spokeo case itself was presented when Mr. Thomas Robins filed a lawsuit claiming an alleged violation of the Fair Credit Reporting Act by an internet search engine service which incorrectly provided information to the world about him. The Roberts Court remanded for a determination of whether Robins adequately alleged an injury in fact in his complaint.

As it has done by replacing “ultimate facts” pleading with “plausibility” pleading, in which allegations of fact in a complaint must be weighed by each individual judge who must dismiss the complaints that he or she does not think are “plausible,” the Roberts Court has laid down another obstacle to filing lawsuits in Federal Courts.⁴ It is fundamental to its process to note how many times the Court would have people believe that its work has consisted for several years now of finding procedural and constitutional limitations which other Courts somehow must have overlooked.

In an interesting application of the Spokeo “standing-means-injury—in-fact” requirement, the District Court in Stromberg v. Ocwen Loan Servicing, LLC^4.10 was confronted with a lawsuit filed as an alleged class action by “Plaintiff Bonnie Lynne Stromberg [who] asserts a California state law claim against two mortgage lenders and a mortgage loan servicing company for failing to reconvey a deed of trust on real property within thirty days after repayment of her home loan.”^4.20 The Court rejected the mortgage lenders' and mortgage servicer's challenges to Ms. Stromberg's standing to sue them by ruling that she had sufficiently alleged “injury in fact” through these “conclusory” allegations (which she handily supported with an affidavit and which the Court considered together with the allegations in her complaint):

The Court does not need to decide whether a bare procedural violation of California's analogous prompt-recording statute constitutes a concrete injury-in-fact for standing purposes because Stromberg has not alleged “a bare procedural violation, divorced from any concrete harm.” Spokeo, 136 S. Ct. at 1549. To the contrary, she has alleged “additional harm beyond the one [the legislature] has identified.” Spokeo, at 1549–50 (emphasis in original). In her complaint, Stromberg alleges that she “suffered injury in the form of slander of title, incurred costs, impaired credit and incomplete and inaccurate public records respecting her financial obligations and credit worthiness.” Compl. ECF No. 58 ¶ 43. Even if this allegation regarding injury is, as Defendants contend, too conclusory by itself to establish an injury-in-fact, Stromberg has also submitted an affidavit that includes further factual support for her standing. ECF No. 101-1, Ex. A.^4.30

Other Courts have found Spokeo standing to assert Fair Debt Collection Practices Act claims,^4.40 Telephone Consumer Protection Act claims,^4.50 Fair Credit Reporting Act claims alleged by a pro se plaintiff,^4.60 and products liability claims in multi-district litigation which include allegations of noncompliance with standards set under regulations issued by the federal Environmental Protection Agency and by the California Air Resources Board.^4.70

As an example of lower federal courts actively seeking situations in which people simply cannot sue for alleged violations of State statutes, even though States have provided the statutory remedies alleged in the given case, the Eleventh Circuit Court of Appeals held after Spokeo that a borrower-mortgagor in New York State could not bring that particular lawsuit for an alleged violation of New York Real Property Law because now the United States Constitution forbids such a suit.⁵ The Eleventh Circuit's decision in this case has been rejected by name in other Circuits,⁶ and it has been distinguished in the Eleventh Circuit based, perhaps ironically, on other Eleventh Circuit case law.⁷

However, this decision is by no means alone.⁸ In Spokeo itself, the Court deciding that case remanded for a determination of “plausibility,” in effect, of whether Thomas Robins and persons like him had alleged injury in fact as the U.S. Constitution now apparently requires.

The following case did not directly involve the Spokeo “injury in fact” directive, but it does illustrate the relative probabilities of success of any statutory action under a “Consumer Protection Act” by whatever name. In Fat Bullies Farm, LLC v. Devenport,⁹ potential sellers of real property brought a New Hampshire Consumer Protection Act (“CPA”) claim against prospective purchasers on account of the alleged conduct of the prospective purchasers. To describe the attitude of the New Hampshire Supreme Court in rejecting a New Hampshire CPA claim in this case as hostile, is to put it mildly. It is nonetheless instructive:

Viewing Fat Bullies and Simmons's [the prospective purchasers'] misrepresentation in conjunction with the remainder of their course of conduct does not alter our determination. Even taken together, the acts of showing up unannounced with an attorney and an option agreement, not recommending that the Devenports [the potential sellers of the real property] obtain legal counsel, attempting to negotiate price, not explaining the meaning of the language contained in the draft agreement, threatening and attempting to enforce an option agreement, and pursuing a contentious litigation strategy would not “raise an eyebrow of someone inured to the rough and tumble of the world of commerce.” (Citations omitted.) We cannot conclude that the subject conduct offends established public policy, is immoral, unethical, oppressive, or unscrupulous, or causes substantial injury. (Citation omitted.)

For these reasons, we reverse the trial court's ruling on the Devenports' CPA claim and its award of attorney's fees to the Devenports as damages under the CPA.¹⁰

If the idea of “injury in fact” has been elevated surreptitiously from standing to the U.S. Constitution, it can certainly have an effect on claims based on State statutes providing remedies to ‘private attorneys general’ that the States rely on to enforce the laws. Time will tell whether State Unfair Claim Handling Practices Acts and Penalties Statutes governing the business of insurance will feel the effects and, if so, how.

Westlaw. © 2018 Thomson Reuters. No Claim to Orig. U.S. Govt. Works.

Footnotes

1

Spokeo, Inc. v. Robins,  U.S. , 136 S. Ct. 1540 (2016).

2

Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016).

3

Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547-48 (2016).

4

See, e.g., Klika v. Capital One Bank, N.A., No. C15-0107RSL, 2016 WL 4544373 at *1 (W.D. Wash. June 30, 2016), and “PLAUSIBILITY AS A STANDARD? DON'T BELIEVE IT,” published on Insurance Claims and Issues Blog on Monday, May 1, 2017, at http://insuranceclaimsissues.typepad.com/insurance_claims_and_issu/2017/05/plausibility-as-a-standard-dont-believe-it-its-just-another-way-of-saying-theres-nothing-left-to-lose-with-apologies-to-m.html.

4.10

Stromberg v. Ocwen Loan Servicing, LLC, No.15-cv-04719-JST, 2017 WL 2686540 (N.D. Cal. June 22, 2017).

4.20

Stromberg v. Ocwen Loan Servicing, LLC, No.15-cv-04719-JST, 2017 WL 2686540at*1 (N.D. Cal. June 22, 2017).

4.30

Stromberg v. Ocwen Loan Servicing, LLC, No.15-cv-04719-JST, 2017 WL 2686540at*6 (N.D. Cal. June 22, 2017).

4.40

E.g., Ferrell v. HSI Fin. Serv's, LLC, No. 1:16-cv-04624-RWS-AJB, 2017 WL 8186795 at *4 (N.D. Ga. December 22, 2017) (“After careful consideration of the pleadings and the rapidly expanding catalogue of case law interpreting and applying Spokeo, the undersigned is persuaded that Plaintiff's pleadings are sufficient to establish standing. The Court finds Defendant's motion unavailing on several grounds.”); Abraham v. Ocwen Loan Servicing, LLC, 321 F.R.D. 125, 166 (E.D. Pa. 2017) (“Numerous courts have applying Spokeo found a sufficient ‘injury in fact’ to support a FDCPA claim from allegations that a plaintiff suffered an ‘informational injury’ because the character of a debt had been misrepresented.”).

4.50

Progressive Health & Rehab Corp. v. Strategy Anesthesia, LLC, 271 F. Supp. 3d 941 (S.D. Ohio 2017) (“Indeed, as Plaintiff points out, the overwhelming number of courts that have addressed standing in a TCPA case subsequent to Spokeo have found standing.”) (pinpoint page references not available in April 2018).

4.60

Lovess v. Embrace Home Loans, Inc., No. JKB-17-2212, 2017 WL 4745452 at *2 (D. Md. October 20, 2017) (“This case is very close to Spokeo, but not quite there. Plaintiff is similarly alleging a procedural violation of FCRA and claiming that she is harmed by potential future consequences. But she has also alleged actual damages in the amount of $100,000 stemming from emotional distress and mental anguish, and therefore this is not a ‘bare’ procedural violation of the type at issue in Spokeo.”).

4.70

In re Chrysler-Dodge-Jeep Ecodiesel Marketing, Sales Practices, & Prod's Liab. Lit., No. 17-md-02777-EMC, 2018 WL 1335901 at *6 (N.D. Cal. March 15, 2018)(“Because Plaintiffs allege a financial injury, Spokeo does not support dismissal of their case.”).

5

Nicklaw v. Citimortgage, Inc., 839 F.3d 998, 1002-03 (11th Cir. 2016).

6

See, e.g., Weldon v. MTAG Services, LL, No. 3:16-cv-783 (JCH), 2017 WL 776648 at *6 (D. Conn. Feb. 28, 2017).

7

See Tillman v. Ally Fin. Inc., No. 2:16-cv-313-FtM-99CM, 2016 WL 6996113 at *4 n.7 (M.D. Fla. Nov. 30, 2016).

8

See also Michael G. McLellan, “Finding a Leg to Stand On: Spokeo, Inc. v. Robins and Statutory Standing in Consumer Litigation,” 31 Antitrust 49 (Summer 2017).

9

Fat Bullies Farm, LLC v. Devenport, 170 N.H. 17, 28, 164 A.3d 990 (2017).

10

Fat Bullies Farm, LLC v. Devenport, 170 N.H. 17, 164 A.3d 990, 998–99 (2017).

End of Document	© 2018 Thomson Reuters. No claim to original U.S. Government Works.

Reprinted from Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith, Third Edition (Thomson Reuters). Further reproduction of this article without the express consent of the publisher is prohibited.

IF SECRETARY JAMES MATTIS FOLLOWED AN UNLAWFUL ORDER: DEFENSES TO COVERAGE?

Suppose Secretary of Defense James Mattis was given an unlawful order?   Other names for unlawful orders include "illegal orders" and "unjust orders".  When I was growing up, the standard question was whether a German soldier who was given an unlawful order to round up people and put them into concentration camps and kill them should obey or if the German soldier stood on high moral ground by refusing to obey those unjust orders.

Nowadays the question is forward-looking, not backward-looking.  The question is posed in modern times more immediately as well, such as orders to bomb Tehran in Iran, or to bomb with a missile strike launched against Pyongyang, North Korea?  The question in these cases is really whether starting a so-called preventive war to eliminate a long-term future threat based on currently perceived, unchanged conditions would constitute an unlawful order? 

To try to answer that question from an insurance coverage perspective, which is after all what we do here on this blog, let's first assume that the official is not immune from liability or suit.

Would insurance policies potentially cover following an illegal order like this?

To answer this insurance coverage question, let's move beyond the James Mattis of the title to this article.  Let's move beyond him personally, even in a hypothetical case like this one, to any official or officer and ask the same question:  Would insurance policies available to the official potentially cover the official for following an unlawful order such as bombing Tehran or Pyongyang based only on the current world situation?

Here are some issues that would arise under any insurance policy that may be available to the official who obeys an unjust order.

Is it "fortuitous" as affording "all risk" coverage?  As I will explore more deeply in a forthcoming article, judges often say that there is a good reason to deny coverage for "all risks" if the event that causes damage was not "fortuitous."

By using this word, courts mean that it is not fortuitous on its face when the event that caused the damage claim was inherent in the thing itself, such as an opal which becomes cracked which is an apparently normal and usual event.

Judges in other courts and other cases, and even the same judges in the same cases, also use the word to mean that if the event that caused the damage was not due to an external cause but instead was due to an inherent defect in the thing itself rather than an external cause, such as where the insured brings it about by her or his own act.  In such a case, they hold, there can be no insurance coverage.

Following an unjust order to begin an unprovoked unjust war can legitimately be held up as the opposite of fortuitous, and so uninsurable in any case.

Is it an accident causing damage neither expected nor intended from the standpoint of the insured?  Courts unfamiliar with first-party insurance concepts like "all risks" coverage often analogize the insurance requirement that a loss be "fortuitous," to the third-party requirement that the risk insured must be an "accident." 

If third-party policies were available to the official who follows an order to nuke Tehran or Pyongyang right now, then just as the resulting damages can legitimately be held up as the opposite of fortuitous under an all-risks first-party policy, so the official's conduct should legitimately be held the opposite of a covered "accident" under a third-party policy.

Would the "war risk" exclusion apply?  This is an interesting question.  The war risk exclusion probably applies to damages from war.  Arguably it should not apply to damages resulting from a decision to follow someone else's unlawful order even if following that order means war.

If this construction were followed in our hypothetical situation, the war risks exclusion probably would be held inapplicable to the official's decision to follow the unlawful order.

Public policy.  This is not a path that most courts are happy to follow when considering insurance coverage questions.  Courts generally shy decisively away from public policy questions in the context of passing on insurance coverage questions.

However, as can be seen from our brief discussion here of "fortuitous," the very nature of insurance coverage itself is involved in this particular question.  When judges say that a risk or damage is "fortuitous" or not, they are really passing on whether the risk or damage was insurable in the first place.

Further, the Florida Supreme Court has held that intentional religious discrimination is something that cannot be insured as a matter of public policy.  Ranger Ins. Co. v. Bal Harbour Club, Inc., 549 So. 2d 1005 (Fla. 1989).

It is not much of a leap from that decision to also declare that the decision to bomb Tehran or Pyongyang under present conditions ought not to be insurable as a decision to follow an unlawful order.

Hopefully, these hypothetical questions will all remain only theoretical, as they are now.

Please Read The Disclaimer.  ©2018 by Dennis J. Wall.  All Rights Reserved.

OPEN THE EVIDENCE ENVELOPE, PLEASE.

In an Amended Order in Multidistrict Litigation against pharmaceutical manufacturers, one judge unintentionally perhaps highlighted the need for disclosure, not concealment, of evidence.  Insurance coverage questions may become difficult if not impossible to decide if this pattern continues.

The Amended Order came in this MDL case:  In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914 (N.D. Fla. March 15, 2018).  It was an opinion denying motions for summary judgment because the Court ruled that there were genuine issues of material fact.

"Plaintiffs allege that, after taking Abilify as prescribed, they developed impulsive and irrepressible urges to engage in certain harmful behaviors, including impulsive gambling, eating, shopping, and sex.  Defendants deny the allegations and maintain that Abilify could not, and did not, cause Plaintiffs' impulse control problems."  In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *1 (N.D. Fla. March 15, 2018).

The Court held that there were genuine issues of material fact surrounding these allegations and denials in a huge record of apparently conflicting evidence:

Now, having carefully considered the law, the voluminous record, and the parties' arguments, the Court concludes that Plaintiffs have satisfied their burden to demonstrate that a genuine dispute of material fact exists as to whether Abilify can cause uncontrollable impulsive behaviors in individuals taking the drug.

In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *1 (N.D. Fla. March 15, 2018).

The problem is that the public cannot possibly know what the apparently conflicting evidence actually was.  The opinion is riddled with holes for redacted evidence, like this one:  "Moreover, the record reflects [*** REDACTED ***]."    In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *26 (N.D. Fla. March 15, 2018).  Say again, please; what is it that the record reflects?

We simply do not know a lot of what witnesses testified and documents revealed.  "Portions of the briefing and record in this matter were filed under seal. This redacted version of the Court's Order omits references to information included in sealed materials."  In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *1 n.1 (N.D. Fla. March 15, 2018).  If a judge omits references to evidence, yet tells us that the Court's ruling is based on what appears to the Court to be contradictory evidence, what value does that serve and whose?

Arguably not the value of the public, who pay to maintain the judicial system.

In particular, how can insurance coverage questions be resolved in this situation?  Does the blacked-out evidence show that consequences or side-effects from using this drug were perhaps neither expected nor intended from the standpoint of the pharmaceutical companies, and thus not a covered "accident" or "occurrence"?

Is it possible that there is an exclusion applicable to this evidence?

How can we know answers to questions like these without seeing the evidence?

And whose interests are served by blacking out the evidence in cases like this?

Please Read The Disclaimer.  ©2018 by Dennis J. Wall.  All Rights Reserved.

IT IS THE POLICY NOT TO SEAL OR REDACT.

In this dec action revolving around insurance coverage issues, the plaintiff  insurance company suing for a declaration of no coverage under a homeowner's policy, stipulated with the defendants-policyholders to stay the proceedings and to seal the part of the insurance policy that the plaintiff itself attached to its complaint for a declaratory judgment. 

The Court giveth and the Court taketh away here.

The Court granted the stipulated motion to stay after setting a hearing because, even though the parties joined together to request a stay, their pleadings were insufficient to plead relief.

However, their joint motion to seal was denied.  The parties together failed in their attempt to show good cause for sealing the entire policy that is attached to the complaint.  The coverage issues in the case arise in large measure from that insurance contract.  That makes it a "dispositive" pleading, directly related to the claims in this case.

So, despite the stipulation to conceal the policy, and although the Court authorized the defendant insurance company to remove the exhibit from the record and to refile a new exhibit after removing personal identifying information from it, nonetheless on this record all the other forms and endorsements of the insurance policy will in short be public records when the policy is refiled in the Court file, unless and until good cause for sealing it is shown.  See Kemper Independence Ins. Co. v. Wells, No.: 1:17-cv-01612-AWI-SAB, 2018 WL 558791 (E.D. Cal. January 25, 2018).

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NO DECLARATORY RELIEF IN TENTH CIRCUIT, SUBSTANTIVE CLAIMS REQUIRED?

In a recent case, the cast of characters has all been found in lender force-placed insurance cases, but in this case we do not know from the Tenth Circuit's opinion whether the cast played out in an underlying LFPI case.  We have a bank and mortgage servicers.  The only party we may be lacking is the insurance company that offered the lender force-placed insurance policy:  Long v. Wells Fargo Bank, N.A.; ETitle Ins. Agency; Homeward Residential f/k/a American Home Mortgage Servicing, Inc.; and Ocwen Mortgage Inc., ___ F. App'x ___, No. 15-4131D.C. & No. 2:14-CV-00463-DN, 2016 WL 6803706 (10th Cir. November 17, 2016).

What we do know from the appellate opinion is that the underlying case involved a foreclosure and the homeowner's lawsuit to stop it.  That lawsuit was removed to Federal Court, where the homeowner filed a first amended complaint which alleged claims for "quiet title; negligent and intentional misrepresentations; violations of the statute of frauds, Utah Mortgage Fraud Act, and the FDCPA; and breaches of fiduciary duty. The amended complaint also sought a declaratory judgment."

The District Court in Utah dismissed all claims with prejudice.  The homeowner appealed only the one claim for dec relief.  The District Court and the Tenth Circuit panel agreed that the claim for dec relief could not stand alone without the substantive claims that had been alleged along with it:   "No such “judicially remediable right” exists here because Mr. Long chose not to appeal the district court's dismissal of any substantive claim—including the action for quiet title that overlaps with his request for declaratory relief. Because Mr. Long's substantive claims have failed, his request for declaratory relief in relation to those claims is not viable."   Long v. Wells Fargo Bank, N.A, ___ F. App'x ___, No. 15-4131D.C. & No. 2:14-CV-00463-DN, 2016 WL 6803706 (10th Cir. November 17, 2016) (emphasis by the Court; page numbers not yet available from Westlaw but quotation appears just before the appellate court's "CONCLUSION").

Counsel and insurance companies and policyholders are all well advised to prepare for use of this case by opposing counsel on a motion to dismiss a dec action where the only claim alleged or remaining, for whatever reason, is a claim to declare insurance coverage in Federal Court.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All Rights Reserved.

FROM MIAMI TO NORTH FLORIDA, NO COVERED FRAUD "PROPERTY DAMAGE."

In James River Ins. Co. v. Arlington Pebble Creek, LLC, No. 1:13cv224-MW/GRJ, 2016 WL 3014606, at *1 (N.D. Fla. May 22, 2016), a federal judge granted a liability insurance company's motion for summary judgment, awarded it the costs of defending its policyholder under a reservation of rights in the underlying case, and denied the policyholder's motion for summary judgment declaring that there was no coverage for indemnity or defense, holding:

    After review, this Court finds that under the plain terms of the insurance policy James River is not obligated to defend or indemnify Arlington in the lawsuit against [sic; the underlying lawsuit was filed by] Campus Edge. It further finds that James River is entitled to recover the costs that it has already expended defending Arlington.

    James River's and Campus Edge's motions are therefore granted, and the Arlington Defendants' motions are denied.

Arlington is a condominium developer.  Campus Edge sued Arlington on account of allegedly undisclosed conditions which required repairs.  The basis of Arlington's liability was fraud:  Campus Edge sued Arlington alleging claims in several counts all based on alleged misrepresentation.

          The federal judge held with the virtually unanimous view that a commercial general liability insurance policy, like the one issued by James River, simply does not cover such claims because there simply is no covered "property damage."

          Further, there being no coverage for defense or for indemnity, the federal court awarded James River its costs of defending Arlington in the underlying case even though James River's policy was silent on the issue.  Applying Florida law, the federal court held:

    James River argues that it effectively reserved the right to seek reimbursement by so stating in its letter undertaking the defense. Arlington argues that James River could not reserve a right which did not exist under the insurance contract, and even if it did, Arlington rejected its right to reimbursement and is under no obligation to pay it.

    Under Florida law, James River wins.  It effectively reserved its right to seek reimbursement when it offered to defend Arlington, and Arlington accepted its defense, so it is entitled to reimbursement now that it has been determined that it was never under a duty to defend. 

James River Ins. Co. v. Arlington Pebble Creek, LLC, No. 1:13cv224-MW/GRJ, 2016 WL 3014606, at *11 (N.D. Fla. May 22, 2016).

James River was very fortunate in this case to have distinguished counsel to represent it, so distinguished that regardless of the fact that its counsel's law firm practices in Miami, Florida still James River received a favorable summary judgment in this case filed in Gainesville, Florida.  As one of my law professors at the University of Florida said several years ago, "This is not really North Florida here in Gainesville.  This is really South Georgia."

Congratulations to James River and its lawyer in this case for overcoming many odds to achieve their good result in this case.

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

EXCESS INSURERS ENTITLED TO INTERVENE IN PRIMARY CARRIERS' DEC ACTION.

Excess insurers were held entitled to intervene as of right in the primary insurers' declaratory relief action that they did not have either a duty to defend or to indemnify under their general liability insurance policies.  Liberty Mut. Fire Ins. Co. v. Lumber Liquidators, Inc., 314 F.R.D. 180 (E.D. Va. 2016).

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

FOURTH CIRCUIT AFFIRMS E.D. VIRGINIA: TRAVELERS MUST DEFEND ALLEGED CYBERBREACH.

Travelers issued a CGL or commercial general liability policy to Portal Healthcare Solutions in 2012 and renewed it in 2013.  Portal has been sued in a class action lawsuit pending in Virginia.  Travelers denied all coverage including a defense.

The Fourth Circuit succinctly described the underlying class action against Portal in these words:

The class-action complaint alleges that Portal and others engaged in conduct that resulted in the plaintiffs’ private medical records being on the internet for more than four months.

Travelers decided to test its duty to defend a cyberbreach under its CGL policies by filing suit in the Eastern District of Virginia for declaratory relief.  The Travelers clearly felt very sure of its disclaimer decision; it decided to file this dec action after leaving its insured without a defense.

The District Judge entered a summary judgment against Travelers and in favor of Travelers' insured, Portal.

On Monday of this week, the Fourth Circuit Court of Appeals affirmed the District Court's summary judgment, again wasting no words:

    Put succinctly, we agree with the Opinion that Travelers has a duty to defend Portal against the class-action complaint. Given the eight corners of the pertinent documents, Travelers’s efforts to parse alternative dictionary definitions do not absolve it of the duty to defend Portal.

Download Travelers Indemnity Co. of Am. v. Portal Healthcare Solutions, L.L.C., No. 14.1944 (4th Cir. April 11, 2016). 

Parenthetically, the Fourth Circuit opinion was issued as "non-precedential" in the Fourth Circuit.  However, the District Court decision has been published in F. Supp.  One will be formal precedent within the Fourth Circuit; both will be precedent everywhere else in all likelihood.

          Put succinctly, The Travelers could have done better than disclaim a duty to defend a class action in which the plaintiffs alleged that their medical records were posted on the internet for more than four months on account of what the defendant did or did not do.  It certainly could have done a lot better than compounding that disclaimer decision by filing a lawsuit against its insured to prove how right it was to disclaim all coverage for the claims of the people whose medical records ended up on the internet.

          Why did they ever think that this was a good case to disclaim all coverage including to disclaim a duty to defend?  This case is an outlier in that sense.  Most liability carriers would have provided a defense and issued a reservation of rights to deny coverage later, then they would have filed a dec action.  As it stands, the issue of CGL coverage for a cyberbreach is what people will take away from what is really a decision on the Virginia (and majority) view of the duty to defend.

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

Insurance Issues For the Ride-Selling, Room-Renting Economy.

There are an increasing number of reports raising questions about the extent of sellers' liability in the new ride-selling, room-renting economy.

Share these concerns?  In this climate, insurance issues are well worth a close examination given so many questions of liability in so many situations. A large top-tier law school is considering a symposium on the insurance issues shared by the potential liabilities of our new ride-selling, room-renting economy.  Let's leave it up to them to make their own announcement of who, when, and where.

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall.  All rights reserved.

Related articles

What's in a Claim? A Defense, Possibly.

WHEN DEFENSE IS SEPARATE FROM INDEMNITY.

    In general terms, it is not necessarily bad faith for a liability insurance carrier to terminate the defense of its insured following its payment of policy limits, when the insurance policy allows.  In Hartford Fire Insurance Co. v. Peninsula Logistics, Inc., 2014 WL 1416339 *2 & n.1 (M.D. Fla. April 11, 2014)(Presnell, J.), the issue of whether the insurance contract allowed for termination of a defense upon payment of policy limits was held separate from the issue of whether the liability carrier terminated the defense in bad faith, and a declaratory relief action was allowed to proceed on the duty to defend issues whether or not a claim of bad faith could or would be filed.

 

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

Related articles

Allocation, Indemnity, Defense Insurance Coverage Issues: Part Two.

Statute of Limitations on Wrongful Refusal to Defend.

NOTICE IN AFFIRMATIVE DEFENSES, FACTS IN COMPLAINTS.

          Federal Courts are of two minds about many things.  One of those things is the standard required for pleading affirmative defenses to complaints in Federal Court.

          Two recent decisions in insurance cases illustrate the points of division on this issue.  In both recent decisions, and both as noted came in insurance cases, it was held that affirmative defenses are governed by a notice pleading standard, but complaints are reviewed by the facts they allege.  E.g., Clarendon America Insurance Co. v. All Brothers Painting, Inc., 2013 WL 5921538 *4-*5 (M.D. Fla. November 4, 2013)(Smith, USMJ); Guarantee Insurance Co. v. Brand Management Service, Inc., 2013 WL 4496510 *2-*4 (S.D. Fla. August 22, 2013)(Rosenbaum, USDJ).

          The Guarantee Insurance Company decision sets out a detailed explanation of the differences among the Federal Courts on this issue:

 

   Courts have developed two schools of thought regarding the pleading standard required for affirmative defenses, and the Eleventh Circuit has not yet resolved the split in opinion. Some courts have held that affirmative defenses are subject to the heightened pleading standard of Rule 8(a) set forth in the Supreme Court cases of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555–56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 677–78, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).  [Further citations omitted.]  To meet the requirements of Twombly and Iqbal, an affirmative defense would have to contain factual allegations sufficient to “raise a right to relief above the speculative level.” See Twombly, 550 U.S. at 555.

Guarantee Insurance Co. v. Brand Management Service, Inc., 2013 WL 4496510 *2 (S.D. Fla. August 22, 2013).  On the other hand:

 

   Other courts, however, have held that the heightened pleading standard of Twombly and Iqbal does not apply to affirmative defenses.  [Citations omitted.]   These courts have pointed to the differences between Rule 8(a), which governs the pleading of claims, and Rules 8(b) and(c), Fed.R.Civ.P., which apply to affirmative defenses.

 

Guarantee Insurance Co. v. Brand Management Service, Inc., 2013 WL 4496510 *3 (S.D. Fla. August 22, 2013).  And so this particular Federal Judge resolved the conflict among the Courts in this way:

 

   Although this Court finds the reasoning behind the cases applying the Twombly standard to the pleading of defenses to be inherently more appealing from a policy standpoint, in the end analysis, this Court is ultimately convinced of the correctness of the cases holding that the clearness in the difference in the language between Rule 8(a) and Rules 8(b) and (c) requires a different pleading standard for claims and defenses.

* * *

Therefore, so long as Defendants' affirmative defenses give Plaintiffs notice of the claims Defendants will litigate, and vice versa, the defenses will be appropriately pled under Rules 8(b) and (c).

 

 Guarantee Insurance Co. v. Brand Management Service, Inc., 2013 WL 4496510 *3 (S.D. Fla. August 22, 2013).

  

© 2013 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

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HOMEOWNER STATES COVERAGE CLAIMS UNDER FORCE-PLACED INSURANCE POLICY.

Federal Court denies Balboa Insurance Company's motion to dismiss for failure to state a claim.

           In a ground-breaking decision, a landowner's/homeowner's claims under a force-placed insurance policy will be allowed to proceed in Paulino v. Balboa Insurance Co., 2013 WL 4845919 (M.D. Fla. September 10, 2013).

          The plaintiff homeowner, Ms. Sagrada Paulino, alleged two claims:  Breach of contract and declaratory judgment.  The claims are "against Defendant Balboa Insurance Company related to a lender-placed policy of insurance.  Count I of the complaint alleges a breach of contract claim for Balboa's failure to pay damages related to loss and damage to the subject property arising from sinkhole activity, a covered loss."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1  (M.D. Fla. September 10, 2013).

          Until now, a homeowner has had no recognized legal rights under a force-placed, lender-placed policy of insurance.  FPI is not substitute homeowner's insurance protecting the homeowner.  The interests protected by FPI are the interests of the lender exclusively.  The total premium for an FPI policy, however, is paid by the homeowner.

          Balboa accordingly argued that Ms. Paulino "does not have third-party standing to assert her breach of contract claim because the subject policy was placed with the lender."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).  The Federal Court in this case denied Balboa's motion and ordered Balboa to file an answer within 14 days of the date of the Order, Paulino v. Balboa Insurance Co., 2013 WL 4845919 *2 (M.D. Fla. September 10, 2013), or by Tuesday, September 24, 2013.

          The Court also denied Balboa's motion to dismiss Paulino's second alleged claim, her declaratory judgment claim.  She based that claim on what the Court called "an actual controversy," contrary to Balboa's argument in favor of dismissal that there was no controversy and the declaratory claim was "subsumed by the breach of contract claim" according to Balboa.  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).  The "actual controversy" ripe for declaratory judgment is Paulino's alleged claim that Balboa should have "meaningfully consulted" with her "on the selection of the expert to perform subsidence testing and remediation recommendations."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).

          The Court addressed this claim as raising a question for the Court to declare an answer, "is she bound by Balboa's expert to determine the extent of the damages? ...  This issue is not subsumed by the breach of contract claim," the Court held, "because it must be separately determined before the extent of any breach can be determined.  In other words, the extent of Balboa's obligation under the subject policy to meaningfully consult with Paulino in the selection of the expert is a separate issue from the issue of whether Balboa breached the subject policy by failing to pay damages."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).

          The Paulino case bears close watching, I think.  I will be monitoring it from here on out.  Beyond September 24, 2013 when Balboa's answer is due to be filed, I have no doubt.

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One No Coverage Reason Proven, Enough: Affirm Carrier's Summary DJA.

          In Abraham v. Universal Ins. Co. of N. Am., 2013 WL 4081030 (Fla. 4th DCA August 14, 2013)(STATED NOT FINAL), the appellate court applied what is often called "the tipsy coachman rule" of appellate jurisprudence:  Where there is even one ground to affirm the trial court's judgment, even though the trial court entered judgment for the wrong reason, affirm the judgment.

          In that case, the carrier contended in pertinent part that the insured came within an exclusion for operating the premises for commercial purposes, and that coverage was excluded anyway because there is no coverage for construction defects and mold damage resulting from them.

          The appellate court noted that there was no record evidence of a commercial enterprise being operated by the policyholder.  However, the record evidence concerning the excluded construction defects and resulting mold damage, presented different stories:

The insurance company presented undisputed evidence that there was no water leak, and the policy did not cover mold unconnected to a peril covered by the policy. Defects in the construction process, as the expert testified was how the mold occurred, are not covered by the policy. Therefore, the summary judgment was appropriately entered.

Abraham v. Universal Ins. Co. of N. Am., 2013 WL 4081030 *1 (Fla. 4th DCA August 14, 2013).  The tipsy coachman rules again.

 

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ALLOCATING COVERAGE WHEN DAMAGES PAYABLE BY INSURED ARE NOT ALLOCABLE.

... Is "Time on the Risk" a Defensible Way to Allocate Insurance Coverage?

 

"The principle underlying our decision is a straightforward one:  an insurance company cannot be held liable for periods of risk it never contracted to cover."

 

        In Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, 668 F.3d 106 (4th Cir. 2012), Download Pennsylvania Natl Mut. Cas. Ins. Co. v. Roberts (4th Cir., Opinion Filed Feb. 3, 2012) PUBLIC ACCESS, the Court readily applied Maryland law to allocate Insurance Coverage.  Under Maryland law, "in lead paint or 'continuous trigger' cases such as this, Maryland courts determine an insurer's liability through a 'pro-rata allocation by "time on the risk."'"  Id. at 111.

        The Roberts case involved an infant who ingested lead and was poisoned by it.  She was born on January 17, 1991.  Twenty (20) months later, she was diagnosed with lead poisoning.  Id. at 109.  Using a cutoff of "August 1995" when the child apparently stopped "exhibit[ing] elevated blood levels," id., the District Court concluded that the period during which damages occurred was "55 full months," id. at 111, a finding accepted by the Federal Appellate Court in this case.

        The underlying liability case went to a jury verdict in Maryland State Court, which reduced the verdict amount to a Judgment of $850,000.00 "following an application of Maryland's noneconomic damages cap."  Id. at 110.

        "It is undisputed that [the Policyholder and another Tortfeasor Defendant] are jointly and severally liable for this amount."  Id.  [Emphasis added.]  The fact that the Damages award could not be allocated -- which is evident because there could not be joint and several liability, if the damages could be allocated -- seemed to be inconsequential to the Insurance Coverage allocation made by the Federal Appellate Court in this case.

        The Fourth Circuit panel's opinion, written by Judge J. Harvie Wilkinson, III, first applied Maryland law, which was directly on point of course, and held that "time on the risk" allocation of indemnity required allocation of Penn National's policy limits pro rated by time on the risk, of course.  Penn National's time on the risk was only 22 months, in an apparent finding of fact by the Appellate panel, and so Penn National was held liable by the Appellate Court to pay only 22/55 months' worth of the $850,000.00 Judgment here.  See id. at 113.

        But the opinion contained more words than that, in this case.

        The panel also ruled that even if Maryland law did not require this result, then the Federal panel's interpretation of contract law would also require this result.  Like most Policies in its class, the Penn National Bodily Injury/Property Policy -- which was never described as such, but looks from the opinion an awful lot like standard CGL or Commercial General Liability Policy or Landlord's Liability Policy language -- provided Coverage for Bodily Injury or Property Damage which "'occurs during the policy period.'"  Id. at 110, 112.

        The panel's opinion never once addressed the language of the insurance contract itself, namely that it provided  Coverage for damages occurring during the policy period and not simply Coverage for some abstract period of time unconnected with the determination of the Policyholder's liability to pay Damages.

        As a third reason for its decision, the Federal Appellate panel also wrote that a result other than 'pro rata allocation by time on the risk'  would be "disruptive for insurance markets as well."  Id. at 114.  There is so much that could be said in direct contradiction of this dictum.  That is enough to say about it here.

        The concluding observations of the panel in the Roberts case are quickly summarized:  Stuff happens.  See id. at 115 ("It is a dispiriting but inescapable fact that sometimes really bad things happen ....).  

        That concluded the panel's handling of the Roberts direct appeal.  Penn National Mutual Casualty Insurance Company cross-appealed, as well.  Penn National complained on appeal that although the District Judge was correct in applying Maryland's law of allocating Penn National's liability to pay the underlying Damages Judgment by pro rating Penn National's 'time on the risk,' still the District Court erred in the eyes of Penn National by allocating to it two (2) months too many on the risk.

        The Federal Appellate panel in this case agreed with Penn National on this point also.  Penn National's time on the risk was reduced by two (2) months on appeal.  Id. at 118-19.  As the opinion put it:  "Roberts' misfortune cannot be laid at Penn National's feet ....  To place the entire judgment on the insurer would be chaotic ...."  Id.

        If the little girl's lawyers argued that her life after lead poisoning was "chaotic," or if the Policyholder's lawyers argued that joint and several liability for the entire Damages was "chaotic," none of the Courts involved including this Federal Appellate panel appeared to be moved.

        Insurance Coverage under an Insurance Contract should never be determined by the extent of the damages which the claimant alleges in its claim against a Policyholder.  That is or should be true in all United States jurisdictions.  However, that is not nearly the same thing as deciding that a contract which provides Insurance Coverage for Damages, is somehow the same as a contract which provides Insurance Coverage based not on the Damages which occurred during the policy period, but based instead on the Insurance Company's 'time on the risk' regardless of what is written in the contract.

         

 

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HURRICANE DAMAGE IN FLORIDA, INSURANCE CONTRACT IN NEW JERSEY: DISMISSED.

   Property Damage was claimed as a result of damages inflicted by Hurricane Wilma in Florida.  However, the insurance contract under which the Property Damage claim was made, was itself made in New Jersey.  The claimant is a Condominium Association in Florida who filed suit against its Insurance Company for alleged breach of contract, Declaratory Judgment, and "to compel an appraisal on damages".  Club Caribe Condominium Ass'n v. Travelers Excess & Surplus Lines Co., 2012 WL 529972 *1 (S.D. Fla. February 17, 2012), Download Club Caribe Condo. Assn v. Travelers Excess and Surplus Lines Co. (S.D. Fla. Case No. 11.62673.CV, Order Filed Feb. 17, 2012) PUBLIC ACCESS.

   New Jersey provides for a two-year Statute of Limitation for alleged breach of contract; Florida provides a four-year Statute and applies the law of the place where the contract was made to determine which State's law to apply.  Here, the Court ruled that the State where the insurance contract was made, is New Jersey.  Accordingly, the Court granted the Motion to Dismiss based on the applicable -- New Jersey -- Statute of Limitation.  Id. at *4 - *5.

   However, in this case, the Court did more than that.

   The Court granted leave to file a Second Amended Complaint and after it is filed, also granted leave to the parties to "conduct limited discovery up until April 17, 2012 on the issues related to lex loci contractus and equitable estoppel related to the statute of limitations."  Id. at *5.

 

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Late Notice Defense of Excess Carrier to Hurricane Claim Rejected.

   Banta Properties, Inc. is a property management company.  It purchased Primary Property Insurance Coverage from General Star and Excess Coverage from Arch Specialty.  The Arch Specialty Excess Policy was 'following form,' i.e., it followed the forms of the underlying General Star Policy and provided the same Coverage except on an Excess basis in this case.

   Immediately after incurring damage from Hurricane Wilma on or about October 24, 2005, Banta gave notice to General Star and filed a claim with General Star for Property Damage Coverage.  Banta Properties, Inc. v. Arch Specialty Insurance Co., 2011 WL 5928578  *1 (S.D. Fla. November 23, 2011),  Download Banta Props., Inc. v. Arch Specialty Ins. Co. (S.D. Fla. Case No. 10.61485, Order Denying Defendants MSJ Entered Nov. 22, Filed Nov. 23, 2011) PUBLIC ACCESS.  In March, 2008, General Star "tendered the policy limits of $2.5 million under that [General Star] insurance contract".    Banta then "filed an insurance claim against Arch for its excess coverage."  Id.

   Arch reserved rights to deny all Coverage.  In pertinent part, Arch asserted "prejudice" from late notice of Banta's Hurricane Claim.  With its reservation of rights in place, Arch inspected the properties.  Banta filed a Proof of Loss.  Arch did not pay.  Banta filed suit against Arch for Declaratory Relief and for alleged Breach of Contract.  Arch defended and filed a Motion for Summary Judgment based on late notice of Banta's Hurricane Claim.

   The District Court summarized Florida law concerning late notice under an insurance policy.  Florida law raises a rebuttable presumption of prejudice to the Insurance Company from late notice.  As noted, the presumption of prejudice from late notice is rebuttable.  Id. at *2.

   The District Court thereafter discussed two ways in which an Insured may rebut the presumption of prejudice "to survive a motion for summary judgment.  First, an insured may rebut the presumption by showing that another insurer using competent individuals made a complete investigation of the claim.  [Citation omitted.]  Second, an insured may show that the insurer had access to 'substantial information' regarding the claim, creating an issue of fact of whether the delay prejudiced the insurer."  Id. at *4.

   Here, General Star as the Primary Carrier thoroughly investigated Banta's Hurricane Damage Claim.  To say again, Arch was Banta's Excess Carrier.  Nonetheless, Arch retained consultants to inspect the properties where Banta claimed that it had incurred Damage.  Banta "also provided evidence" that Arch's inspectors/consultants inspected Banta's properties but that they did not inspect many of the items of Damage claimed by Banta or review any repair invoices for already completed repairs.  Further, "Arch's consultants stated that they did not review any documents from General Star's investigation record, so these consultants never saw the photographs or reports made by General Star's several consultants [record references omitted]."  Id. at *2.  [Emphasis added.]

   On this record, Arch, the Excess Carrier, filed a Motion for Summary Judgment based on late notice.  Arch argued in support of its motion that in this case, Banta's notice of loss to Arch was untimely as a matter of Florida law.  The District Court held that Banta's notice to Arch did not fall into that category in this case based on past case law, but that, even if it did, Florida law even then provides for a rebuttable presumption of prejudice from the late notice.  In this case, Banta had rebutted the presumption.  Arch's Motion was denied.  Id. at *4.

 

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Three Rules and a Fact: Florida Declaratory Judgments of Insurance.

   Two rules of law were applied and one additional rule of law was observed by the Federal District Judge in Ocean's 11 Bar & Grill, Inc. v. Indemnity Insurance Corp., 2011 WL 3843931 (S.D. Fla. August 26, 2011).  This is an action filed by Ocean's 11 under an otherwise unidentified "liability policy" providing Coverage for assault and battery according to the Policy terms.  Ocean's 11 filed a complaint in which it alleged two counts in Florida State Court as Indemnity's Policyholder:  (1) Declaratory Judgment and (2) Breach of Contract.

Two rules of law were applied; one was noted and after that, was applied in silence.

   The first rule of law applied after removal to Federal Court was that a Declaratory Judgment Action in Florida is valid over an unambiguous Insurance Contract and to determine facts in some cases, whether the DJA is filed by an Insurance Company or, as here, by a Policyholder.  Id. at *2-*3.

   Indemnity presented this case for decision on a Motion to Dismiss.  Indemnity next argued that the DJA should be dismissed based on a rule known to all experienced Insurance lawyers, which is that a DJA requires allegations of "doubt" about the meaning of the Insurance Policy at issue, whereas a count or claim for alleged Breach of Contract requires an allegation of, essentially, 'no doubt at all.'  In this peculiar case, the Federal Court noted that DJAs are ordinarily filed as DJAs with no accompanying Breach of Contract claim, as in this case.  Id. at *4.  Here, "if the Court dismissed the declaratory-relief claim, Plaintiff's relief request [for what the Court labeled "an injunction or specific performance"] will be wiped out in part....  As a result, at this point, the Court will allow the two claims to move forward in tandem."  Id.  [Emphasis added.]

   A third rule of law was noted but not expressly applied by the Federal Court in this case.  The Federal Judge noted that recently, "federal courts in Florida have declined to apply Florida's Declaratory Judgment Act -- declaring it to be procedural only -- and have instead applied the Federal Declaratory Judgment Act."  Id. at *2 n.2.  The Federal Judge further noted that "Florida, however, states the relevant statutes, those contained in Chapter 86, are substantive."  Id. citing Fla. Stat. § 86.101.  The Federal Court proceeded to address the present DJA under Chapter 86 of the Florida Statutes.

"That's a Fact, Jack."

   Indemnity Insurance attempted to unilaterally rescind the Policy before Ocean's 11 filed suit.  When Ocean's 11 filed suit, it asked for "an injunction or specific performance" in a Declaratory Judgment count, and for money damages in a Breach of Contract count.  Its complaint apparently presumed the existence of an Insurance Contract for a Court to declare.  The Federal Court in this case apparently agreed.  After mentioning the Indemnity Insurance Company "rescission by letter," id.  at *1, the Court proceeded to declare the Contract and to simultaneously entertain the Breach of Contract action as well.

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Four For Other Insurance: Recent Primary vs. Excess Cases.

    An "other insurance" clause is found in an Insurance Policy that would otherwise be Primary.  The purposes of an other insurance clause are many, and its language changes depending on the purpose it was intended to serve in the Policy at issue.

    Entire Books and chapters of Books have been written on the subject of "other insurance" clauses.  See, for example, Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith Ch. 6 "Relation of Primary Insurer With Excess Carriers and Reinsurers" (West Publishing Co. Third Edition 2011).  In general terms, language of an "other insurance" clause as distinct from an "escape clause," for example, will be something like the following language which is adapted generically from the specific language appearing in published cases:

   This policy is primary except when certain other insurance applies.  When there is other primary insurance written on the same terms or basis as this policy, we will share pro rata with that other insurance to pay the covered amounts you may be legally obligated to pay as damages.

     However, when certain types of other insurance are available to you as an insured under them, we will be excess of all such other insurance.

    Insurance Companies which issue Policies with "other insurance" clauses contest their interpretation all the time.  This may be one reason why Books, and Chapters of Books, have been written about them.  Recently, four newly decided cases have contributed to the continuously growing collection of reported judicial interpretations of "other insurance" clauses.

 1.  DIFFERENT TYPES OF COVERAGES, SAME INSURED.

    In Federal Insurance Co. v. Firemen's Insurance Co., 2011 WL 2710458 (D. Md. July 11, 2011), the Court followed Fourth Circuit case law in a conflict situation.  The Court recognized that there is a conflict of authority over the issue of whether "other insurance" clauses need to be compared when the Policies containing them cover different risks, i.e., afford different types of coverages.  The Court in this case followed Fourth Circuit holdings that require the different Policies to cover the same risk in order for courts to apply the Policies' "other insurance" clauses.  Id. at *4 - *5.  Here, the Court refused to compare two Policies' other insurance clauses, having previously found one to be a CGL or Commercial General Liability Policy, and a second to be a D & O or Directors and Officers Liability Policy, even though both Policies were issued to the same Insured.  Id. at *3.

  2.  SAME TYPES OF COVERAGES GENERALLY, SAME OR DIFFERENT INSUREDS, BUT ONE INSURANCE POLICY IS AN UMBRELLA.

    In California and in this country, it is settled law that where one of the Policies to be compared is an Umbrella or True Excess Policy, all bets are off.  There is nothing to compare.  Umbrella Policies are simply not on the same level of Coverage as Primary Policies which have an other insurance clause, and the Courts will not compare the two.  See Continental Casualty Co. v. St. Paul Surplus Lines Insurance Co., 2011 WL 1103345 *6 (E.D. Cal. March 22, 2011).  In pure and simple terms, wrote the Federal Court, in previous California State case law, the California Courts settled the issue that

 ... the umbrella carrier was entitled to full reimbursement from a primary insured [sic] for sums paid out on behalf of a mutual insured regardless of the terms of the underlying indemnity agreement between the insureds.  This holding is conclusive with respect to the present matter.

 Id. at *8.  Parenthetically, this decision is rich with rulings on Insurance Coverage issues related to Primary - Excess Carriers.  Future posts will address them here.

3.  WHERE UMBRELLA EXCLUSION APPLIES, NO NEED TO COMPARE ANYWAY:   NO UMBRELLA POLICY COVERAGE AT ALL.

    In some cases, the outcome is determined not by a Primary vs. Excess Carrier contest over levels and layers of Coverage, but the outcome may be determined after such an altercation simply by applying an Umbrella Policy Exclusion.  If an Exclusion in the Umbrella Policy appears to the Court to apply, then the Court will apply it regardless of whether there is a Primary Policy in the case.  Such was the case in Amerisure Insurance Co. v. Scottsdale Insurance Co., 2011 WL 2446277 *4, * 9 (S.D. Ind. June 15, 2011)("Having concluded that the cross liability exclusion applies and renders the Scottsdale umbrella policy inapplicable, the Court need not address these other arguments herein.').

 4.  WHETHER INSURANCE POLICY APPLIES IN FIRST INSTANCE UNDER ITS INSURING AGREEMENT, IF A QUESTION OF FACT, THEN THERE WILL BE A TRIAL.

    The heading was the holding in Employers Mutual Casualty Co. v. Arbella Protection Insurance Co., 24 A.3d 544, 554, 2011 WL 2693228 *10 (R.I. July 12, 2011).  In this case, the Supreme Court of Rhode Island reversed a Partial Summary Judgment in favor of the Plaintiff.

    The Supreme Court pointedly noted the Trial Court's observation that there was no Expert Testimony to guide the Court, although the Trial Court held that the Plaintiff had no legal duty to introduce Expert Testimony in this "declaratory judgment action related to issues of coverage."  Id. at 552, 2011 WL 2693228 at *8.

 5.  ONE MORE HOLDING OF INTEREST, FROM THE FOUR RECENT CASES:

DIFFERENT RULES OF INTERPRETATION WHEN THE COVERAGE CONFLICT IS BETWEEN TWO INSURANCE COMPANIES?

   Under Indiana law, even apparently where an Insurance Policy is arguably ambiguous, "when the dispute is between an insurance company and a third party (or between two insurance companies), the policy is construed from a neutral stance."  Amerisure Insurance Co. v. Scottsdale Insurance Co., 2011 WL 2446277 at *3 (S.D. Ind. June 15, 2011).

    Whether and when this rule will be applied in other cases by other Courts in other jurisdictions remains to be seen, and will definitely be the subject of future posts here.

 The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or someone you know would like to attend.

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Federal Court Abstains From California Coverage, Environmental Tort Damages Both.

   The Federal Ninth Circuit Court of Appeals has recently affirmed a District Court's rare and unique two-punch decision to abstain both from a determination of California Insurance Coverage and a related environmental tort action for Damages:  Download R.R. Street & Co. v. Transport Insurance Co. (9th Cir. Case Nos. 10.55361, 10.55404 Opinion Filed September 2, 2011) PUBLIC ACCESS, also published as 2011 WL 3873804 *1 (9th Cir. September 2, 2011)(authorized password required to access Westlaw).  These are the circumstances and these too are the issues identified by the Ninth Circuit before it pronounced its decision in this appeal:

   This dispute emerges from a web of state and federal litigation over liability for damages and defense costs in certain environmental tort suits. The appeal before us concerns two cases that mirror each other: (1) an action for damages that the Appellants brought in federal court and (2) a declaratory judgment action that the Appellee brought in state court, which Appellants later removed to federal court. The district court declined to entertain these actions, by dismissing the former and remanding the latter, in light of a related third action that had been pending for several years in state court.

   The District Court's decision to abstain from California Coverage was affirmed on the discretionary Declaratory Judgment abstention doctrine announced 70 years ago in Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942).  In the case at bar, three factors articulated by the United States Supreme Court in Brillhart  were considered, and each was found to be in play:  (1) Avoiding "'needless determination of state law issues'"; (2) "discouraging 'forum shopping'"; and (3) "avoiding 'duplicative litigation.'"  Federal Courts are allowed to consider other factors as well.  R.R. Street & Co. v. Transport Insurance Co., 2011 WL 3873804 at *6.  The three enunciated factors were enough to affirm abstention from deciding California Insurance Coverage issues in this case.  See id. at *6-*8.

   The District Court also appropriately abstained from deciding Damages in the related environmental tort action because the "concurrent state proceeding" to determine California Insurance Coverage was the kind of "rare case" described by the U.S. Supreme Court in the case of Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976).  As applied by the Ninth Circuit panel in affirming the District Judge's abstention from considering the environmental tort action for Damages here, the circumstances of this case warrant abstention after considering such factors as (1) "piecemeal litigation"; (2) "order of jurisdiction"; (3) "source of law"; (4) "adequacy of state court" protections; (5) "forum shopping"; and (6) "parallel suits".  Id. at *8-*14.

   This is not all.  The District Court also applied "the Rooker-Feldman doctrine," a doctrine examined on this Blog previously, under which Federal Courts refuse to function as courts of appellate review over State Court Judgments, in simple and basic terms.  The Ninth Circuit did not agree with the District Court's application of that doctrine in this case.  Here, there was no State Court Judgment, said the appellate panel.  Even if there had been a Judgment, the State Court Order in question did not apply to two of the three named Defendants.  Therefore, in the view of the Ninth Circuit panel on appeal, Rooker-Feldman is out of place here.  Id. at *5.

   Regardless of Rooker and irrespective of Feldman, though, in this case Federal Courts will not interpret California Insurance Coverage issues which apparently control all Jurisdiction over the environmental tort action for Damages as well.

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FAA Transfer From Hawaii to Texas ... And "Nonbinding" SIR Observations.

   In Download Lexington Insurance Co. v. Centex Homes (D. Hawaii Case No. 10.00655, Order Transferring Venue Filed June 13, 2011) PUBLIC ACCESS, also published as 2011 WL 2416473 (D. Hawaii June 13, 2011)(authorized password required to access Westlaw) the Chief Judge of the United States District Court for the District of Hawaii transferred venue to a Federal Court in Texas for the Texas Court to consider whether to compel Arbitration of an Insurance Coverage dispute.  The Chief Judge viewed her ruling as impelled by the Federal Arbitration Act ("FAA") and the parties' express Arbitration provision in their insurance contract.

    "The Policy is a 'claims made' policy ...."  Lexington Insurance Co. v. Centex Homes, 2011 WL 2414673 at * 1, *10.  Lexington issued the Policy to Centex, a builder of houses.  Centex began to receive claims from Homeowners that water was leaking in the houses that Centex built.  Lexington sued for Declaratory Relief in Federal Court in Hawaii, claiming that it had no Coverage under various theories.  Centex responded with a Motion to Dismiss and, alternatively, a Motion to Stay and to Compel Arbitration in Dallas, Texas "the forum specified by the parties' arbitration agreement."  Id. at *2.  Centex's address on the Policy is in Dallas, Texas.  Id. at *1.

   While granting Centex's Motion by transferring venue to a Federal Court in Texas where Arbitration was to take place, the Chief Judge in Hawaii did and said much more.  The Federal Court in Hawaii noted that "[t]he Policy has a self-insured retention amount ('SIR' or 'Retained Amount') of $150,000."  Id.  Lexington's Duty to Defend would not incept or begin "'unless and until the Retained Amount is exhausted'".  Id.  One of Lexington's contentions against Arbitrating at all in this case was that satisfaction of the SIR or Retained Amount was a condition precedent to Arbitration as well as to Lexington's Duty to Defend and, since the SIR had not yet been met in this case, there could be no Arbitration, Lexington contended.

   Centex did not disagree with this argument concerning Lexington's Duty to Defend under the Lexington Policy.  "Centex does not contest that it is required to meet the SIR before Lexington is obligated to defend Centex against claims."  Id. at *10.  Although the issue was not free from doubt, the Chief Judge in the Federal Court in Hawaii clearly would have had a difficult time accepting Lexington's argument had the case remained in Hawaii:

This court, while not persuaded on the present record that the arbitration provision is subject to a condition precedent that Centex prove it has expended $150,000 on the underlying claims, leaves the ultimate decision to the court in Texas.

Id. at *10.  [Emphasis added.]

   The 'nonbinding' observations about SIR provisions in this decision are likely to long outlast the transfer of this case to Texas, including that it is highly unlikely that there is a condition precedent of exhausting the SIR amount in order to Arbitrate under a Policy, even where the Duty to Defend expressly and admittedly does not incept or begin until the SIR or Retained Limit is reached.

For a discussion of related issues, see generally  Insurance Law Hawaii Blog and in particular the post there of July 11, 2011..

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Competing Notices of Corporate Rep Depostions: CONTINUED.

This continues a post begun here on Monday, April 25, 2011.

   In Diamond State Insurance Co. v. His House, Inc., Download Diamond State Insurance Co. v. His House Inc. (S.D. Fla. Case No. 10.20039.CIV, Discovery Order, Filed Jan. 18, 2011) PUBLIC ACCESS also published as 2011 WL 146837 (S.D. Fla. January 18, 2011), a United States Magistrate Judge was confronted with competing Rule 30(b)(6) Notice of Deposition of Corporate Representatives. One Notice was served on behalf of a Policyholder-Defendant.  The other Notice was served on behalf of a Liability Insurance Company-Plaintiff which had already denied all coverage for defense and for indemnity of an underlying lawsuit filed against the Policyholder.

 The Nature of the Case:  A Declaratory Judgment Action With No Claim For Bad Faith Alleged.

(For more specific facts of the case, please see the beginning post here of Monday, April 25, 2011.)

 Diamond State's Motion to Compel Another Rule 30(b)(6) Deposition of His House, and to Take the Deposition of Ms. Kristen Glaspy, is Granted -- Kind Of.

    As was noted in Monday's post, His House's Corporate Representative was already deposed in the Declaratory Judgment Action by Diamond State. She was already deposed in the underlying case as well.  Ms. Glaspy was also deposed previously in the underlying case.  Further, the Court agreed that the Rule 30(b)(6) Notice was "overly broad".  Nonetheless, the Court granted Diamond State's Motion to Compel.  Somewhat.

   The Court allowed Diamond State to take the depositions, but "on a limited basis" and "severely limited in duration".  Id. at *7.  Each deposition would be completed within one hour.  The Rule 30(b)(6) topics of inquiry for the corporate representative deposition were prescribed in the Court's Order.  So were the limited areas of inquiry which Diamond State was allowed to make while deposing Ms. Glaspy.  Id. at *8.  "If Diamond believes that additional time is needed in either scheduling the depositions and or in completing the depositions," its counsel could get together with His House's counsel and ask for a Hearing.  Id. (The Online Docket of this case on Pacer reveals that no such Hearing was requested.)

   This was the ruling of the Magistrate Judge after she reviewed "the record as a whole".  The reasons given for ruling are not based on "the record as a whole," however.  They have implications for other Declaratory Judgment Actions concerning future insurance coverage disputes.  The Court ruled in this case as it did for three announced reasons which provide questionable support for these rulings, whether taken alone or together.

   "First, it is indisputable" that material can be discovered, said the Court.  "Therefore information which may shed light on the nature or the services provided by His House are particularly germane ...."  Id. at *7.  That may certainly be the case, but the Court did not offer any explanation as to why these "particularly germane" questions were not asked in the first Rule 30(b)(6) deposition of His House in this case, nor as to why "the nature or the services provided by His House" went seemingly undiscovered in the underlying case in which His House was sued for wrongful death.

   Second, the Court added that "[i]n addition, ... in the 'duty to indemnify' context, the facts of the underlying tort action adduced at trial or developed in discovery are central to the resolution of that claim....  Thus, facts related to the underlying tort action, and specifically the circumstances surrounding the death of the infant, are also relevant to resolving the 'duty to indemnify' claim and are discoverable in this action."  Id.  Facts relating to the underlying tort action are ordinarily available in the discovery taken in the underlying tort action.  A coverage action is not generally an appropriate forum in which to try the issue of the insured's underlying liability.  This is particularly true when, as here, such a determination of the insured's liability would be before any determination of the insured's liability in the underlying case.

   Specifically in this case, the circumstances surrounding the death of the infant are precisely the circumstances that prompted the filing of the underlying wrongful death lawsuit and discovery in it, yet the Court in this case made no reference to the discovery already taken in the underlying case in this regard.

   Third and finally, "the Court notes that Plaintiff Diamond is not a party in the underlying state action ... and thus was not present for the depositions of either Kristen Glaspy or His House's corporate representative taken in that matter."  As a result, said the Court, it would allow His House's deposition to be taken again in this Declaratory Judgment Action because Diamond State was not present to ask questions in the underlying action.  That Ms. Glaspy and His House were also previously deposed in the underlying actions did not occasion inquiry into what was asked in those earlier depositions, but instead became a reason to allow them to be deposed again in the Declaratory Judgment Action, "albeit on a limited basis."  Id. at *7.

   Anyone who has tried a Declaratory Judgment Action arising out of an earlier-filed tort action has experienced the requirements imposed by Judges to show them why the discovery taken in the underlying case is not adequate to provide the answers to the interrogations that are proposed for new depositions of the same persons in the Declaratory Judgment Action.  No such inquiry appears from the opinion in this Declaratory Judgment Action concerning Diamond's "limited" depositions of His House and Ms. Kristen Glaspy.  The rulings would perhaps be more readily applied by Courts and counsel in other Declaratory Relief Actions if that inquiry had been made in this one.

The Online Docket of this case on Pacer, the Online Docket for Federal Courts, reflects that the District Judge granted the Plaintiff Liability Insurance Company's Motion for Summary Judgment on January 31, 2011 or within two weeks after the U.S. Magistrate Judge entered the Discovery Order which is the subject of this post.  Download Diamond State Insurance Co. v. His House Inc. (S.D. Fla. Case No. 10.20039.CIV, Order Granting Summary Judgment, Filed Jan. 31, 2011) PUBLIC ACCESS. To be continued ......

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Competing Deposition Notices of Rule 30(b)(6) Corporate Representatives.

   In Diamond State Insurance Co. v. His House, Inc., Download Diamond State Insurance Co. v. His House Inc. (S.D. Fla. Case No. 10.20039.CIV, Discovery Order, Filed Jan. 18, 2011) PUBLIC ACCESS also published as 2011 WL 146837 (S.D. Fla. January 18, 2011), a United States Magistrate Judge was confronted with competing Rule 30(b)(6) Notice of Deposition of Corporate Representatives. One Notice was served on behalf of a Policyholder-Defendant.  The other Notice was served on behalf of a Liability Insurance Company-Plaintiff which had already denied all coverage for defense and for indemnity of an underlying lawsuit filed against the Policyholder.

 The Nature of the Case:  A Declaratory Judgment Action With No Claim For Bad Faith Alleged.

    The case began when Diamond State filed suit for declaratory relief against His House and others.  His House was a nonprofit corporation engaged in the business of caring for foster care children placed with His House by the State of Florida.

   Having already denied all coverage to His House for defense or indemnity with respect to an underlying wrongful death suit, in this case Diamond State sought declarations that (1) a Professional Liability Policy and (2) a Commercial General Liability Policy which it issued to His House did not provide coverage for the wrongful death lawsuit against His House.  Id. at *1.

     In addition to requesting judicial declarations that the two Policies did not provide coverage under their clear language, Diamond State also alleged that His House's coverage if any under the Professional Liability Policy at issue was voided because His House allegedly "knew of the death of the infant prior to ... the application for the professional liability policy".  As to the CGL Policy, Diamond State also alleged that the "occurrence" that caused the child's death "occurred prior to the policy period and thus no coverage is available under that policy either".  Id. at *1.

   The wrongful death lawsuit or underlying case was filed against His House as the result of the death of an infant, "M.C.," after the child was placed in the care of His House's employee, Ms. Kristen Glaspy, a "foster care mother who was employed by His House".  Id. at *1.

 The Competing Rule 30(b)(6) Deposition Notices and Motions to Compel:  First, His House's Motion to Compel the Deposition of Diamond State's Corporate Representative.

    The Policyholder, His House, wanted to depose Diamond State Insurance Company's Corporate Representative on five (5) designated areas, four of them concerning interpretation of the "policies at issue in this case" in one respect or another, and the fifth area concerning the Insurance Company's handling and denial of His House's claim to coverage under the Diamond State Policies.  Id. at *3.

   Diamond State wanted to re-depose His House's Corporate Representative after His House's Rule 30(b)(6) Deposition had already been taken once in the Declaratory Judgment Action, and once in the underlying case.  In addition, Diamond State wanted to depose Ms. Glaspy, who again was an employee of His House, and who had already been deposed in the underlying case as well.  The Magistrate Judge resolved the issues surrounding a Rule 30(b)(6) Deposition of the Insurance Company first.

   Florida substantive law "governs the substantive portions of this declaratory action," she pointed out.  Under Florida law, "the construction of an insurance policy is a question of law to be determined by the court."  If the insurance policies were held to be unambiguous, they should be interpreted in accordance with their clear terms.  If the Court found the insurance contracts ambiguous, then the Court would be required to construe the wording most strictly against the Insurance Company.  Id. at *2.

   Florida substantive law therefore made interrogation about the Policies at issue "irrelevant to the resolution of this declaratory action."  Id. at *4.  If the Policy provisions at issue were unambiguous, there would be no need for testimony about them.  If the Court held the policy provisions ambiguous instead, then in this case, at least, "Defendants will automatically prevail in the instant declaratory action."  Id.  "Thus, under either scenario, the testimony of Diamond's corporate representative is irrelevant."  Id.

   As to the claim handling inquiry, it might be appropriate in a bad faith case, the Court suggested, see id. at *4-*5, but it was not relevant to this action for declaratory relief concerning the wording used in two insurance policies.  As to the allegations made by Diamond State to the effect that His House knew of the infant's death before applying for the Professional Liability Policy, the prospective testimony was again irrelevant.  In this case, His House did not dispute the date of the infant's death or the date of its Professional Liability Insurance application.  Under the circumstances of this peculiar case, the Court denied His House's Motion to Compel the deposition of Diamond's corporate representative.  Id. at *6.

The Online Docket of this case on Pacer, the Online Docket for Federal Courts, reflects that the District Judge granted the Plaintiff Liability Insurance Company's Motion for Summary Judgment on January 31, 2011 or within two weeks after the U.S. Magistrate Judge entered the Discovery Order which is the subject of this post.  Download Diamond State Insurance Co. v. His House Inc. (S.D. Fla. Case No. 10.20039.CIV, Order Granting Summary Judgment, Filed Jan. 31, 2011) PUBLIC ACCESS. To be continued ......

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Establishing Diversity Jurisdiction: Burden of Proof, Standard of Proof ... Counterclaim?

   American General Life and Accident Insurance Company issued a Life Insurance Policy to Mr. William Johnson.  After that, it increased the face amount of the Policy from $50,000.00 to $100,000.00.  Mr. Johnson died.  His death took place within two years of the effective date of the face amount increase, which triggered "a routine contestable investigation" by American General.  Download American General Life & Accident Insurance Co. v. Johnson (M.D. Ga. Case No. 7.10cv00136, Order Filed April 7, 2011) PUBLIC ACCESS., also published as 2011 WL 1336554 *1 (M.D. Ga. April 7, 2011)(authorized password required to access Westlaw), to which the Federal Court added an Addendum the same day:  Download American General Life & Accident Insurance Co. v. Johnson (Addendum Order Filed April 7, 2011) PUBLIC ACCESS.

   What American General found in its investigation was not identified by the Federal Court in this case, but whatever it was it was enough for American General to file a Complaint in Federal Court for a Declaratory Judgment of Rescission.  Not rescission of the entire Life Insurance Policy.  American General paid the previous face amount of $50,000.00.  American General instead contested the increase of the face amount by another $50,000.00 to $100,000.00.  American General Life & Accident Insurance Co. v. Johnson, 2011 WL 1336554 at *1.

   Betty Johnson was the Defendant.  She was William Johnson's wife and life insurance beneficiary.  She responded to the Complaint for Declaratory Relief with a Motion to Dismiss based on lack of diversity and therefore a lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1).  Id.

   The attack on diversity focused on the Federal statutory requirement that Federal Court diversity jurisdiction include an amount in controversy in excess of $75,000.00, exclusive of interest and costs.  American General as the Plaintiff invoking Federal Court diversity jurisdiction bore the burden of proof by a preponderance of the evidence "that the claim exceeds $75,000."  Id. at *2.

   American General's Complaint was for Declaratory Relief and did not specify the amount in controversy.  "There is no question that the $50,000 additional face amount is in controversy."  Id.  The fight was about whether there was $25,001.00 more at issue in this case to meet the jurisdictional amount which was required to exceed $75,000.00.

   Although the Federal Court in this case said that it did not consider a Counterclaim filed by Ms. Johnson, id. at *3 n.3, it surely appears that in fact, it did.  Ms. Johnson carefully filed a Counterclaim "for the $50,000 unpaid portion of the policy, as well as a statutory bad faith penalty not to exceed $24,999 ....  Thus, Ms. Johnson specified in her counterclaim that she was seeking a maximum amount of $74,999."  Id. at *1.

   The Federal Court just as carefully examined the bad faith penalties that Ms. Johnson was seeking in this case.  "The issue is whether the claimed bad faith damages and attorneys' fees are sufficient to establish the rest of the jurisdictional amount."  Id. at *2.  "Under Georgia law," wrote the Federal Court, applied to the facts alleged in this case, "bad faith" statutory penalties could include a maximum award of 50% of the denied benefit, or here, 50% of $50,000.00 which would be a maximum additional $25,000.00, plus Ms. Johnson's attorney's fees.  Therefore, if Ms. Johnson was awarded the maximum statutory bad faith penalty plus at least $1.00 in attorney's fees, the jurisdictional amount would be satisfied in this case.  The problem with assuming that Ms. Johnson would receive the maximum available statutory bad faith penalty in this case, however, is that this assumption would "'an impermissible speculation as to what a jury may or may not award in this case.'"  Id. at *3.  In fact, in the eyes of the District Judge, that assumption "is too speculative to give this Court jurisdiction."  Id. at *2.

   There was another way to establish diversity jurisdiction consdering Ms. Johnson's Counterclaim.  Her award of statutory bad faith penalties, and her attorney's fees award, might result in an additional $25,001.00 if she also recovered the $50,000.00 face amount increase in her late husband's Life Insurance Policy.  Not only was this again speculative, said the Federal Court, id. at *2 - *3, but "[i]n addition, American General has provided no evidence whatsoever to establish a dollar amount" for Ms. Johnson's attorney's fees.  "Consequently, American General has failed to show by a preponderance of the evidence that its Complaint satisfies the amount in controversy and, as a result, this Court lacks jurisdiction to hear the case."  Id. at *3.  In and Addendum Order, the Court corrected this statement to acknowledge that American General had indeed filed an Affidavit reflecting that Ms. Johnson's attorney's fees, if awarded, would be over $30,000.00.  Download American General Life & Accident Insurance Co. v. Johnson (Addendum Order Filed April 7, 2011) PUBLIC ACCESS.  The Federal Court did not alter its ruling, however.  The amount in controversy was still too speculative for the Court to exercise jurisdiction in this case.

   For all these reasons, the Federal Court in this case granted Ms. Johnson's Rule 12(b)(1) Motion to Dismiss for lack of subject matter jurisdiction.

   Removal and remand, establishing diversity jurisdiction and amounts in controversy, and related burdens of proof and standards of proof in Insurance Cases are examined in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ current 5:1, new 5:57 (Third-Party Cases) and current 11:1, new 11:23 (First-Party Cases) (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement; Third Edition in process for projected June, 2011 publication).

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Amending the Bad Faith Complaint.

   In Download Ajax Paving Industries, Inc. v. American Home Assurance Co. (M.D. Fla. Case No. 8.10cv2508, Order Filed March 30, 2011) PUBLIC ACCESS, also published as 2011 WL 1188699 (M.D. Fla. March 30, 2011)(authorized password required to access Westlaw), the Plaintiff was Ajax, a Florida corporation.  It filed suit over a Workers Compensation and Employers Liability Policy it received from American Home Assurance Company.

   Ajax filed a Complaint in four counts:  (1) Breach of contract; (2) Declaratory Relief; (3) a Count left unspecified by the Court in this opinion; and (4) alleged "breach of an implied duty of good faith and fair dealing."  Ajax Paving Industries, Inc. v. American Home Assurance Co., 2011 WL 1188699 at *1.  (American Home filed a motion to dismiss all but the third claim, which was certainly the reason it went unidentified in the Court's opinion.)

   Ajax's response to a motion to dismiss from American Home in this case was to request leave to cure the deficiencies in its complaint which American Home had pointed out in its motion.  It is unclear with respect to Count 4 in particular whether Ajax wanted to allege a bad faith claim or not, but it was apparently clear to the Court that in this case Ajax conceded that "Ajax 'has not asserted a bad faith claim'".  Id.

   The Plaintiff's request for leave to amend in response to the Defendant's motion to dismiss in this case was granted.  The reasons that amendment was allowed by the Federal Court are potentially instructive to practitioners and clients alike:

1. The request to amend was timely.
2. It was Ajax's first request to amend in the case.
3. Amendment would not be futile "because the purpose of amendment is to cure deficiencies identified by American Home."
4. The following factors which result in denial of a request for leave to amend were not present here, in sum and in substance:  undue delay; bad faith or dilatory motive; repeated failure to cure past deficiencies; undue prejudice to the opposing party, and futility of amendment.

Id.  The bottom line in this decision, quite literally, was this:

It is preferable to allow amendment than to decide the present dispositive motion based upon Ajax's concessions and assumptions.

* * *

American Home may reassert its arguments after Ajax has amended the complaint, if necessary.

Id. at *2.

   Here is a copy of Ajax's Amended Complaint which it filed as of April 8, 2011:  Download Ajax Amended Complaint Filed 04.08.11 in Ajax Paving Industries, Inc. v. American Home Assurance Co. (M.D. Fla. Case No. 8.10cv2508).  You should take a look for yourself.  It appears however that Ajax has now clearly alleged a bad faith claim; whether its claim has legal merit will not be known for certain unless and until the Court rules on that question.

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New York: Primary CGL, Excess D&O Means No Defense Contribution.

"Millions" for Defense From CGL Primary Carrier, Not One Darn Penny From Director's and Officer's Carrier, the way that their Other Insurance Clauses are written.

   The New York Court of Appeals just held that where both a CGL carrier and a D&O carrier insured the same Property Owners Association, the question of who pays for defense expenses incurred for defending the Insured depends on the language of the two carriers' competing Other Insurance Clauses.  Download Fieldston Property Owners Assn v. Hermitage Insurance Co. (N.Y., Opinion Filed Feb. 24, 2011) PUBLIC ACCESS, STATED UNCORRECTED, SUBJECT TO REVISION,, also published as 2011 WL 649812 (N.Y. Feb. 24, 2011)(authorized password required to access Westlaw; page numbers not available at the time of this post).

   The Commercial General Liability policy was written with a Primary Other Insurance Clause.  The D&O policy was written with an Excess Other Insurance Clause.  In a dispute between the two carriers over who pays for their common Insured's defense expenses for underlying suits, the New York Court of Appeals held that the Primary CGL pays all of the defense expenses of the underlying suits on behalf of that Insured, and the D&O Carrier pays none.

   The way that the Other Insurance Clauses are written in the Insurance Policies determines the outcome in this situation, every time.

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Work Product, EMails, Construction Defects: Insurance Consultant, Fact Witness or Expert?

   In Download Bartram, LLC v. Landmark American Insurance Co. (N.D. Fla. Case No. 1.10.28, Order of USMJ Filed January 24, 2011) PUBLIC ACCESS,  also published as 2011 WL 284448 (N.D. Fla. Order of Magistrate Judge January 24, 2011)(authorized password required to access Westlaw), a Policyholder under Builder's Risk Insurance Policies claimed Coverage for Damages which resulted from Construction Defects.  "This case is a first-party insurance coverage dispute in which Plaintiff seeks a declaration that the damages suffered to its apartment project are covered by each of the builder's risk policies issued by Defendants."  Id. at *2.

   The Policyholder-Plaintiff was apparently the Builder-Owner of the apartment complex.  It engaged the Foram Group, Inc. to manage the apartment project, and it consulted with one Margaret Spence of Douglas Claims & Risk Consultants, Inc. about its Coverage Questions and Claims, eventually retaining Ms. Spence for her services.

   Ms. Spence was "formally retained" by the Plaintiff in September, 2009.  The Federal Magistrate Judge wrote the outlines of Work Product Qualified Immunity for certain EMails she wrote to, and received from Foram, between August 29, 2009 and September, 2009:

 During the time period prior to her retention Ms. Spence was assisting Plaintiff with understanding its rights under the insurance policies issued by the Defendants. Ms. Spence's involvement prior to her retention as an expert in the claims submission process on Plaintiff's behalf was in her role of assisting Plaintiff in its business of submitting claims and not in the role of a retained expert assisting in preparing for litigation. Once Ms. Spence was formally retained, she became a non-testifying expert and her communications with Plaintiff after that date were protected.

Id. at *3.

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Expert's Post-Report Affidavit Evidences Florida Property Damage Inaccessible Manifestation.

   Held:  Insurance Company's Motion for Summary Judgment Denied.

   The case of United Nat'l Insurance Co. v. Best Truss Co., Download United Nat'l Insurance Co. v. Best Truss Co. (S.D. Fla. Case No. 09.22897, Order Filed December 3, 2010) PUBLIC ACCESS, also published as 2010 WL 5014012 (S.D. Fla. December 3, 2010)(authorized Westlaw password required to access Westlaw) has presented an Order which is important to both Federal Evidence and Florida Insurance Law.

   First, the Federal Court held that it was proper to consider an Affidavit of the Policyholder's Expert Witness which was filed after the Expert's Report.  In the Affidavit, the Expert "clarifies his position regarding the manifestation of the damage," a key issue in the quest to determine whether there was Insurance Coverage for alleged Property Damage because of trusses that were used in the construction of a new bank building.  See United Nat'l Insurance Co. v. Best Truss Co., 2010 WL 5014012 at *1, *5.

   The Federal Court considered the Expert's post-Report Affidavit in that Case because the Affidavit and the Report "are not inconsistent."  Id.  Nor was the Affidavit a "sham.  The Court can properly consider the Affidavit in the disposition of the Motion."  Id.

   Second, the Affidavit evidenced manifestation of Property Damage within the Policy Period of at least one of the Insurance Policies issued by United to Best Truss.  The Policies required an "Occurrence" which results in "Property Damage" during the policy term, in pertinent part.  As the Federal Court put it:

In Florida, the accident or injury triggering coverage is deemed to have occurred "when property damage manifests itself, not when the negligent act or omission giving rise to the damage occurs."  [Citations omitted.]  However, proof of discovery of the damage is not required to trigger coverage if the damage was visible and capable of being discovered.

Id. at *4.  [Emphasis added.]

   The Expert's Affidavit provided evidence of manifestation during the policy term.  However, the Property Damage addressed by the Expert's Affidavit Testimony was not readily visible.  Instead, it was physically obstructed.  It was capable of being discovered if a drop ceiling were removed.  The Federal Court held that this was admissible evidence of Property Damage manifestation:

Contrary to United's assertion, visibility from within the enclosed and inaccessible attic does constitute manifestation.

Id. at *5.  [Emphasis added.]

   Parenthetically, the Online Docket of this Case on Pacer, the electronic docket of the Federal Courts, reflects that the Case was dismissed without prejudice on December 13, 2010 by an Order of Court entered upon a Joint Stipulation for Dismissal Without Prejudice which was filed the same day.

   With these two holdings in this Order, the Federal Court provided important rulings for both Federal Evidence and Florida Insurance Law.

The Federal Court in this Case explicitly did not, however, address "whether the duty to defend is implicated" nor did the Court draw any distinctions between the Insurance Company's Duty to Defend and its Duty if any to Indemnify.  Considerations particular to determining a Liability Insurance Company's Duty to Defend in Cases involving Insurance Policies similar to those in the United National Insurance Co. v. Best Truss Co. Case are addressed in Section 3:48 by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill Second Edition; West Publishing Co. 2010 Supplement).

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Deposition Costs or Sanctions: Errata and Corporate Rep. on Underwriting.

   A U.S. Magistrate Judge faced unique issues concerning Depositions, Errata Sheets and a proper Corporate Representative, in AIG Centennial Insurance Co. v. O'Neill, Download AIG Centennial Insurance co. v. O'Neill (S.D. Fla. Case No. 09.60551, U.S.M.J. Order Filed October 22, 2010) PUBLIC ACCESS, also published as 2010 WL 4363176 (S.D. Fla. U.S.M.J. Order October 22, 2010)(authorized password required to access Westlaw).

   The Insurance Coverages at issue in that case did not at first present themselves in what seemed to be a universally appealing way, it is fair to say.  "This matter arises out of an insurance dispute over a luxury yacht."  The Marine Insurance Policy at issue provided contested Property Damage Coverage "for an agreed value of $2,350,000.00, with a deductible of $47,000.00 for hull damage claims."  AIG Centennial Insurance Co. v. O'Neill, 2010 WL 4363176 at *1.

   The Policyholder retained several Experts to present the cause of loss.  AIG Centennial issued a Reservation of Rights letter and filed suit for Declaratory Judgment that there was no Coverage under its Policy, according to the Court.  Id. at *2-*3.  

   In the DJA, the Policyholder noticed the Deposition of a Corporate Representative of the Defendant to address specified Underwriting Issues.  The Defendant produced one Roethke as its Corporate Representative.  After the Corporate Rep Deposition concluded, Mr. Roethke filed an Errata Sheet which may or may not have changed his substantive testimony.  In addition, it did not appear that he was the appropriate person to testify about at least some of the specified Underwriting Issues; he said so himself.  See id. at *3.

The Issue of the Errata Sheet.  In reaching a holding on this issue, the Magistrate Judge first pointed out that there is a conflict in the case law.  Some Federal Courts allow substantive changes to be made in Deposition Errata Sheets; others do not.  The Federal Courts that do allow substantive changes to be made in Deposition Errata Sheets are reportedly of the view that there is nothing in Federal Rule of Civil Procedure 30(e)(1)(B) which prohibits them.  The Federal Courts that do not allow substantive changes to be made in Deposition Errata Sheets construe the same Rule, "narrowly," and allow "changes in substance only when the transcript evidences 'obvious confusion' ...."  Id. at *4.

   Noting that the Eleventh Circuit Court of Appeals "has not ruled directly on this issue in a binding decision," the Court in this case allowed substantive changes to be made in the Corporate Representative's Deposition Errata Sheet "[w]here, as here, the deponent timely submits changes to his deposition testimony and an opportunity remains for the court to allow the reopening of the deposition should the court deem it necessary ...."  However, the Magistrate Judge coupled costs and fees to this holding as well.  "[T]o the extent that this Court finds that a party deponent materially altered his testimony in a substantive way, this Court will require the deponent to pay the costs and fees associated with re-opening the deposition."  Id. at *5.

The issue of Costs and Fees for the Rule 30(b)(6) Underwriting Corporate Representative.   Working under a different Rule of Federal Civil Procedure, i.e., Rule 30(b)(6), the Magistrate Judge declined to assess fees and costs as sanctions in this Case.  It appears that, in this Case, the deponent was finished testifying at the end of the day anyway.  There would not likely have been much time left to also depose another Corporate Representative who might be able to address the Underwriting Issues.  Under the circumstances of this peculiar Case, the Magistrate Judge denied a Motion for Sanctions "with the understanding that [the Defendant Insurance Company] will ensure the immediate availability of ... some other suitable corporate representative prepared to testify regarding the underwriting issues."  Id. at *12.

  Dennis Wall is the Author of the leading book on Insurance Bad Faith, "Litigation and Prevention of Insurance Bad Faith" (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement), and he has handled many Insurance Coverage and Bad Faith Cases and Catastrophe Claims.  Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010.  The author has been advised by the American Conference Institute that the ACI is continuing to offer its discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

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In Camera Inspection by U.S. Magistrate Judge: Held, All Documents Privileged.

   The case of Carter v. Ozoeneh, Download Carter v. Ozoeneh (W.D.N.C. Case No. 3.2008cv614, Memorandum and Opinion Filed July 22, 2010) FREE ACCESS TO THIS OFFICIAL REPORT also published as 2010 WL 2889582 (W.D.N.C. July 22, 2010)(Westlaw subscription required to access Westlaw) is unique.  At least, it is not in the garden variety of most Federal Cases that is certain.

   Plaintiff Ronald Carter sued over a patent.  He claimed to be the sole inventor of certain technology involved in the patent.  He and his corporation sued his lawyers, the Clements Walker Law Firm, and various persons (apparently almost all but not quite all of whom are lawyers who represented him regarding the patent), for alleged malpractice in connection with the patent.  It is confusing, but apparently there is another Defendant, one Emmanuel Ozoeneh, who may have been "either the sole inventor or co-inventor of the invention."  It is clear, however, that Lawyers Mutual Liability Insurance Company of North Carolina issued a Professional Liability Insurance Policy to the Defendant Law Firm and a separate such Policy to one of the individual Defendants (not Mr. Ozoeneh).  Carter v. Ozoeneh, 2010 WL 2889582 at *1.

   Mr. Ozoeneh had a difficult time obtaining defense counsel.  Lawyers Mutual undertook to pay Mr. Ozoeneh's legal fees "through summary judgment".  Id.  When Plaintiffs found out about this arrangement, they filed an Amended Complaint "asserting state law claims against Lawyers Mutual for tortious interference with contract, maintenance, and unfair and deceptive trade practices.  Plaintiffs also allege bad faith, malice, and officious intermeddling by Lawyers Mutual."  Id. at *2.

   Thereafter, the Plaintiffs propounded Interrogatories and Requests for Production, the nature of which is not entirely clear from the Magistrate Judge's Opinion, and the Defendant Lawyers Mutual responded and produced privilege logs as to certain withheld materials, the identity or description of which is not entirely clear, either.  However, it is clear that at least some of the withheld materials were delivered to the Magistrate Judge for an In Camera Inspection.   Id. at *2-*3.  The Magistrate Judge held that all of the materials inspected In Camera are privileged from discovery and do not need to be made available to the Plaintiffs.  Some of the items are protected by the Attorney-Client Privilege, and two items -- one an attached Memorandum and the other an Expert Witness's Invoice -- are protected from discovery as Work Product, the Court held.  Id. at *3.

The results in decided cases with reported In Camera Inspections of contested discovery materials are addressed by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" throughout Chapter 8, "Discovery From Insurers Concerning Their Handling of Third-Party Claims," and Chapter 12 concerning "Discovery From Insurers" in First Party Cases (Shepard's/McGraw-Hill First Edition, West Publishing Company Second Edition and 2010 Supplement).

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One Bankruptcy Judge to Decide BP Fiasco Insurance Coverage Issues?

    Recent newspaper reports reflect anxiety over an unlikely possibility:  that BP will file for Bankruptcy.  BP's exposure to many Damages Claims of many kinds may force it to seek reorganization under the U.S. Bankruptcy Code, it is reported.  See, for example, John Schwartz, "Weighing the Possibility of Bankruptcy for BP/Liability Claims Expected to be Enormous" p. A11, col. 5 (New York Times Nat'l ed., Saturday, July 10, 2010).

   If BP filed for Bankruptcy in the United States, then under the U.S. Bankruptcy Code and established practice, the many Insurance Coverage Issues arising out of the Drilling Explosion Fiasco may well be decided by one (Bankruptcy) Judge.

   However, why must BP file for protection from creditors and Claimants in the United States?   Perhaps it will seek that protection in the Courts and Laws of the United Kingdom.  It used to be called "British Petroleum" for a reason.

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