The Insurance and Reinsurance Report

Reinsurers on the Hook for Settlement That Arguably Included Bad Faith Claims

United States Fidelity & Guar. Co. v. American Re-Insurance Co.
N.Y. App. Div. 1st Dep’t, Jan. 24, 2012

The case arose out of litigation concerning the underlying asbestos claims spanning several decades. The Appellate Court reviewed and affirmed the lower courts Order granting the reinsured summary judgment and denying the reinsurer’s motion for summary judgment.   The reinsurance treaty involved was an excess of loss treaty with a $100,000 retention and a maximum $4.9 million payable by the reinsurers for any one loss subject to a $3 million limit for personal injury or property damage liability. The reinsurer’s refused to pay the reinsured’s claim for several reasons including the basis that the settlement included an amount for the settlement of bad faith claims which were not covered by the treaty.

The reinsurers’ argued that the lower court erred in applying the “follow the fortunes” doctrine. After a brief statement setting forth the purpose of the doctrine, the Appellate Court affirmed its applicability finding that it precluded the court’s review of the reinsured’s allocation of the loss, including any alleged bad faith claims. The court stated that the parties involved in negotiating the settlement confirmed that the settlement amount did not include costs for bad faith. Additionally, the court stated that the issue of payment for the bad faith claims was never “actually litigated” despite statements in the bankruptcy court record that the insured had “colorable claims for bad faith” and that “some portion of the $2 billion contribution to the trust was attributable to those bad faith claims.”  

The opinion drew a one judge dissent with the view that a triable issue of fact existed with regard to whether a portion of the $987.3 million was attributable to the bad faith claims not covered under the reinsurance treaty. The dissenting opinion notes the reinsured’s reliance on Peerless Ins. v. Inland Mut. Ins. for the proposition that bad faith damages are covered under the reinsurance treaty but distinguishes the cases based on the fact that the reinsurers here did not participate or acquiesce in the reinsured’s defense of the underlying action. Regardless, the dissent cites the New York Court of Appeals case, Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s of London for the proposition that a follow the fortunes clause does not serve to alter the terms of the contract or create coverage where none exists. The dissent points to language in the bankruptcy court opinion that clearly suggests that the court would not have approved the bankruptcy plan if it had believed that there was no payment for bad faith claims included in the settlement.

For a copy of the decision, click here.

Fallyn Reichert and Jeffrey Kingsley

Federal Court Refuses to Dismiss Bad Faith Claims Against Insurer for Failure to Indemnify Pipeline Manufacturer

Gulf Prod. Co. v. Hoover Oilfield Supply, Inc. (U.S. Dist. E.D.LA, January 11, 2012)

A Louisiana federal court denied an insurer’s motion to dismiss bad faith claims brought in an insurance coverage dispute involving the manufacturer of a pipeline.  The manufacturer itself is no longer a party to the action, having settled with the underlying gas company plaintiffs.  The plaintiffs are seeking compensation from the insurer for bad faith due to the insurer’s alleged arbitrary and capricious decision not to offer a settlement and a dispute over attorneys’ fees sought by the manufacturer.

The gas companies had sued the pipeline manufacturer for $2 million for allegedly misrepresenting the quality of its pipe.  The companies were involved in a 2008 gas extraction project in Louisiana, which they alleged was significantly hampered by the manufacturer’s allegedly shoddy pipelines.  According to the suit, the pipes allegedly failed at much lower pressures than the pipes were supposed to withstand.  The gas company plaintiffs claimed that the pipeline manufacturer made false representations when selling the pipes and said the ThermoFlex pipe could withstand pressures of up to 1,200 psi, but actually failed at levels well below that threshold.  Indeed, the plaintiffs assert that the pipeline failed during a hydrostatic test at 756 psi, rupturing in several places and causing the pipeline to twist and coil over the marsh, damaging wetlands and bottom water.

In its motion for summary judgment, the insurer argued that it had provided an adequate defense to the manufacturer and the dispute was limited to the fees paid to the manufacturer’s attorneys.  It argued that it is not possible for the insurance company to be in bad faith when it is providing a defense to its insured and the failure to pay sums demanded by the manufacturer for attorneys’ fees does not warrant bad faith penalties unless arbitrary, capricious or without probable cause.  The plaintiffs contended in opposition to the motion that the bad faith claims are over more than attorneys’ fees and now include the refusal to offer a settlement, which the plaintiffs say was arbitrary and capricious.

The federal court held in its order that the insurer’s motion failed to overcome substantial issues of fact concerning the extent of insurance coverage and what providing coverage requires the insurer to do.  The court held that this is ultimately a factual determination that must be submitted to the trial court.  Trial is scheduled to begin later this month.

For a copy of the decision click here

Joanna Roberto and Bryan Richmond

Article Involving the "Fairly Debatable", "Genuine Dispute" or "Reasonable Basis" Doctrine in Defending Bad Faith Cases

In this article, national bad-faith expert Tom Segalla and his colleague Kimberlee Danieu analyze recent case law from across the country that address the "fairly debatable", "genuine dispute" or reasonable basis" doctrine in bad faith cases.

For a copy of the article please click here

Policyholder Found By Jury To Have Committed Insurance Fraud Required To Pay Treble Damages

Liberty Mutual Ins. Co. v. Land

App. Div. NJ, January 14, 2010

 

In this declaratory judgment action, the plaintiff insurer filed a declaratory judgment action against the defendant policyholders alleging that the policyholders committed fraud to inflate the property loss incurred to their home when a tree fell and hit the roof.  The insurer sought treble damages for the cost of investigation, various fees and costs, and counsel fees under the New Jersey Insurance Fraud Prevention Act (“IFPA”) and also sought a ruling that it was not required to pay its policyholders’ claim of loss.  The case was initially tried with a ruling in the insurer’s favor, appealed, and revered by the Supreme Court and a remanded for a new trial. 

 

After the second trial, the jury again ruled in the insurer’s favor and found that the policyholders had violated the IFPA.  Based on the jury verdict, the trial judge then awarded the insurer a total of $175,302.88, largely due to the trebling effect of the IFPA, for compensatory damages.

 

The policyholders appealed the award of damages and the appellate court affirmed the trial court’s ruling holding that the IFPA expressly authorizes recovery of compensatory damages, including reasonable investigation costs and attorneys’ fees to insurance companies who have been damaged as a result of the statutory violations.  A successful insurance company shall also recover treble damages if the court determines that a defendant engaged in a pattern of the enumerated statutory violations.  The statutory framework provides that it is left to the court to measure the compensatory damages and then determine whether the defendant has engaged in a pattern of violating this act for purposes of imposing treble damages.  In this case, there was enough factual evidence to support the judge’s findings with regards to damages and award of treble damages under the statute. 

 

A copy of the decision can be found here

 

Sarah Fang, Jonathan Kuller and Anthony Golowski

 

http://www.goldbergsegalla.com/attorneys/Fang.html

http://www.goldbergsegalla.com/attorneys/Kuller.html

http://www.goldbergsegalla.com/attorneys/Golowski.html

 

Case provided courtesy of Lexis. 

District Court Awards Punitive Damages To Insurer In Default Fraud Case

Pennsylvania Nat. Mutual Cas. Ins. Co. v. Edmonds

(United States District Court, Southern District Alabama, March 3, 2010)

 

This action involved the misappropriation of hundreds of thousands of dollars by an employee of an Alabama metal fabricating company.  The insurer paid the claim and received an assignment from the company to pursue the losses.  Employee-defendant never appeared and the insurer filed a motion for default judgment against the employee for approximately $570,000, including $150,000 in punitive damages.

 

Despite the court’s acknowledgment of the insurer’s meticulous evidentiary submission as to the total damages causes by the misappropriation, it only awarded a portion of the damages due to a discrepancy between the complaint and the damages sought.  Specifically, the court noted that a default judgment is confined to the specific factual allegations delineated in the Complaint; it does not grant a blank check to recover from the defaulting defendant any losses it ever suffered from whatever source.  Rather, it is strictly confined to the fraudulent acts set forth in the pleadings.  Thus, the court held that while there is evidence of more significant total losses, the complaint does not demand relief for the other forms of theft revealed in subsequent investigations, including theft of petty cash, travel advances etc.  Thus, the court was forced to subtract these amounts from the total award. 

 

While the court reduced the award based on the allegations in the pleadings, the court also awarded $150,000 in punitive damages, as the evidence demonstrated that defendant methodically and systematically abused her position of trust to divert the company’s income stream and bankroll her personal expenditures for more than five years. Under the circumstances, the Court agreed that the insurer was entitled to an award of punitive damages as an appropriate deterrent.

 

A copy of the decision is attached here.  Case provided courtesy of Lexis

 

Paul Steck and Tom Segalla

 

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

 

Fifth Circuit Determines the Prior Act Exclusion Bars Coverage for Legal Malpractice Claim

Byrd & Assocs., PLLC v. Evanston Ins. Co.

(5^th Cir. (Miss.) Feb. 26, 2010)

 

A federal court ruled that professional liability insurer Evanston Insurance Company was not obligated to defend or indemnify its policyholder, the law firm of Byrd & Associates, in a legal malpractice action stemming from dismissal of a medical malpractice action prosecuted by the law firm. The medical malpractice case was dismissed after the firm failed to comply with the court’s scheduling order.

 

The firm submitted its application for professional liability insurance after an appellate court extended the lower court’s scheduling order and reinstated the medical malpractice complaint. The firm indicated on its application that its members were unaware of any act that may be reasonably expected to form the basis of a claim against them. Relying on this information, Evanston issued a professional liability policy. The policy was renewed one year later after the firm again submitted an application stating that its members were unaware of any act that may be reasonably expected to form the basis of claim. Before submission of the renewal application, however, the Mississippi Supreme Court reversed the appellate court’s decision and dismissed the medical malpractice complain.

 

Evanston refused to defend or indemnify the firm based on a prior acts exclusion in the renewal policy. That exclusion barred coverage for “any claim made against the Insured arising out of any act, error or omission in professional services of Personal Injury” happening before the policy’s inception. The court rejected the firm’s argument that the “act” that gave rise to the claim was the firm’s negligence, which could not be established absent a jury or court finding that an attorney at the firm acted negligently. 

 

The court held that the “act” that gave rise to the claim was the firm’s failure to comply with the lower court’s scheduling order, which occurred before inception of the policies. Moreover, the court held that the firm expected or should have expected a claim to arise from that act inasmuch as the Mississippi Supreme Court dismissed the medical malpractice action before the firm submitted its renewal application. 

 

For a copy of the decision, click here

 

Carrie Appler and Rick Cohen

 

http://www.goldbergsegalla.com/attorneys/Appler.html

http://www.goldbergsegalla.com/attorneys/Cohen.html

New York Appellate Division, First Department, Reversed Trial Court Finding that Plaintiff's Motion to Amend Complaint For Consequential Damages Against Insurer Was Duplicative

Panasia Estates v. Hudson Insurance Co. (New York Appellate Division, First Department, December 15, 2009)

In an insurance coverage dispute, plaintiff commenced this action against  Hudson Insurance Co. alleging that it breached the insurance contract by failing to properly investigate the loss and denying the loss as not covered under the policy.  In a historic decision, the Court of Appeals, in 2008, allowed plaintiff to proceed forward with asserting a claim for consequential damages despite a contractual exclusion contained in the insurance policy prohibiting such relief.  Relying in part of that decision, plaintiff made a motion to amend its complaint to add a cause of action for breach of contract and sought consequential damages.  Hudson Insurance argued that the claim  for   consequential damages needed to be sufficiently pled as “special” damages consistent with the Court of Appeals decision.  Despite Hudson’s arguments, the trial court granted the motion to amend the complaint. 

On appeal, the First Department unanimously reversed the decision with costs.  While the First Department disagreed with Hudson’s claim that the Court of Appeals decision in 2008 did not establish a specificity requirement in make a claim for consequential damages, it nonetheless denied the motion to amend on the basis that plaintiff’s breach of contract claim with consequential damages was duplicative of its existing claim for breach of implied covenant of good faith.   The First Department also confirmed the Court of Appeals decision in 2008 by stating that consequential damages can be sought without a claim for  punitive damages.  The First Department stated that the "determinative issue is whether such damages were 'within the contemplation of the parties as the probable result of a breach at the time or prior to contracting.'" [citations omitted] 

For a copy of the decision click here

Tom Segalla and Jeffrey Kingsley

 

http://www.goldbergsegalla.com/attorneys/Segalla.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

Georgia Supreme Court Reverses Appellate Court Holding On Adequacy Of Jury Charge For Plaintiff’s Bad Faith Claims

Fortner v. Grange Mutual Ins. Co.

(Georgia Supreme Court, October 19, 2009)

 

The Georgia Supreme Court granted certiorari to consider whether the Court of Appeals properly interpreted the “safe harbor” provision recognized in Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683 (2003).  In 2003 Fortner was injured in a car accident caused by Grange Mutual policyholder, Arnsdorff, who had bodily injury limit of $50,000 and a $1 million liability with Auto Owners Ins. Co. through his plumbing business.  Fortner offered to settle all claims for $50,000 from Grange “contingent upon” Auto Owner’s payment of $750,000.  Auto Owner’s did not respond within the specified time, but Grange responded that it would pay the $50,000 contingent upon Fortner signing a full release with indemnification and dismissing the claim against its insured, Arnsdorff.  Fortner considered this a rejection of the offer and went to trial obtaining a $7 million verdict against Arnsdorff.  Arnsdorrf then assigned to Fortner any cause of action he might have against Grange based on its alleged bad faith in failing to settle.  Fortner brought a bad faith claim against Grange, and a jury retuned a verdict in favor of Grange.  Fortner appealed, contending the following charge was in error:

 

In responding to a settlement demand, which demand is conditional upon the response of another insurance company, and insurance company can off it s policy limits in response to the demand and then let the plaintiff negotiate with the remaining insurers.  In that situation, the insurance company would have given equal consideration to its insured’s financial interest and fulfilled its duty to him.  And you would return your verdict in favor of the defendant.

 

The court of appeals found no error in the charge concluding it was consistent with the Brightman decision and was “properly adjusted to the facts of the instant case” since Fortner made a settlement demand that was conditioned upon the responses of both Grange and Auto Owners.  The Georgia Supreme Court, however, concluded the charge was erroneous thereby reversing the trial court.  The Supreme Court explained in Brightman, supra, how an insurer may satisfy the standard of reasonableness and thereby create a “safe harbor” for itself when the plaintiff makes a settlement offer containing a condition that is beyond the control of the insurer.  Under similar facts, the Brightman court, noted that when a settlement offer contains a condition beyond an insurer’s control, the insurer can create a safe harbor from liability by meeting the portion of the demand over which it has control.  Thus, the Court held that the appellate court erred in holding that the jury charge was consistent with Brightman, noting that the charge would only have been appropriate if Grange had responded to the settlement condition beyond its control by simply offering its policy limits.  Instead Grange conditioned its acceptance on the signing of a full release with indemnification language and dismissing the claim against Arnsdorff with prejudice which was ultimately valued at $7 million.  The court noted that these conditions were within the insurer’s control and the jury should have been allowed to consider them in determining whether Grange acted reasonably in responding to the settlement offer.  Thus, the court deemed that the charge was not consistent with the safe harbor provision in Brightman and therefore was in error. 

 

For a copy of the decision, click here

 

Paul Steck and Tom Segalla

 

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

District Court Dismisses Insurer's Claim that "Litigation Hold" Letter Consitutes Notice Under the Policy But Fails to Declare It Bad Faith

SNL Financial LC v. Philadelphia Insurance Co. (W.D. Vir. September 30, 2009)

Plaintiff commenced this declaratory judgment lawsuit seeking coverage of an underlying discrimination lawsuit pursuant to its employment practices liability insurance policy.  Defendant denied the claim, arguing that plaintiff made material misrepresentations when plaintiff renewed the policy.  Specifically, defendant argues that the "litigation hold" letter plaintiff received in which it was required to preserve all evidence relating to a possible discrimination lawsuit triggered its notice obligation under the policy and such information was material to the defendant in analyzing whether to renew the policy.  As such, defendant seeks to rescind the policy. 

Both parties moved for summary judgment.  The Court, in deciding the respective motions, turned to the definition of "claim."  The policy defines "claim", in part, as a "written demand for monetary or non-monetary relief."  The Court determined that the litigation hold, though informing the plaintiff of a possible lawsuit, did not seek monetary relief at the time.  Given that there was no monetary demanded, defendant's basis in denying coverage was incorrect.  As such plaintiff's motion for summary judgment is granted.

The court, however, rejected plaintiff's request that defendant's conduct constitutes bad faith despite acknowledging that "defendant violated the language of the contract in denying coverage." The Court found that defendant's position was supportable based upon its investigation.

For a copy of the decision click here

Thomas F. Segalla 

http://www.goldbergsegalla.com/attorneys/Segalla.html

Insurer Seeks to Stay Discovery on "Secondary" Coverage Claims for Bad Faith and Breach of Contract.

Intel Corp. v. American Guarantee & Liability Insurance Co.

(N.D. California, October 1, 2009) 

 

Insurer seeks to stay discovery in anti-trust dispute regarding insured's bad faith and breach of contract claims,  arguing they are secondary to the primary coverage dispute.  Over eight years, the insurer issued excess and umbrella insurance policies totaling $300 million in coverage.  The coverage action stems from what has been called by the insured's counsel as the "largest anti-trust case that has been filed in the United States."  The underlying action includes over eighty claimants who alleged,over a span of two decades, the insured intentionally and unlawfully engaged in a scheme to coerce customers away from competitors. 

 

In its motion papers, the insurer asserts the insured has a proven history of pursuing coverage claims one insurer at a time.  In an attempt to avoid this tactic, the insurer filed a declaratory judgment against the insured in Delaware Superior Court, seeking a declaration of all policies it issued to the insured, as well as all policies by other insurers.  Approximately thirteen hours later, the insured filed the instant action in California, adding claims of bad faith and breach of contract only after learning of the Delaware Action.  After several motions, neither the California nor Delaware court dismissed the action, leaving two simultaneous actions regarding coverage issues. 

 

The instant motion takes the position that because both parties contend coverage issues can be resolved by dispositive motions, discovery on the secondary issues, including bad faith and breach of contract should be stayed.  The motion was filed in the Northern District of California earlier this month.  No scheduling order has been issued.

 

For a copy of the decision click here

 

Kimberly E. Whistler and Joanna M. Roberto

 

http://www.goldbergsegalla.com/attorneys/Whistler.html

http://www.goldbergsegalla.com/attorneys/Roberto.html

Court Affirms Imposition of Punitive Damages Award For Insurer’s Bad Faith In Rescinding Health Insurance Policy

Mitchell v. Fortis Ins. Co.

(Supreme Court of South Carolina, September 14, 2009)

 

Policyholder brought causes of action for breach of contract and bad faith rescission against his insurance company, and sought actual and punitive damages as a result of the company’s termination of his health care insurance from original issuance on the grounds of a purported material misrepresentation due to a subsequent positive HIV test and mis-dated referral note.  The jury awarded the policyholder $36,000 in actual damages on the breach of contract claim, $150,000 in actual damages on the bad faith rescission claim, and $15 million in punitive damages deriving from the bad faith cause of action.  Thereafter this appeal was filed by the insurer challenging the punitive damages award as “so excessive as to violate it constitutional right to due process” and trial error.  Relying on its decision in Gamble v. Stevenson, 305 S.C. 104 (1991), which outlined eight key factors to be considered and the U.S. Supreme Court decision in BMW of North America v. Gore, 517, U.S. 599 (1996), the court agreed that the punitive damages award was excessive.  In doing so, the South Carolina Supreme Court articulated the preferred test for South Carolina courts to apply in conducting post-judgment review of punitive damages based on (1) the degree of reprehensibility of defendant’s conduct, (2) the disparity between the actual or potential harm and the amount of the punitive damages (ratio), and (3) comparative penalty awards.  Based on an analysis of these factors, the court held that the insurer’s conduct was highly reprehensible such that the imposition of punitive damages was appropriate; that a 13.9 to 1 ratio in this case exceeded due process limits; and that while there is no comparable cases directly on point, South Carolina “has a substantial history of upholding punitive damages wards against insurance companies that fraudulently rescind their customer’s heath insurance policies.”  Based on the foregoing, the court upheld the imposition of punitive damages, but reduced the award to $10 million, resulting in a ration of 9.2:1 that appropriately satisfied due process concerns under South Carolina law.

 

For a copy of the decision, click here

 

By Thomas F. Segalla and Paul C. Steck

http://www.goldbergsegalla.com/attorneys/Segalla.html

http://www.goldbergsegalla.com/attorneys/Steck.html

Fifth Circuit Increases Bad Faith Verdict to $22 Million Regarding Hurricane Katrina Claims

Robert Resources, LLC. v. United Fire and Casualty Company (Fifth Circuit, August 11, 2009)

The action originates from several property damage claims arising from Hurricane Katrina in 2005.  The insured sued its insurer alleging that the insurer acted in bad faith by refusing to make any payments under its policy due to the insurer's own financial situation.  Due to this financial pressure, the insured alleges that the insurer intentionally characterized the damage arose from flooding issues which was not covered under the policy.  After a jury trial, the insured was awarded 20.6 million dollars which included compensatory damages and bad faith penalties.  The insurer and the insured both appealed the decision. 

On appeal, the Fifth Circuit rejected the insurer's arguments as it found that "the jury was properly charged and the district court did not abuse its discretion in its evidentiary rulings."  The Fifth Circuit did, however, accept the insured's argument that the total amount was incorrect.   As such, the Fifth Circuit added approximately 1 million dollars to the total amount due an incorrect interpretation of Lousiana R.S. Section 22:1220(A) by the jury. 

For a copy of this decision click here

By Jeffrey L. Kingsley and Thomas F. Segalla

http://www.goldbergsegalla.com/attorneys/Kingsley.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

New York Federal Court Adds Bite to the Bi-Economy Decision - Expands Recovery of Consequential Damages in Coverage Dispute

 Chernish v. Massachusetts Mutual Life Insurance Company, (Case No: 5:08 CV 0957)

In 1987 Plaintiff Anne Chernish obtained a disability income insurance policy from defendant Massachusetts Mutual Life Insurance Company. In and around 1988, plaintiff allegedly became ill and filed a claim for benefits under the policy.

 

For reasons beyond the Court’s knowledge at the time of the decision, benefit payments were apparently stopped in 2001 and 2004. Despite plaintiff’s renewed request for benefits, the insurer did not disclaim coverage and had not renewed payments. Plaintiff, as a result, filed suit alleging three causes of action.

 

Initially, the plaintiff sought recovery under a typical breach of contract claim. The plaintiff also alleged a breach of covenant of good faith and fair dealing. As quoted by the Court, the plaintiff asserted:

The systematic and exclusionary misconduct on the part of the defendant included but is not limited to: delaying the payment of claims’ requiring unreasonable and repeated production of documents; making unreasonable settlement offers before engagement of counsel…and otherwise acting in bad faith.

 

 As a result of these actions, the plaintiff allegedly sustained damages in the form of, “loss of benefit of the bargain; loss of insurance benefits including peace of mind…loss of dignity…expenditure of unreasonable amounts of time in pursuing [sic] her claims herein.”

 

Finally, the plaintiff alleged the violation of New York Business Law §349 and sought recovery of attorneys’ fees. The insurer made a motion to dismiss the latter two causes of action. The Court patently rejected the defendant’s contention that New York did not recognize a breach of covenant of good faith outside the context of a breach of contract claim in an insurance coverage dispute.

In rejecting this claim, the Court referenced the New York Court of Appeal’s decision in Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200 (2008), where New York’s highest court stated, “consequential damages resulting from the breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were ‘within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.” [See also Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187 (2008)]

 

The Court concluded that the plaintiff’s alleged damages were within the contemplation of the parties as a likely result of a breach at the time of contracting. The Court stated that the Bi-Economy Mkt. decision “has changed the landscape” regarding potential damages available to a plaintiff. While the Court granted the request to dismiss the §349 claim, in light of the Bi-Economy decision, the Court held that it was simply too early in the litigation to dismiss the claim for attorneys fees.

 

This decision recognizes and applies the principle that the New York Court of Appeals has expanded the scope of potential damages available to a policyholder in a coverage dispute. The traditional rule in New York State that a policyholder could not recover defense costs in an action brought by the policyholder against the insurer is potentially slipping away. [See Mighty Midgets, Inc. v. Centennial Insurance Company, 4 N.Y.2d 12 (1979)] Policyholders can now contend such attorneys fees are part of the consequential damages incurred by the policyholder. Insurers must consider the expanded scope of potential damages in evaluating disputes and prepare to respond accordingly.

 For a copy of the decision click here

 

By Brian R. Biggie and Daniel W. Gerber

 

http://www.goldbergsegalla.com/attorneys/Biggie.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Court Of Appeals Affirmed Dismissal Of Policyholders’ Class Action Breach Of Contract Claims Against Insurer

Harden and Chambers v. State Farm Mutual Automobile Ins. Co.

(United States Court of Appeals, Eleventh Circuit, July 22, 2009)

 

Policyholders appealed from the dismissal of their class action breach of contract suit against insurer and for certification of a question of law to the Georgia Supreme Court to determine whether Georgia law prohibits the insurer from asserting set-offs in the payment of uninsured motorist personal injury claims.  Specifically, the policyholders argued that their failure to meet the condition precedent imposed by Ga. Code Ann. §33-7-11, requiring the insured to first obtain a judgment of liability against the uninsured motorist before bringing suit against the insurer, does not apply to their breach of contract action. 

The Court of Appeals concluded that the neither of the appellants obtained a judgment against the uninsured motorists involved in their accidents, wherein one never even attempted to sue the uninsured motorist and the other dismissed his complaint against the uninsured motorist when he settled his claim with State Farm.  Thus, under controlling law, the policyholders were barred from bringing a direct action claim against the insurer.  The court further held that neither policyholder pled that the insurer waived the condition precedent under Ga. Code Ann. §33-7-11.  Specifically, the court noted that while the offer of settlement from the insurer indicated that it would pay policyholder’s claim without further litigation, nothing alleged in the complaint could remotely lead one to believe that there was any kind of fraudulent conduct that might require estoppel or permit a finding of waiver; stating, “mere negotiation of settlement is not that type of conduct designed to lull the claimant into a false sense of security so as to constitute a waiver of the limitation defense.”  Consequently, because the appellants had not satisfied the statutory condition precedent under Georgia law, nor pled that State Farm somehow waived the condition precedent, or purposefully misled them, the court affirmed the district court’s dismissal of the claim. 

For a copy of the decision click here

By Paul C. Steck and Mary O'Keefe Massey    

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Massey.html

 

Policyholders’ Children Seeking Bad Faith Penalties Against Insurer Denied

Gaffney v. State Farm Fire and Casualty Co.,

E.D. of LA (July 2, 2009)

 

The policyholder filed a claim against their insurer asserting that the insurer did not adequately adjust their claim after their home was damaged by Hurricane Katrina and sued the insurer for damages and bad-faith penalties.  The policyholders then instituted another action on behalf of their children, asserting they are additional insureds and are entitled to bad-faith penalties for the insurer’s mishandling of the parents’ claim. 

 

The District Court held that although the children’s claim is unique, it is not implausible.  After a review of existing law and the briefs, the District Court held that the children could not recover under Louisiana Law.  The children argued that they can recover under Louisiana’s Bad Faith Statute because their parents’ policy defines insureds to include live-in relatives.  However, the District Court found that argument to be irrelevant because the children did not make a claim under the policy. 

Louisiana’s Bad Faith Statute does not apply to any insured but only to those insureds that are due an amount of a claim.  Since the parents are the only ones making a first-party property damage claim under the policy, they are the only ones entitled to recover under the Bad Faith Statute.  In considering the parents’ emotional distress claim, the court can take into consideration any strain on the parents’ relationship with their children as a result of the insurer’s alleged bad faith.

For a copy of the decision click here

 

By Sarah X. Fang

 

http://www.goldbergsegalla.com/attorneys/Fang.html

Bad Faith: The Admissibility of Expert Testimony and the Challenges That Follow

The issues involved in most bad-faith cases tend to be fairly complex.  This is not completely surprising in a circumstance where there must be a strong disagreement between the two sides as to some insurance issue before there will be any action.  Apart from potential concerns that a jury may weigh expert opinions too heavily, there is little denying that expert testimony may serve the cause of both sides to a bad-faith action.  This article examines the challenges experts face in bad faith lawsuits. 

For a copy of this article, click here

By Thomas F. Segalla and Joseph M. Hanna

http://www.goldbergsegalla.com/attorneys/Segalla.html

http://www.goldbergsegalla.com/attorneys/Hanna.html

Court Imposes Constructive Loan Receipt Obligation in Bad Faith Case

Cargill Inc. v. Ace Am. Ins.  

(Court of Appeals of Minnesota, May 26, 2009)    

The state of Oklahoma sued Cargill for losses arising out of Cargill’s waste disposal practices. Cargill sought defense and indemnity from 50 insurers covering the time frame the disposal occurred. An insurer providing the defense sought a neutral loan receipt agreement with the policyholder. The policyholder refused. The court held that if an insured in bad faith refuses to enter into a neutral loan receipt agreement, a court can protect an insurer by imposing a constructive loan receipt obligation.

Download Cargill.v.Ace.Amer.Ins.Decision 

By Joanna M. Roberto and Brian R. Biggie

http://www.goldbergsegalla.com/attorneys/Roberto.html

http://www.goldbergsegalla.com/attorneys/Biggie.html

Court Holds Insurer Did Not Act In Bad Faith By Not Obtaining Release Of Its Insured As Part Of Settlement Payment

ACCC Ins. Co. v. Tammy Renee Carter et al,

(United States District Court, Northern District of Georgia, May 26, 2009)

This action involved a unique question under Georgia law regarding an alleged bad faith refusal to pay claim and whether an insurer acts in bad faith in paying the policy limits of its insured’s policy without conditioning payment on the release of its insured where claimants’ counsel demanded payment of the face amount of its insured’s policy, but expressly refused to release the insured in return for the insurance company’s payment.  ACCC issued an automobile insurance policy that was in force at the time of the accident with coverage of $25K per person for bodily injuries.  Counsel for claimants issued a settlement demand letter to ACCC under which claimants agreed to release ACCC, but not its insured, in exchange for payment of the insured’s $25K policy limit.  The court noted that because the initial settlement demand expressly stated that the claimants would not release the insurer from liability, ACCC did not at that time have a realistic possibility to settle the claim against its insured.  Thus, because ACCC never received a settlement offer within its policy limits in which claimants agreed to release the insured, Georgia law did not expose ACCC to liability of the judgment against its insured as ACCC could not have settled the claims within the policy limits.     

                                   

By Thomas F. Segalla and Paul C. Steck

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

 

When is Expert Testimony Appropriate for Bad Faith Claims?

There is a decision out of the Eastern District of Kentucky which deals with the qualifications of an expert in a bad faith case. In applying Daubert and its progeny, the court excluded the testimony of a former judge that had been offered as an expert on bad faith issues. See Sullivan v. AIG, 2008 U.S. Dist. LEXIS 56446. Contrast this case with holding of the a case out of the Western District of Wisconsin where the court allowed the testimony of an attorney on bad faith and claims handling issues. See Talmage v. Harris, 354 F. Supp. 860 (W.D. Wis. 2005).

By Thomas F. Segalla

http://www.goldbergsegalla.com/attorneys/Segalla.html