Reinsurance Law Blog

Federal Judge Vacates Reinsurance Award for Evident Partiality

Jody Nathan — Wed, 03 Mar 2010 08:25:34 -0600

Federal Judge Vacates Reinsurance Award for Evident Partiality

A federal judge has vacated a reinsurance arbitration award on grounds of evident partiality, ruling that the failure of two arbitrators to disclose their involvement in a second arbitration involving affiliates of the parties in the first arbitration and a common witness constituted a material conflict of interest.

The rest of the story is here

Bad Jury Instruction results in New Trial

Jody Nathan — Wed, 17 Feb 2010 22:44:29 -0600

In FFE Transportation Services, Inc. v. Pilot Travel Centers, L.L.C., the plaintiff, Medlin, had slipped and fallen while fueling at the defendant's station. Plaintiff received workers compensation benefits from FFE, and then sued the defendant. FFE also sued defendant for the benefits it paid to Medlin. The verdict form had a place for the jury to fill in for the amount to award to plaintiff and to FFE. The jury found against the defendant and filled in separate amounts for each of the plaintiffs. This was reversible error.

The verdict form did not permit damages to be awarded to Medlin without awarding damages to FFE, nor did it permit a jury to award damages of less than a stipulated amount to FFE. The court said, "Moreover, it is not clear from this form whether FFE's stipulated damages are to be deducted from Medlin's award, or whether Medlin's award was over and above that given to FFE. FFE's derivative subrogation claim would normally be deducted from any damages awarded to Medlin; however, the verdict is not clear whether this was the intent of the jury."

The court held: Because FFE has paid Medlin's medical expenses and lost wages (which are the subject of FFE's subrogation claim), if FFE is an active, named party participating at trial, Medlin cannot request and seek to recover damages for those medical expenses and lost wages; only FFE can do so. However, if FFE is not an active, named party participating at trial, the trial court must ask the jury, if it finds in Medlin's favor, to set out the amounts, if any, attributable to medical expenses and lost wages so that the court and the parties can ascertain what compensation FFE is entitled to for its subrogated interest.

Failure to meet requirements of the Unfair Claims Act is negligence

Jody Nathan — Wed, 17 Feb 2010 21:23:19 -0600

In Roberts v. Printup, Ms. Roberts was injured in a one car accident. She was a passenger, her son Printup was driving. The accident was promptly reported to Shelter, the insurance company, and she received the limits of the medical payments. Eleven days before the statute of limitations ran on the claim, Roberts sent a letter to Shelter offering to settle for policy limits ($25,000) and estimating her medical bills to be in excess of $125,000. The letter said she needed a response within 10 days because of the statute of limitations. Ms. Roberts had an agreement with her attorney that if Shelter paid the claim upon demand, she would not owe any attorneys fees on the amount paid. Shelter did not respond for three weeks and then attempted to accept the offer. Ms. Roberts refused. After liability was admitted, a judge determined Ms. Roberts damages to be in excess of $1 million. Shelter paid its limits and Ms. Roberts then was assigned Printup’s claims against Shelter for the excess judgment.

The trial court granted summary judgment to Shelter on the claims of bad faith and negligence. The Tenth Circuit reversed, affirming the dismissal of the bad faith claim, but sending back the negligence claim. See, Roberts v. Printup, 422 F.3d 1211, 1212 (10th Cir. 2005). In the first appeal, the court found that Shelter’s failure to respond to Roberts letter within 10 days was a violation of the Unfair Claims Practices Act as adopted by Kansas. In the second go around, the district court found that Shelter did not have a written policy, procedure, or mechanism in place to ensure that a claim would be acknowledged within ten working days, that Shelter was negligent in handling the letter and that Roberts was not trying to manufacture a bad faith claim. Nevertheless, the district court found that the failure to timely respond did not cause the excess judgment, thus ruling that Shelter was not liable for the excess judgment.

The Tenth Circuit reversed again. The court states:

It is readily apparent that it was foreseeable to Shelter that its negligence in failing to implement a system to handle reasonable time-sensitive settlement offers from an injured party could result in a lawsuit being filed against its insured. Accordingly, its attempt to accept the expired offer in this case did not absolve it of liability for damages to its insured caused by its earlier negligent failure to settle.

* * * *

Shelter did not give Mr. Printup’s interest the same consideration as its own or it would have set up an appropriate system to handle time-sensitive settlement offers.

The Tenth Circuit found that based on the district court’s findings, “it is apparent that it was Shelter’s failure to implement a system to handle reasonable time-sensitive offers in negligent disregard of its insured’s interest that exposed Mr. Printup to damages in excess of policy limits.” Thus, the court reversed and remanded the case with directions to enter judgment in favor of Roberts.

No UM where Insured settled for less than tortfeasor's limits

Jody Nathan — Tue, 16 Feb 2010 19:22:43 -0600

In Porter v. State Farm Mutual Automobile Insurance Co., 2010 OK CIV APP 8, the plaintiff, Porter, was a passenger who was injured in a car wreck. State Farm insured the driver and also insured Porter on her own car. The driver had limits of $100,000. State Farm offered to settle her claim against the driver for $85,000 and Porter accepted, even after being told that she would not be entitled to UM if she did so. She took the settlement and then continued her claim for UM. Plaintiff believed she was entitled to UM because State Farm was the automobile insurance carrier for both Plaintiff and the tortfeasor, despite having settled with the tortfeasor for an amount less than the liability limits of tortfeasor’s policy.

Before an insured can proceed in an action to recover UM/UIM benefits under the contract, he must prove the existence of two simultaneous conditions precedent: 1) that he has a legal right to recover against the tortfeasor, and 2) that his claim exceeds the available liability coverage of the tortfeasor. These conditions precedent must both be present at the same time in order to obtain UM/UIM coverage. Porter could not meet the first requirement because she released the driver from liability. She could not meet the second requirement because by accepting less than the liability-policy limits and releasing the driver from further liability, she established that the claim did not exceed the available liability coverage. In other words, Plaintiff cannot prove the driver was underinsured.

Class action claims allowed to proceed against Farmers for med pay claims

Jody Nathan — Tue, 16 Feb 2010 19:22:43 -0600

In Houck v. Farmers Insurance Company, Inc., 2010 OK CIV APP 12, plaintiffs complained that Farmers used a claims management company to reduce the amount of medical payments made on claims. The trial court granted class certification and Farmers appealed.

The trial court certified the following class:
All persons who made a covered claim pursuant to the Medical Payments Coverage of a private passenger automobile insurance policy written by [Farmers] where:
A. Zurich Services Corporation (“ZSC”) was utilized to review medical expenses;
B. Farmers applied ZSC’s RC 40 reduction to the medical expenses; and
C. The insurance policy was written in one of the following states:
1. Alabama;
2. California;
3. Idaho;
4. Illinois;
5. Indiana;
6. Iowa;
7. Montana;
8. Nebraska;
9. Nevada;
10. New Mexico;
11. Ohio;
12. Oklahoma;
13. South Dakota; and/or
14. Wyoming.

The listed states were states in which the same policy language was used. The appellate court found all requirements for a class action were met, and affirmed the trial court’s ruling.

Author John Grisham remains an Innocent Man

Jody Nathan — Tue, 02 Feb 2010 20:27:59 -0600

The 10th Circuit has affirmed the dismissal of a lawsuit against John Grisham and others for the book, The Innocent Man. The book details the wrongful conviction of Williamson and Fritz for the rape and murder of Debra Sue Carter. Both men were later exonerated after spending over a decade in jail.

(Ok, this isn't an insurance case, but I found it interesting)

The plaintiffs were Oklahoma District Attorney William Peterson; former Shawnee police officer Gary Rogers; and former Oklahoma state criminologist Melvin Hett each of whom played a role in the investigation or prosecution and conviction of Williamson and Fritz. The book did not portray these folks in a positive light, so they sued Grisham and others, claiming defamation, intentional infliction of emotional distress and false light invasion of privacy. The district court dismissed the suit for failure to state a claim and the Tenth Circuit affirmed, finding that since the plaintiffs were public officials, any statements critical of them were privileged, so long as there was no accusation of criminal activity.

Because no special damages were claimed, the plaintiffs had to allege libel per se; but 12 OS § 1443.1 applied because the plaintiffs were public officers and states that “[a]ny and all criticisms upon the official acts of any and all public officers” are privileged and cannot be considered libelous, unless a defendant makes a false allegation that the official engaged in criminal behavior. To fall into this category, “the words alleged to have been spoken of the plaintiff, when taken in their plainest and most natural sense, and as they would be ordinarily understood, [must] obviously import the commission of crime punishable by indictment.”

The court states:

Plaintiffs point to no statement in which defendants directly accuse any plaintiff of a crime.

Plaintiffs expect us to scale a mountain of inferences in order to reach the conclusion that defendants’ statements impute criminal acts to plaintiffs and render the statutory privilege of § 1443.1 inapplicable. We decline to engage in such inferential analysis, or to take a myriad of other analytical leaps plaintiffs ask us to make. Any connection between defendants’ statements and an accusation of criminal activity is far too tenuous for us to declare them as unprivileged for purposes of § 1443.1.

Since the statements were privileged for defamation purposes, the court found them privileged for claims of intentional infliction of emotional distress and for false light invasion of privacy.

See, Peterson v. Grisham

The Tenth Circuit finds an exception to Colorado's "eight corner" rule

Jody Nathan — Tue, 02 Feb 2010 20:05:41 -0600

The eight corner rule says that you compare the allegations of the complaint to the policy to determine the duty to defend. This works for most cases, but where the insurer is aware of other facts, those facts must also be considered in determining coverage.

In Apartment Investment and Management Company (AIMCO) v. Nutmeg Insurance Co., AIMCO had been sued in several actions based on the acts of one of AIMCO’s independent contractors. The trial court looked at each complaint separately and said there was no duty to defend, since the allegations either did not state facts which amounted to wrongful acts, or were otherwise excluded under the policy. The Tenth Circuit reversed, finding that the insurance company should have looked at all the allegations in all the complaints to determine if there was coverage. After examining the complaints taken together, the Tenth Circuit was satisfied they contained sufficient information to provide Nutmeg with reasonable notice that these suits “might fall within coverage of the policy,” Hecla, 811 P.2d at 1089. The Tenth Circuit also ruled that the exclusions did not apply to preclude coverage.

Take it to the limit, one more time

Jody Nathan — Tue, 02 Feb 2010 19:56:50 -0600

In Professional Solutions Insurance Company v. Mohrlang, the issue was whether one limit or two applied to claims against the same attorney. If the claims were “related” one limit applied, if not, two limits applied. Professional Solutions Insurance Company (PSIC) provided single coverage liability of $500,000, up to an annual aggregate limit of $1 million, to one of its insureds. When appellee Bruce Mohrlang submitted a negligence claim against the insured, and appellee Harry Mohrlang submitted another alleging breach of fiduciary duties, PSIC conceded liability of at least $500,000 on each but argued that under the policy definitions, the claims were related and thus subject to the $500,000 single coverage limit. The parties eventually settled, with PSIC agreeing to pay the single coverage limit of $500,000 and pursue a declaratory judgment action to determine any further liability. The sole question was whether the two claims were related to one another so as to cap PSIC’s liability at $500,000, or whether the two claims were unrelated and thus separately covered under PSIC’s annual aggregate limit of $1 million. On a stipulated record, the district court granted summary judgment in favor of the Mohrlangs, and the Tenth Circuit affirmed.

The critical inquiry was whether the claims were “temporally, logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision.” Bruce Mohrlang’s claim was based on the insured’s negligence in structuring a corporate stock sale, while Harry Mohrlang alleged breach of fiduciary duties based on the insured’s misrepresentations that caused him to release a deed of trust he held against the corporate entity.

First, the court found that Harry Mohrlang’s claim was not temporally connected to the sale because the insured caused Harry Mohrlang to release his deed of trust some three weeks after the sale closed. Next, the court found no logical connection between the claim and the sale because neither the deed of trust nor the promissory note it secured was incorporated into the final sale agreement and both should have remained unaffected by the sale. Finally, the court determined that no causal connection existed between Harry Mohrlang’s claim and the sale because the promissory note remained a valid, independent obligation even after the sale, and the deed of trust was not released until the insured’s unforeseeable acts severed any causal link that could have existed. Hence, the court ruled that the two claims were unrelated and PSIC was liable under the policy’s $1 million annual aggregate limit.
The Tenth Circuit affirmed for the reasons stated by the trial court.

Insurer not required to pay replacement cost where property not replaced

Jody Nathan — Wed, 13 Jan 2010 21:01:48 -0600

Hartford insured Vakas' medical office when it was destroyed in a fire. The policy provided for replacement cost coverage up to $240,000; but only if the property was replaced. Otherwise, it provided for actual cash value of the destroyed property. In this case, only 4 items were replaced, as Dr. Vakas had been dead several years by the time of the fire. But, the claimants (Dr. Vakas' heirs) still wanted Hartford to pay the replacement cost for the destroyed office contents.

The court notes that Kansas law applied and follows the general rules regarding construing ambiguous policies against insurance companies. The court found that the policy is not ambiguous or internally inconsistent. After reading the policy, “a reasonably prudent insured would understand that Hartford would not pay replacement-cost value unless and until the property actually was replaced.”

Thus, summary judgment was affirmed.

See, Vakas v. Hartford

Reliance on ambiguous policy language is not bad faith

Jody Nathan — Wed, 13 Jan 2010 20:08:35 -0600

In Andres v. Oklahoma Farm Bureau Mutual Ins. Co., the Oklahoma Court of Civil Appeals decided that even though OFB should have paid the Andres' claim, it could not be found liable for bad faith. It therefore affirmed in part and reversed in part a motion for summary judgment granted in favor of OFB.

Andres made a claim on his homeowners policy when water from a city sewer line backed up into his home. OFB said it wasn't covered, citing to policy language which excluded losses from water damage, including “water which backs up through sewers or drains . . .” The court found this exclusion applies not only to water, but to the sewage which might be in the water. But, the policy policy specifically covered "Accidental Discharge or Overflow of Water or Steam from within a plumbing . . . system[.]" Thus, the policy was ambiguous, because it both included and excluded sewage back ups, and therefore, the policy was construed against the insurer.

Although the court decided that OFB was liable to the homeowners on the policy, it upheld the summary judgment on the bad faith claim, since OFB had a legitimate dispute as to coverage. The court states:

OFB denied the claim on the grounds that the claim was not covered by the policy; it relied upon decisions from nine other jurisdictions which supported its theory; its legal theory was plausible; and there was no Oklahoma precedent. Nothing in the appellate record suggests that OFB lacked a good-faith basis for refusing to pay Plaintiffs' claim. Thus, we conclude as a matter of law that OFB had a reasonable legal basis for refusing to pay the claim, and it is not liable for breach of the duty of good faith and fair dealing. The trial court properly entered summary judgment on this claim.

No Need to Certify Class where case is moot

Jody Nathan — Thu, 31 Dec 2009 16:22:52 -0600

In Clark v. State Farm, the issue was whether the court should have certified a class action against State Farm after Clark’s claims against it had been determined and a judgment issued. The case involved a PIP claim under Colorado law. There was a determination that the State Farm policy at issue had to be retroactively reformed to comply with Colorado law; it was, and a judgment was entered against State Farm for the policy limits, which was paid. The court then refused to certify a class of others for whom such retroactive reformation could apply, finding the controversy moot, as judgment had been entered for Clark. Other people were not allowed to intervene as plaintiffs because they sought intervention too late. The court said there was no case or controversy, and class action was properly denied.

Clark had failed to appeal a case management order which said that the class action issues would be raised after the reformation matter was decided, if necessary. But from the tone of the opinion, I don't think it would have mattered. In addition, the finding denying intervention to additional plaintiffs was not the type of decision that could be reviewed on appeal.

No Bad faith for failure to provide benefits not provided for under the policy

Jody Nathan — Thu, 31 Dec 2009 15:58:11 -0600

In Mansur v. PFL Life Insurance Co., the issue was whether PFL was properly granted summary judgment on Mansur’s claims of breach of contract and bad faith. PFL issued Mansur a long term care policy which was to pay $80 a day while Mansur was in a nursing home. If the parties agreed on an Alternate Plan of Care (APC) then it could provide benefits while the insured was at home. This appeal concerns the meaning of the Policy’s APC provision. Mansur claims that because PFL agreed that the home care provided was appropriate, the requirements for APC coverage were satisfied and PFL should have paid $80 per day for Mansur’s home care after she left the nursing home. Mansur also claims that PFL acted in bad faith (1) by offering to pay under that provision only $32 per day for one period and $48 per day for a later period, (2) by refusing to pay even those amounts when Mansur demanded the full $80, and (3) by refusing to waive payment of Policy premiums while Mansur was receiving home care. The trial court’s grant of summary judgment to PFL was affirmed.

Mansur did not dispute that that benefits under the APC provision were dependent on the parties’ agreement to an alternate plan. Mansur claimed, however that an agreement was reached on the type of care to be given and it was not necessary to agree to the amount of benefit in order for there to be a valid agreement. PFL claimed that the payment level was an essential part of the plan, and failure to agree on that level meant that no agreement was reached. The court agreed with PFL. The examples of APC benefits in the policy included building a ramp or making bathroom modifications. The court reasoned that if PFL agreed to make those modifications, it would not be paying the contractors $80/day. It further found that PFL did not act in bad faith by failing to pay even the amounts it initially offered. There was no duty under the policy to offer any APC benefits because Mansur was not in a nursing home when she sought additional benefits, as required by the policy. An insurer does not act in bad faith by refusing to provide benefits that it has no obligation to provide.

Post Office Health and Disability plan subject to ERISA

Jody Nathan — Thu, 31 Dec 2009 15:31:24 -0600

In Graham v. Hartford Life & Accident, the Tenth Circuit held that a health and disability plan provided to US postal employees was not a governmental plan – therefore it was subject to ERISA. The plan was apparently offered through the National Rural Letter Carriers Association, the exclusive bargaining agent for rural letter carriers. Since the plan was governed by ERISA, there was no right to a jury trial. The court affirmed the ruling of the trial court that the denial of benefits was not arbitrary and capricious

Top 10 Insurance coverage cases for 2009 and more

Jody Nathan — Wed, 30 Dec 2009 21:47:43 -0600

In reviewing the year end blogs and blawgs, I came across this list of the top 10 coverage cases in 2009. Page 3 starts the list of dumb insurance cases of the year; the top 10 significant cases are listed at p. 4; and then discussed beginning on p. 5; the cases include a discussion of whether single or multiple occurrences resulted when two boys fell into a pit on the insured's property (court found there were two occurrences); whether insurers are entitled to get attorneys fees from each other in coverage disputes between them (no; there is no exception to the American rule for insurance companies); and whether a contractor's endorsement which effectively reduced coverage to an insured was enforceable (it was).

On a more humurous note, here is a posting of the top 10 insurance claim photos; we hope that none of your claims are pictured.

Waiver of Attorney-client Privilege Between Insurer and Reinsurers Incomplete

Jody Nathan — Thu, 17 Dec 2009 15:36:58 -0600

While the insurer had waived certain privileges relating to the settlement of the underlying claim, based on the insurer’s concession that it would not advance an advice of counsel defense, the waiver would not be expanded to include all privileged communications and work product of the insurer’s attorneys. The decision clarifies a prior decision which found a waiver of attorney client privileges related to the settlement of underlying asbestos claims.

Previously, the court found that USF&G waived the attorney-client privilege as to communications between its officer, James Kleinberg, and Robert Omrod, the in-house lawyer whose advice Kleinberg disclosed at his examination before trial regarding preparation of the reinsurance billing.

“During the testimony of Kleinberg, many questions were asked regarding USF&G's decision to allocate all claims to a single treaty year as opposed to spreading them over the several coverage years. This witness repeatedly revealed the advice he received regarding preparation of the bill. Consequently, he placed this matter at issue,” the panel concluded. “Therefore, the Reinsurers may seek testimony and production of documents regarding presentation of the reinsurance claim . . . only to the extent that the discovery relates to disclosures made during James Kleinberg's examination before trial testimony.”

The reinsurers urged a broad subject matter waiver, but USF&G asserted that it did not intend to advance an “advice of counsel” defense. Citing Kirschner v. Klemons (2001 WL 1346008, 2001 S.D.N.Y.), the court ruled that in light of USF& G's representation, there is no need to expand the waiver.

“However, the scope of the waiver is narrowed in reliance on USF & G's representation that ‘advice of counsel’ is not at issue,” the court concluded. “Accordingly, the court should strictly enforce this disclaimer at trial, and USF&G should not be permitted to raise this defense to Reinsurers' claims.”

In its Dec. 8 order, the court clarified that its citation to Kirschner “ought to have made it clear that, based on cedant's representation that it did not intend to use ‘advice of counsel’ as a defense, our finding of waiver did not extend to cedant's communications with any other attorneys concerning this subject matter.”

'In view of cedant's concession, however, that it will not raise the “advice of counsel” defense and make any reference to attorney-client communications by cedant at the trial, we agree that the court should not permit cedant to raise this defense to reinsurers' claims, or refer to any such communications,” the court ruled.

Policyholder May Proceed Directly Against Reinsurer

Jody Nathan — Thu, 17 Dec 2009 14:14:12 -0600

(reported by harrismartin.com reinsurance news)

A federal judge has denied Swiss Reinsurance Corp.’s motion to dismiss bad faith claims brought by an insured seeking coverage for a furnace malfunction, ruling that the policy at issue is unclear as to whether Swiss Re acted as insurer or reinsurer. Felman Production Inc. v. Industrial Risk Insurers, et al., No. 3:09-0481 (S.D. W. Va.).

After examining the policy language, Judge Robert C. Chambers of the U.S. District Court for the Southern District of Virginia ruled that it was reasonable for the policyholder to expect Swiss Re to act as a direct insurer.

In its motion to dismiss, Swiss Re asserted that it is the reinsurer of IRI’s insurance contract with Felman, not the original insurer, therefore there is no privity of contract between Swiss Re and Felman and Felman fails to state a claim upon which relief can be granted.

Judge Chambers noted that, generally, an insured party cannot maintain a direct action against a reinsurer because the insured is neither a party to the reinsurance policy nor in privity therewith. However, a reinsurer may become directly liable to the insured if the reinsurance contract is drafted to provide for direct liability on the part of the reinsurer where the original insured is a third-party beneficiary to the contract and/or the reinsurer expressly assumes liability, the judge noted. A reinsurer may also become directly liable to the insured by directly handling an insured’s claim, the judge added.

Judge Chambers concluded that the terms of the original insurance contract are unclear as to Swiss Re’s role under the policy, therefore it was reasonable for Felman to expect Swiss Re to act as a direct insurer and to join it as a defendant in the instant suit.

“In West Virginia, an insurance policy should be interpreted according to the plain, ordinary meaning of the language used,” the judge explained. “Further, ‘whenever the language of an insurance policy provision is reasonably susceptible of two different meanings or is of such doubtful meaning that reasonable minds might be uncertain
or disagree as to its meaning, it is ambiguous.’ An ambiguous provision in an insurance policy is then ‘construed strictly against the insurer and liberally in favor of the insured.’”

As evidence of its role as a reinsurer, Swiss Reinsurance pointed to the “Syndicate Policy” pages in the policy, which identified Swiss Re as the reinsurer. Felman countered that the insurer is referred to as “the companies” throughout the policies and “the companies” is defined as “the members of Industrial Risk Insurers as hereby applicable to this policy.” Felman further argued that the “insurer” is identified as “Industrial Risk Insurers” in the body of the policy.

“Swiss Reinsurance and Westport are two of the two member companies in the unincorporated association known as Industrial Risk Insurers,” the judge noted. “In its complaint, Felman alleges that it ‘purchased a commercial Property Insurance Policy issued by the Insurers,’ which it identifies IRI, Westport and Swiss Reinsurance. Based on the abovementioned evidence, the Court finds that the policy is, at a minimum, ambiguous as to Swiss Reinsurance’s role. The insurance contract must therefore be construed against Swiss Reinsurance and liberally in favor of Felman.”

Notice to one is notice to all; professional liability claims made policy

Jody Nathan — Thu, 12 Nov 2009 23:30:29 -0600

In Berry & Murphy v. Carolina Cas. Co., the issue was whether notice to a former law partner of a claim was notice to the other law partner. The court held it was. Thus, because the former partner had notice of the claim before the policy was issued, the claim was not covered as to the other law partner.

Facts

The Burkhardts hired Murphy to handle a lawsuit. Murphy was a partner at Berry & Murphy. A year after he filed suit for the Burkhardts, he left the firm taking the case with him. The case was dismissed for failure to prosecute and was later reinstated with new counsel. A year after the partner left with the case, Burkhardts new counsel put Murphy on notice of a potential malpractice claim for the way he handled the lawsuit. Murphy put his carrier on notice of the potential claim – which happened to also be Carolina Casualty. No notice was given to Berry. When Berry was sued along with Murphy, he tendered the claim to Carolina Casualty, which denied coverage, claiming that the alleged malpractice claim was first made against an insured (i.e., Murphy) prior to the inception of the insurance policy, thereby falling outside the claims-made coverage of the policy.

Discussion

The policy was a claims made policy, rather than an occurrence policy. This means it covered claims only if first made during the policy period. “A Claim shall be deemed to have been first made at the time notice of the Claim is first received by any Insured.” The court found that Insured was defined to include an individual after he left the law firm if the claim involved that individual’s acts or omissions that occurred while at the law firm. Thus, Murphy was an insured, and notice to him of the claim before the policy period meant that Berry was not covered under the policy.

There is a spirited dissent, which states that since Murphy was not Berry’s agent when he had notice of the claim, notice to Murphy was NOT notice to Berry.

The odd thing about this case is that Carolina Casualty did have notice of the claim, and had it before Berry did; and issued the policy anyway. But, the policy as a claims made policy, was not in effect when Murphy gave Carolina Casualty notice. Therefore, it was not a claim made within the policy period and was not covered. An occurrence policy also requires that the event happen during the policy period. If Carolina Casualty had insured Berry the entire time, I am not sure it could have escaped liability, as the notice from Murphy could have been notice under the Murphy policy, too.

The Case of the Misplaced Modifier - or poor English does not make policy ambiguous

Jody Nathan — Tue, 10 Nov 2009 19:51:35 -0600

Payless was sued in California for making hourly employees work "off the clock." It asked its insurer, Travelers, to defend and indemnify, but Travelers declined, saying that the claim was not covered. Payless settled the claims and then went after Travelers for reimbursement of the settlement and defense expenses. Travelers got summary judgment and the Tenth Circuit affirmed.

See, Payless v. The Travelers.

The Tenth Circuit found that this was a case of a misplaced modifier. The clause at issue excluded certain statutory claims against employers and stated:

The Insurer shall not be liable for Loss on account of any Claim made
against any Insured . . . for an actual or alleged violation of the Fair
Labor Standards Act (except the Equal Pay Act), the National Labor
Relations Act, the Worker Adjustment and Retraining Notification Act,
the Consolidated Omnibus Budget Reconciliation Act of 1985, the
Occupational Safety and Health Act, the Employee Retirement Security
Act of 1974, any workers’ compensation, unemployment insurance,
social security, or disability benefits law, other similar provisions of
any federal, state, or local statutory or common law or any
amendments, rules or regulations promulgated under any of the
foregoing; provided, however, this exclusion shall not apply to any
Claim for any actual or alleged retaliatory treatment on account of the
exercise of rights pursuant to any such law, rule or regulation.

emphasis added.

The question was whether "other similar provisions" modified all the listed exclusions, or just the underlined exclusions. The court found that even though bad grammar was used, the clause excluded all claims arising out of the Fair Labor Standards Act or other similar state law.

The court held that bad grammar did not make the clause ambiguous and even quoted Groucho Marx:

The opinion states:

All this underscores that, while the rules of English grammar often afford a valuable starting point to understanding a speaker’s meaning, they are violated so often by so many of us that they can hardly be safely relied upon as the end point of any analysis of the parties’ plain meaning. So it is that Groucho Marx could joke in Animal Crackers, “One morning I shot an elephant in my pajamas. How he got into my pajamas I’ll never know,” leaving his audience at once amused by the image of a pachyderm stealing into his night clothes and yet certain that Marx meant something very different. In the more mundane task of contract interpretation, we must be no less entitled to acknowledge the parties’ plain meaning without being straight-jacketed by a grammatical rule into reaching a patently unintended result.

Grammar and Groucho in an insurance policy interpretation case. Doesn’t get much better than that!

Delay in decision results in de novo review

Jody Nathan — Tue, 10 Nov 2009 19:40:02 -0600

In Rasenack vs. AIG Life Insurance Company, the Tenth Circuit ruled that AIG’s delays in deciding Rasenack’s claim for benefits under an accidental death and dismemberment policy (ADD policy) were substantial enough to result in a de novo review of the claim by the trial court. Generally, under ERISA, claims decisions by administrators such as AIG are reviewed by the courts under an arbitrary and capricious standard. Under the arbitrary and capricious standard, so long as the decision is supported by evidence, it will be upheld, while under a de novo standard, no weight is given to the claims administrator’s decision. Summary judgment for AIG was reversed, and the case was remanded.

Mr. Rasenack was severely injured as a pedestrian by a hit and run vehicle. He was in a coma for three weeks and remained hospitalized for months. He claimed he was entitled to paralysis benefits under the AIG policy because he lost the use of both legs and his left arm. The plan says that claims will be determined in 90 days, or under special circumstances, within 180 days; AIG took 16 months to deny the claim. Rasenack appealed. Appeals were to be decided in 60 days. Seven months later, with no decision by AIG on the appeal, Rasenack sued. AIG then denied the appeal.

First the court held that the claims administrator’s decision was entitled to no deference where the decision was made by operation of law, rather than the use of discretion. Then the court found that the policy was ambiguous. The policy’s definition of hemiplegia as “complete and irreversible paralysis” is wholly dependent on the meaning of “paralysis,” which the policy does not define. AIG claimed that the definition of hemiplegia carries a plain meaning, i.e., that the entire arm and leg of one side of the body must be “completely paralyzed,” and that “anything less than ‘no movement at all’ would not be ‘complete’ paralysis.” While complete absence of movement may be a reasonable interpretation of ‘paralysis’, it was not the only interpretation, as found in various medical texts. And the summary plan description defined hemiplegia as the loss of “use of both upper and lower limb on same side of body.” The language was strictly construed against AIG, the drafter of the policy.

The court then reviewed the record, finding that there was evidence which supported the claim. This was important because AIG stated in its denial that there was no evidence to support the claim. The failure of AIG to consider evidence in support of the claim made the decision fatally one sided:

Comparing AIG’s explanations of its decision to deny the claim to the information contained in the administrative record, it appears that AIG cherry-picked the information helpful to its decision to deny Mr. Rasenack’s claim and disregarded the contrary opinions of the medical professionals who examined, treated, and interviewed Mr. Rasenack.

Thus, the Tenth Circuit reversed and remanded the case back to the district court for a de novo review. It declined to remand the case back to the plan administrator, finding that AIG’s delays made such an option inappropriate.

Oklahoma has personal jurisdiction over London based broker

Jody Nathan — Thu, 29 Oct 2009 15:01:01 -0600

When Willbros was sued for wrongful death, it notified its brokers of the claims. The claims were settled for an amount in excess of the primary policy limits. But, by the time the claims settled, the excess carriers denied any responsibility for the additional amounts paid, claiming the notice was untimely. Willbros then sued its insurance brokers, Gallagher and JLT for failing to properly notify the excess insurers. Gallagher is an Oklahoma broker, while JLT is based in London. JLT was dismissed by the trial court for lack of personal jurisdiction. The Court of Civil Appeals reversed.

The court said it was JLT's contacts with the forum and not JLT's contacts with the plaintiff which were determinative. Because JLT chose to do business with an Oklahoma broker, and made calls on the plaintiff's Oklahoma offices, there was sufficient purposeful availment of Oklahoma to support jurisdiction based on minimum contacts. (Oklahoma courts may exercise jurisdiction to the full extent permitted by the Constitution)

The court found that JLT's voluntary election to do business in Oklahoma, its visits to Oklahoma, and the stream of communication it maintained with Gallagher and Willbros in Tulsa, constitute an effort by JLT to "purposefully avail[ ] itself of the privilege of conducting activities within the forum State."

First, JLT elected to do business with Gallagher, an Oklahoma company. "Regardless of who initiated the contact, the non-residents could have refused to enter into a contract and thereby alleviated the risk of defending a suit commenced in Oklahoma." Secondly, between 2002 and 2006, prior to and during the effective period of the Policy, JLT made several trips to Oklahoma where its representatives met with representatives of Willbros and Gallagher. During these visits at least some business was discussed in relation to the Policy. Thirdly, during this same time period, JLT maintained communication from its London offices with Gallagher in Tulsa. Although some of this communication regarded only the brokering of insurance generally, a certain amount was directed to the Policy specifically. This communication took the form of e-mail, telephone conversations, and mail. Telephone calls and letters alone may provide sufficient contacts for the existence of personal jurisdiction.

The court concluded by finding that Oklahoma's exercise personal jurisdiction over JLT complied with notions of fair play and substantial justice.

Willbros USA, Inc. v. Certain Underwriters at Lloyds of London, 2009 OK CIV APP 90