Reinsurance Law Blog

Reinsurance Law Blog

Insurers Must Defend Telemarketing Suits — despite claims of intentional conduct — Second Circuit, NY

Posted in Contractual Liability, Duty to Defend, New Case

In National Fire Insurance Company v. E. Mishan & Sons, Inc., Emson was sued in two class action lawsuits that claimed Emson worked with two other companies to to deceptively trap customers into recurring credit card charges.  The underlying lawsuits asserted that Emson acted as a purveyor of data, facilitating “data passes” and transferring private customer information for profit. Emson was insured by National Fire and others under several commercial general liability policies.  The Policies provided coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies.” The Policies defined “personal and advertising injury” to include the “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” In addition, the Policies included an exclusion to coverage for personal and advertising injuries for knowing violations of another’s rights, defined as “ ‘[p]ersonal and advertising injury’ caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury.’

The district court found the insurers had no duty to defend the lawsuits because “all of the allegations” against Emson in the underlying lawsuits fall into the coverage exclusion for “personal and advertising injury” caused by knowing violations of another’s rights.  The Second Circuit reversed.  The Court considered both the causes of action and the accompanying factual allegations against Emson and concluded that the knowing violation exclusion alone did not absolve the Insurers of their duty to defend. The Court could not conclude with certainty that the policy does not provide coverage, because the conduct triggering the knowing violation policy exclusion is not an element of each cause of action. Therefore, Emson could be liable to plaintiffs even absent evidence that it knowingly violated its customers’ right to privacy. Furthermore, while the underlying plaintiffs allege generally that Emson acted knowingly and intentionally, the actual conduct described does not rule out the possibility that Emson acted without intent to harm.

The underlying lawsuits both assert claims against Emson for breach of contract and unjust enrichment, neither of which require a showing of knowledge or intent.

The summary judgment was reversed.

Failure to notify insurer of lawsuit filed after the application but before the policy issued results in rescission 8th Circuit, Iowa, Arkansas

Posted in Contractual Liability, New Case

In Capson Physicians Insurance Co v. MMIC Insurance Inc., Dr. Hasik changed his private medical practice from Arkansas to work in a hospital in Iowa. He got new professional liability insurance from Capson.  In addition, the hospital sought coverage for Dr. Hasik through its insurer, MMIC.  Most professional liability insurance is written on a claims made (rather than an occurrence) policy. Between the time Dr. Hasik applied for the MMIC insurance, and the time it was issued, Dr. Hasik was sued for professional negligence. Capson said MMIC was on the hook for the claim, and that Capson’s liability on the claim was secondary to MMIC.  The court disagreed, and the 8th Circuit affirmed. MMIC was entitled to rescission under Iowa law.

Dr. Hasik’s and the hospital’s nondisclosure of the Wilson lawsuit was the equivalent of a false assertion. The claim made against Dr. Hasik constituted a significant change that affected the risk that MMIC was offering to underwrite. It also rendered part of Dr. Hasik’s application untrue. The hospital and the doctor had a duty to report the lawsuit to MMIC.  Stipcich v. Metro. Life Ins. Co., 277 U.S. 311 (1928) (“Insurance policies
are traditionally contracts uberrimae fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option.” The Eighth Circuit quoted from Stipchich:

But the reason for the rule still obtains, and with added force, as to changes materially affecting the risk which come to the knowledge of the insured after the application and before delivery of the policy. For even the most unsophisticated person must know that, in answering the questionnaire and submitting it to the insurer, he is furnishing the data on the basis of which the company will decide whether, by issuing a policy, it wishes to insure him. If, while the company deliberates, he discovers facts which make portions of his application no longer true, the most elementary spirit of fair dealing would seem to require him to make a full disclosure. If he fails to do so the company may, despite its acceptance of the application, decline to issue a policy, or, if a policy has been issued, it has a valid defense to a suit upon it.

Capson argued the doctrine of uberrimae fidei conflicted with Iowa law, which places the burden on the insurer to seek information, construes doubts in favor of the insured, precludes rescission when the insurer’s questions have been answered truthfully, and does not permit courts “to rewrite insurance contracts based upon amorphous policy considerations.” But Iowa permits equitable rescission where one party has superior information on a material issue, as here.  And it didn’t matter if the duty to provide this information was found in the policy. See Stipcich, 277 U.S. at 318 (“The obligation was not one stipulated for by the parties, but is one imposed by law as a result of the relationship assumed by them and because of the peculiar character of the insurance contract.”).

Note:

A claims-made policy provides coverage for claims that are first made and reported to the insurer during the term of the policy, regardless of when the insured’s alleged negligent act was committed. Insurers limit their exposure “by inserting a ‘retroactive date’ into the policy, prior to which the insured’s acts are not covered.” Occurrence policies provide coverage for occurrences within a specific policy period. It does not matter when the claim is made or reported.

 

 

Attorneys fees statute strictly construed; 8th Circuit — Arkansas

Posted in Contractual Liability, New Case

In Cooper v. General American Life Ins. Co., Cooper got an annuity from General American.  But the money funding the annuity didn’t clear, so General American reversed the transaction.  General American would reinstate the annuity and pay Cooper interest if and when the payment cleared.  Before the matter was resolved (payment was made and finally cleared) Cooper sued General American seeking penalties, interest and attorneys fees.  Summary judgment to General American was affirmed.  There was no payment due under the policy so the attorneys fees statutes (which must be strictly construed) did not apply.  A general attorneys fee statute for breach of contract claims did not apply because there was no claim for breach of contract.

$2M+ verdict upheld for failure to pay uninsured motorist benefits – 10th Circuit, Colorado

Posted in Insurance Bad Faith, New Case

In Etherton v. Owners Insurance Company, Etherton was hurt in a car wreck and had 3 back surgeries.  He settled with the other driver for $250,000 and wanted $750,000 from his uninsured / underinsured motorist carrier — the remainder of his $1M policy limit. The UM carrier (Owners) offered $150,000, because it did not believe the injuries claimed arose from the accident.  Etherton sued for breach of contract and delay in payment and got $2,250,000 in damages. (This amount was determined as the amount owed under the contract — 750,000, and twice that amount for delay damages.) The Tenth Circuit affirmed.

First, Etherton’s causation expert was properly allowed to testify under Daubert. But the expert’s methodology was well accepted in the medical community for medical treatment purposes, and the methodology was reliably applied in this case, so the evidence ruling was affirmed.  Second, the jury properly decided that the insurance company was liable under Colorado’s unreasonable delay/denial statute.

Owners claimed it could not be liable for delay or denial of the claim because under the policy, Owners and Etherton had to agree to the damages before Owners was liable.  The Tenth Circuit soundly rejected this claim.  Not only would such a reading of the policy unreasonably insulate insurers from claims, it would also conflict with Colorado statutes.

In sum, Owners’ interpretation of the contract provision is unreasonable and would be void as against public policy as stated in Colo. Rev. Stat. § 10-3-1115.

Whether Owners acted reasonably was a jury question, decided against it.  And, under Colorado law, Etherton was entitled to his contract damages and twice his contract damages for bad faith.  The judgment was affirmed.

 

Spring 2016 Issue of the Washington Insurance Law Letter now available

Posted in New Case

The Washington Insurance Law letter for Spring, 2016, is now available.  The newsletter contains several dog cases, a discussion of how many accidents resulted from a drunk driver’s various collisions; a discussion of Cumis counsel cases and reimbursement clauses in policies, and recreational land use immunity.

Missouri under-insured motorist coverage did not apply where liability limits were higher than UIM limits 8th Circuit

Posted in Contractual Liability, Insurance Bad Faith, New Case

In Burger v. Allied Property and Cas. Ins. Co., Burger was injured in a car accident.  The other driver paid Burger the policy limits of $100,000 for damages, but Burger had additional damages so she made a claim against Allied for underinsured motorist coverage.  Summary judgment to Allied was affirmed.  The policy defines an “underinsured motor vehicle” as one that was subject to a policy with a limit of liability that was less than the limit of liability for UIM coverage under insured’s policy.  Here the tortfeasor’s liability limits of $100,000 exceeded the UIM (underinsured motorist) limits of $50,000.  Thus, the policyholder was not injured by an “underinsured motor vehicle” and summary judgment was proper.

Insurance company liable for hail and wind damage, but not interior water damage, 8th Circuit, Minnesota

Posted in Contractual Liability, New Case

In Amplatz v. Country Mutual Insurance Company, Amplazt got a jury verdict in her favor for over $75,000 in hail and wind damage for damage to the exterior of her buildings, but nothing for interior water damage. She appealed, and the 8th Circuit affirmed, finding the commercial-property insurance policy issued by Country Mutual Insurance did not cover interior water damage claims. Amplatz contended that damage to the roofs and windows of the properties allowed water to seep inside and that the resulting interior water damage was a covered loss. Country maintained that water leaked into the properties because of deferred maintenance, not hail damage, and so refused to cover the interior damage.  There was no error in excluding reports that were not timely provided, and the jury instructions were correct, so the jury verdict was affirmed.

 

Consultant is not a fiduciary if she does not exercise discretionary authority over the ERISA plan’s administration 10th Circuit, Kansas

Posted in Contractual Liability, New Case

In Lebahn v. National Farmers Union, Lebahn and his wife claim that a pension-plan consultant breached a fiduciary duty by misstating the amount of the monthly pension payments that Mr. Lebahn would receive if he were to retire. But under ERISA, the plan consultant could be considered a fiduciary only if she exercised discretionary authority over the plan’s administration.  Calculating benefits was not an exercise of discretionary authority over the plan administration, and therefore dismissal was proper.

Error to dismiss claim for forced placed insurance — 8th Circuit, Arkansas

Posted in Contractual Liability

In King v. Homeward Residential, Inc., (unpublished) the Kings claimed the mortgage loan servicers  force placed hazard insurance on their property, even though the Kings already had hazard insurance on the property.  The forced placed insurance is more expensive than other insurance, and the Kings claimed unjust enrichment.

The district court erred in dismissing the Kings’ unjust-enrichment claim against the loan servicers. The Kings stated an unjust-enrichment claim under Arkansas law and that their allegations adequately established that the claim was not inconsistent with the contract at issue. See United States v. Applied Pharmacy Consultants, Inc., 182 F.3d 603, 605-09 (8th Cir. 1999) (affirming award based on unjust-enrichment theory in case involving Arkansas law; noting general rule that unjust enrichment is not an available means of recovery when there is express contract between parties, but concluding that exception to general rule was properly applied where there was no inconsistency between unjust-enrichment recovery and what contract provided). . . .

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