Reinsurance Law Blog

Reinsurance Law Blog

Primary insurer has no duty to initiate settlement discussions — 5th Circuit, Mississippi law

Posted in Contractual Liability, Insurance Bad Faith, New Case

Previously, we told you about SRM, Inc. v. Great American Ins. Co., No. 14–6160 where the Tenth Circuit said there was no duty of an excess carrier to initiate settlement discussions (See post here) Now the Fifth Circuit has ruled there is no duty on a primary insurer to initiate settlement discussions, even where liability is clear and the damages exceed policy limits.  The case is Hemphill v. State Farm.  Hemphill ran a stop sign, injuring the Taylors.  First, he claimed his girlfriend was driving, as Hemphill’s license was suspended, and he also claimed the accident was the Taylor’s fault.  When Hemphill came clean, State Farm accepted liability for the accident and began its damages investigation.  State Farm made various settlement offers to the Taylors, culminating in an offer to settle the claims for $50,000 each, which was the policy limits.  The Taylors did not accept and made no counteroffers.  Two years later, Mr. Taylor got a judgment against Hemphill for $2.8 Million.  State Farm gave Taylor its $50,000 limit, plus some interest.

Hemphill sued State Farm, claiming that the excess judgment was State Farm’s fault, for failing to settle.  Mississippi law says that an insurer must consider settlement offers made within policy limits, but in this case, there was no such settlement offer.  The Fifth Circuit found no Mississippi cases which held that an insurer has a duty to make a settlement offer when the claimant has not made a settlement offer. Further, the undisputed evidence showed that State Farm told the Taylors what its limits were before the lawsuit was filed.  Hemphill didn’t provide binding authority that State Farm had a duty to timely disclose the policy limits in writing via a certificate of coverage.  Summary judgment was affirmed.

Hemphill also complained of State Farm’s failure to advise Hemphill of his potential excess exposure and of his right to retain independent counsel. But the evidence shows that Hemphill already knew of the potential excess exposure and had consulted an independent attorney for financial protection. Thus, Hemphill independently knew the information that he complains State Farm did not advise him about. Thus, summary judgment was proper as there was no dispute that the excess judgment was not caused by State Farm’s failure to advise Hemphill of his potential excess exposure and right to retain independent counsel.

$8M punitive damage award tossed out, no independent tort damages, 10th Cir. Kansas (unpublished)

Posted in Contractual Liability, New Case

In Underground Vaults v. Cintas Corp., Cintas and Underground were working together for a bid to store, digitize and retrieve documents for Boeing.  After their bid was accepted, Cintas figured it could make more money and cost Boeing less if Underground was cut out.  Underground sued for breach of contract and breach of fiduciary duty. The jury found that (1) Underground and Cintas formed a joint venture, (2) Cintas breached that joint venture, (3) Cintas breached its fiduciary duty to UVS, and (4) Cintas acted in a willful or malicious manner. The jury awarded $2,892,053 in compensatory damages and $8 million in punitive damages. The trial court vacated the punitive damage award, and affirmed the contract award.  The Tenth Circuit affirmed.

To win punitive damages in a contract case, Kansas litigants must show that the alleged independent tortious conduct inflicted damage beyond what was caused by the breach of contract. Breach of a fiduciary duty is no exception to this rule. [Underground] chose to style its case as a breach of contract action proving by a preponderance of the evidence that a joint venture was formed and it was breached. [Underground’s] action might have sounded in tort as a breach of fiduciary duty, but a higher standard of proof would have applied. Without showing additional harm, [Underground] cannot collect punitive damages on a tort claim arising from a contract claim. The district court got it right.


Federal Employees Health Benefits Act preempts Kansas anti-subrogation law

Posted in Contractual Liability, New Case

In Helfrich v. Blue Cross, Helfridge was in a car accident, and received treatment paid for by Blue Cross, through the Federal Employees Health Benefits Act. When Helfrich settled with the tortfeasor, Blue Cross wanted to be repaid for the cost of the treatment provided. But, there was a Kansas statute which prohibits insurers from subrogating (getting repaid) or reimbursed out of a personal injury settlement. Since the Kansas act “conflict[s] with uniquely federal interests” it was preempted. Thus, Blue Cross could get paid out of the settlement between Helfrich, its insured, and the tortfeasor.

Concurrent Proximate Cause Rule Explained — Missouri law

Posted in Duty to Defend, New Case

In American Family Mutual v. Parnell, it was claimed that MS was sexually assaulted by the Parnell’s 11 year old son while MS was at the Parnell’s in home day care.  The Parnells were sued on behalf of MS for negligent supervision.  American Family declined to defend.  American Family asserted in its declaratory judgment petition that the policies’ exclusions for intentional injury and abuse excluded coverage. American Family lost on cross motions for summary judgment and the Missouri Court of Appeals affirmed.

MS met all conditions precedent to coverage and American Family failed to carry its burden to demonstrate that either the intentional injury exclusion or the abuse exclusion applied to exclude coverage. The Parnells’ negligent acts were a concurrent proximate cause of M.S.’s injuries such that, even if the exclusions applied, the Parnells’ negligent supervision of M.S. was a separate and distinct cause of her injuries for which coverage was provided. Therefore, American Family was obligated to defend and indemnify the Parnells in the MS lawsuit.

The court explained the concurrent proximate cause rule as follows:

The concurrent proximate cause rule states that “‘an insurance policy will be construed to provide coverage where an injury was proximately caused by two events–even if one of these events was subject to an exclusion clause–if the differing allegations of causation are independent and distinct.'” “For the rule to apply, the injury must have resulted from a covered cause that is truly ‘independent and distinct’ from the excluded cause.” To determine whether causes are independent and distinct, we consider “whether the covered cause and excluded cause depend[ ] upon each other to establish the necessary elements of each claim.” If the excluded cause is merely incidental to the covered cause, that is, if the covered cause could occur without the excluded cause, then the two causes are independent and distinct and the concurrent proximate cause rule applies. (Citations omitted)

Since the Parnells could be liable for negligent supervision in the absence of sexual assault, the sexual assault was incidental to the negligent supervision claim. Thus, the concurrent proximate cause rule applied to provide coverage.

Election of lower uninsured / underinsured motorist coverage valid, regardless of same sex relationship Pennsylvania law

Posted in Contractual Liability, New Case

In Guglielmelli v. State Farm Mutual Automobile Ins. Co., Mr. Jayadi applied for auto insurance with 100/300 liability limits and 15/30 uninsured motorist coverage (UM coverage) on behalf of himself and Mr. Guglielmelli. The two insureds lived together and had a same sex relationship.  Later, Guglielmelli was hurt by an underinsured motorist.  Under Pennsylvania law, any named insured can reduce UM / UIM coverage, but the first named insured is the only one who can waive UM/ UIM coverage altogether.  Since Jayadi validly reduced the UM/ UIM coverage, it doesn’t matter what sort of relationship there was between the two insureds.  The waiver was proper and there was no additional coverage.

Misrepresentations in application voids insurance policy, Arkansas law

Posted in Contractual Liability, Insurance Bad Faith, New Case

In Farr v. American National Property and Casualty,  2015 Ark. App. 534, Farr and Holmes insured a boat and trailer with American National (ANPAC).  They later claimed the boat and trailer were stolen.  ANPAC denied coverage for the loss and rescinded the policy after discovering that Warren and Debbie were not the owners of the boat and had made misrepresentations on the insurance application.  Farr and Holmes (along with Farr’s mother who had title to the boat) sued ANPAC for failure to pay and for bad faith.  The trial court granted summary judgment to ANPAC and the appellate court affirmed.

The insurance application asked Have you or any member of your household ever been convicted of a felony or drug possession?” The application stated, “If yes, do not bind.” The answer given on the application was “no,” when in fact Warren had a prior felony conviction for attempted murder. The application further asked, “Is the applicant the original owner of this watercraft?” The answer given to that question on the application was “yes.” The application was signed by Debbie, and above the signature line the application stated:
I, the undersigned, agree that the statements herein are made for the express purpose of inducing the company to issue an insurance policy and these statements are true, correct, and complete and any policy issued as a result of any material misrepresentation shall be declared void. I understand that any binder or insurance policy issued as a result of this application will be based on the facts and answers stated herein.

The policy also included a concealment or fraud provision.   On appeal, Warren and Debbie claimed they had an insurable interest and that summary judgment was improper under Neill v. Nationwide as to the misrepresentation in the application claim.  Because the court decided the matter on the material misrepresentation claim, it did not reach the insurable interest argument.

In Neill, while there were misrepresentations made in the application, a material fact remained as to whether the insurance agent had misstated the insured’s response or failed to ask all the questions on the application. In Neill, the court said the insurer may not set up false answers in the application to avoid the policy. In this case, Warren and Debbie claimed no one asked Debbie if anyone in her household was a convicted felon, and besides, ANPAC failed to show that the misrepresentation was material or that ANPAC would not have issued the policy had it known the true facts. Warren and Debbie also claimed there was no causal connection between the misrepresentation and the loss.

In affirming summary judgment to ANPAC, the court said there was no need to show a causal relationship between the misrepresentation and the loss (citing Southern Farm Bureau v. Cowger); a material misrepresentation made on an insurance application will void the policy if the insurer would not have issued the policy if the true facts were known; the insurance application contained a false answer; the application warned that false answers would avoid the policy and that no policy would issue if members of the household had felonies.

Debbie testified she did not recall being asked the question regarding felonies, and that despite being given the opportunity, she did not read the application before she signed it.  The opinion concludes:

In the present case, Debbie signed the application containing the material misrepresentation, and there is no proof in the record to support appellants’ claim that her misstatement was the result of fraud, negligence, or mistake by ANPAC’s agent. The material misrepresentation, relied upon by the insurance company in issuing the policy, voided the policy and relieved ANPAC from coverage. Therefore, ANPAC was entitled to judgment as a matter of law with respect to appellants’ breach-of-contract claim.


Collateral Source Rule does not apply to attorney negotiated write offs (Louisiana)

Posted in New Case

In Hoffman v. 21st Century, Hoffman was rear-ended and injured. The jury found the other side 100% at fault, but awarded him only a portion of his medical bills. The bills had been negotiated down by Hoffman’s attorney. The trial court ruled that the jury properly limited its award to the amount actually paid. Under the collateral source rule, a tortfeasor may not benefit, and an injured plaintiff’s tort recovery may not be reduced, because of monies received by the plaintiff from sources independent of the tortfeasor’s procuration or contribution. In other words, payments received by the plaintiff from an independent source are not deducted from the award the injured party would otherwise receive from the wrongdoer. The collateral source rule is usually applied with regard to insurance benefits. The court refused to apply it to lawyer negotiated write offs, stating that it would amount to a windfall to force a defendant to compensate the plaintiff for medical expenses the plaintiff has neither incurred nor is obligated to pay.

Pollution exclusion made policy illusory — (Illinois, decided under Texas law)

Posted in Contractual Liability, New Case

In In re Liquidation of Legion Indemnity Co., the plaintiffs got a judgment for mold related injuries.  But the insurance company for the builder went into receivership before the judgment, so the plaintiffs went to the receiver to have their claims paid.  When the receiver refused to pay, the parties went to court.  The trial court ruled for the receiver, e.g., that the pollution exclusion which did not mention mold, applied and there was no coverage for the claims.  The appellate court reversed.

The exclusion stated:

This Insurance does not apply either for defense or for indemnification, to any claim, suit or demand alleging bodily injury, property damage, personal injury or other loss, costs or damages (including any costs incurred in cleaning up, remedying or detoxifying any contamination) arising wholly or in part, directly or indirectly, from either (1) the contamination of the environment by any pollutant that is introduced at anytime, anywhere, or in any way; or (2) on account of a single, continuous, or intermittent or repeated exposure to, ingestion of inhalation of or absorption of any Health Hazard.

As used in this endorsement the following terms shall have the following meanings:

“Contamination” means any unclean or unsafe or damaging or injurious or unhealthful condition arising out of the presence of any pollutant, whether permanent to transient, in any environment.
“Environment” means any natural or manmade object or feature, person, animal, crop, vegetation, area of land, body of water, underground water or water table supplies, air or air supply (whether inside or outside of any structure) and any other feature of the earth or its atmosphere, whether or not altered, developed or cultivated, whether or not any such environment was owned, controlled or occupied by any insured.

“Health Hazard” means any chemical, alkali, radioactive material, or any other irritant or any pollutant or other substance, product, or waste product, or the fumes or other discharges or effects therefrom, whether liquid, gas or solid, alleged or determined to be toxic or harmful to the health of any person, plant or animal.

“Pollutant” means any smoke, vapors, soot, Electromagnetic Field Radiation, fumes, acids, alkalis, chemicals, liquids, solids, gases, radiation, thermal pollutants, noise or sound of any kind or any other irritant or contaminant.

The appellate court notes that the words “mold” and/or “fungus” are not in the exclusion. Exclusions are interpreted narrowly and in favor of the insured.  Interpreting the policy the way the Receiver and trial court did makes the policy illusory:

The trial court held that mold came within the exclusion because of its irritating and toxigenic effects, and because it poses health risks to humans. The circuit court, when denying the Plaintiffs’ motion for reconsideration, relied on the second part of the Exclusion which precluded coverage for bodily injury caused by “ingestion of inhalation of or absorption of any Health Hazard.” Furthermore, the trial court held and the Liquidator argues that we should read mold in the descriptions of the terms “pollutant” and “Health Hazard.” However, both the second part of the Exclusion and the definitions employ broad and general language such as: “any,” “alleged,””chemical,” “substance,” “irritant,” “liquid,” “gas,” “solid.” Applying these broad and generic terms, as the trial court did, anything- solid, liquid, gas or substance-that would potentially cause injury to a person would be excluded from coverage, making the Policy illusory.

The case was sent back down to determine if there was bodily injury within the policy period.



Insurance Declarations Page Conflicted with Other Provisions causing ambiguity Missouri law

Posted in New Case

In Simmons v. Farmers Insurance, the declarations page or dec page said there was underinsured motorist coverage of $50,000 per person ($100,000 per accident), without any further limitation stated.  The definitions section of the policy defined an underinsured vehicle as one where the bodily injury liability limits are less than the liability limits under this policy.  The insured was seeking underinsured motorist benefits as a result of the death of her husband.  It was undisputed that the insured’s damages exceeded $100,000, and that the tortfeasor had paid $50,000. The trial court entered summary judgment for the insured and the appellate court affirmed, finding the policy was ambiguous and thus, required coverage.

The Policy therefore provides coverage, then quickly negates in a section the average insured is much less likely to examine. Nothing in the declaration sheet indicates the coverage is merely gap coverage between the tortfeasor’s liability limit and the underinsured motorist limit, rather than comprehensive coverage necessarily excess to the tortfeasor’s liability coverage toward the Insured’s total injuries. That limitation also follows in the less obvious definitions page. Pursuant to Miller, where the declarations page states a coverage amount but does not adequately alert the Insured to its limitations, we must strictly and carefully consider any language in the endorsement which might also suggest that the coverage could be considered excess. Miller, 400 S.W.3d at 787.

An ambiguity exists if the language used is reasonably open to different interpretations or where there is duplicity, indistinctiveness, or uncertainty in meaning. Gulf Ins. Co., 936 S.W.2d at 814. Similarly, a contract that promises something at one point and takes it away at another is ambiguous. Behr v. Blue Cross Hospital Service, Inc., 715 S.W.2d 251, 256 (Mo. banc 1986).  The fact that a definition is clear and unambiguous does not end the inquiry as to the existence of an ambiguity until the court has reviewed the whole policy to determine whether there is contradictory language that would cause confusion and ambiguity in the mind of the average policy holder.

Arkansas statute of repose

Posted in Uncategorized

In Platinum Peaks, Inc., v. Bradford, the court held that Arkansas’ statute of repose (Arkansas Code Annotated section 16-56-112 (Repl. 2005)) did not bar a property damage claim made more than 4 years after substantial completion.  The statute only barred tort claims for personal injury, not property damage.  Thus, property damage resulting from a landslide was recoverable, where the defendant’s road caused the land to become unstable.

Statutes of repose may cut off any responsibility for damages, even before the damages occur.