Reinsurance Law Blog

Reinsurance Law Blog

Shooting not covered by homeowners, umbrella or business policies E.D. Ark

Posted in Contractual Liability, Duty to Defend, New Case

In Travelers v. Wilson, 2016 WL 5334666, Wilson was insured under a homeowner’s policy, an umbrella policy, and a business policy.  But none of these policies provided coverage to Wilson when he shot Metcalf in the parking lot of his (Wilson’s) liquor store.  Wilson was convicted of 2nd Degree murder for the shooting.  Second degree murder requires intent.  The policies only cover “occurrences” which are “accidents”.  The homeowner’s policy did not cover “bodily injury” arising out of or in connection with a “business” conducted from an “insured location” or engaged in by an “insured.”  The homeowners policy also excludes coverage for “bodily injury” arising out of premises owned by an “insured” that is not an “insured location.” And since there was no coverage in the underlying policy, the umbrella policy did not apply.  Summary judgment was granted to the insurance companies.  There was no duty to defend or indemnify Wilson in a claim by Metcalf’s estate.

4:15CV00532 SWW
Filed 09/22/2016
2016 WL 5334666 (E.D. Ark. Sept. 22, 2016)

New Issue of Coverage Opinions out

Posted in Contractual Liability, Duty to Defend, Insurance Bad Faith

There is a new issue of Coverage Opinions out.  The newsletter discusses, inter alia:

Update From The Reporters On The ALI Restatement Of Liability Insurance

A Monster: Insurer Sasquashed: #1 Coverage Case Of 2016

ABSOLUTE MUST READ: Bad Faith: Turning $30K into $3M (And Easily Preventable)

Consequences For Breach Of The Duty To Defend

This Decision Should Really Trouble Lawyers

Court Upholds Very Broad Exclusions For A Construction Site Bodily Injury Claim

Supreme Court: Insurer Cannot Contract-Around “Notice-Prejudice” Rule

In A New York State Of Bind: Achieving Allocation Between Covered And Uncovered Claims [A First For New York?]

New Okla Court of Civil Appeals opinion on admissibility of felony convictions in civil cases

Posted in New Case

In Johnson v. Stacy, 2016 OK CIV APP 56, the Oklahoma Court of Civil Appeals decided 1. evidence of non-use of helmets is generally inadmissible; 2. evidence of non-use of helmets is not admissible in damages arguments; 3. Admission of a prior felony conviction for assault and battery on a police officer was improper. Prior felony convictions are clearly and unmistakably subject to a probative value versus unfair prejudice inquiry against a party to a civil trial; 4. Whether a party has the privilege to drive a motorcycle (e.g., has a motorcycle endorsement) is a legal question for the court, and not relevant to a civil action for damages.

While this is not a coverage issue, it may be of interest to those who work with coverage issues.

OK to limit family member UM coverage to family members who do not own autos — Missouri

Posted in New Case

In Taylor vs. Owners Insurance Company, Taylor wanted coverage from Owners Insurance under his mother’s policy.  But the policy only provided coverage to members of the insured’s household who do not own their own cars.  Taylor owned his own cars and thus was not entitled to coverage. The trial court’s summary judgment to Taylor was reversed and judgment was entered for Owners Insurance Company.

Oklahoma Supreme Court ok’s billed vs. incurred for medical bills

Posted in New Case

In Lee v. Bueno, 2016 OK 97, plaintiffs challenged an Oklahoma evidence statute which limits the amount of medical bills that goes to the jury to the amount that the medical provider will take in payment, rather than the amount that is billed.  Many medical providers have agreements with insurance companies (and medicare) to accept less than the billed amount for services rendered.  This is the amount of damages the jury should hear, not the amount billed.  The Supreme Court found the plaintiffs did not show the statute was unconstitutional, and to the extent the statute conflicted with the collateral source rule, the statute would apply.  Under the collateral source rule, compensation given to an injured party from a collateral source wholly independent of the wrongdoer does not operate to lessen the damages recoverable from the person who causes the injury.

The Supreme Court noted the statute at issue has been significantly modified.  It is unclear whether the newer version of the statute would also be constitutional.

Appraisal, arbitration, and federal appellate jurisdiction 10th Circuit; Colorado

Posted in Contractual Liability

In KCOM v. Employers Mutual Casualty, KCOM had hail damage to its motel roof.  Employers disputed the amount of the claim. KCOM sought appraisal, and then sued Employers before the appraisal was complete.  When the appraisal was complete, Employers wanted it confirmed by the trial court. When the trial court did not confirm the appraisal, Employers appealed.  The appeal was dismissed for lack of appellate jurisdiction — denying a confirmation of an appraisal is not a final order.

Employers claimed that appraisal was like arbitration, and under the Colorado appraisal statute, the failure to confirm is appealable.  But the Tenth Circuit’s jurisdiction is based on federal, not state law.  Employers argued that because the appraisal process outlined in the insurance policy sufficiently resembled classic arbitration, the process fell within the purview of the Federal Arbitration Act (FAA), which provides for an interlocutory appeal from the denial of a motion to confirm an arbitration award.  The problem is that Employers did not bring it motion to confirm under the FAA, but instead, cited to state law.  And, there is nothing which shows that Employers was seeking relief under federal (rather than state) law. Furthermore, Employers had not shown that appraisal was the same as arbitration.  There was no substantial public interest in having an interlocutory appeal.

Appeal dismissed.

Insurer’s Delayed Loss Adjustment & Misleading Insured about Settlement May Constitute Bad Faith – 8th Circuit, Iowa

Posted in Contractual Liability, Insurance Bad Faith, New Case

Bruhn Farms Joint Venture v. Fireman’s Fund Ins. Co. involved a dispute over the adjusted value of hail-damaged crops.

The insured notified the insurer of the hail damage. Over a month later, the insurer adjusted the loss. Additional inclement weather had further damaged the crops and all salvageable crops had been harvested. Still, the insurer determined the payable loss and notified the insured. The insured disagreed with the adjusted loss and refused to sign the proof of loss. The insurer sent payment for the loss without further discussion with the insured. The insured contacted an independent adjuster to negotiate with the insurer. Both parties agreed to re-calculate the loss using the historical yields. The insurer notified the independent adjuster it was willing to pay additional funds on the insured’s claim. However, when the independent adjuster attempted to accept, the insurer alleged the claim was properly adjusted and paid.

The insured filed suit claiming the insured breached the contract by mailing payment without an agreement and acted in bad faith. The insurer alleged the claim was properly adjusted and the insured failed to request an independent appraisal.

Judgment for the insured was proper because the policy did not place the onus of requesting an independent appraisal solely on the insured. The time period to request independent appraisal expired before the insurer completed its second adjustment. Additionally, policy language requiring payment within 30 days after an agreement prevented the insurer from tendering payment to the insured absent such an agreement. The insured’s delay in adjusting the loss and purposely misleading the insured to believe the claim would be favorably resolved created grounds for bad faith.

Oklahoma Supreme Court finds Opt out portion of Workers Compensation law unconstitutional

Posted in New Case

In Vasquez v. Dillards, the Workers Compensation Commission found the opt out provisions of the state workers compensation laws unconstitutional.

Under Oklahoma’s newly created workers’ compensation system, employers may  provide coverage for workplace injuries under the traditional no-fault workers’ compensation system, which grants employers immunity from civil liability.  Alternatively, Employers may also “opt out” of the workers compensation system and instead be governed by the Oklahoma Employee Injury Benefit Act (OEIBA). The newly enacted system requires employers to choose whether to provide workers compensation coverage or to maintain an employee benefit plan under the OEIBA. An employer in Oklahoma who elects to “opt out” not only remains subject to the mandates of the OEIBA, but is also subject to the jurisdiction of the Workers’ Compensation Commission and certain regulations of the Oklahoma Insurance Commissioner. In addition, an employer who “opts out” under the OEIBA maintains exclusive remedy protections, and the exclusive remedy protections are “as broad as the exclusive remedy protections of the Workers Compensation Act, and thus preclude a covered employee’s claim against a qualified employer, its employees, and insurer for negligence or other causes of action.” Neither the AWCA nor the OEIBA allows an injured worker to opt out by waiving his or her employer’s workers’ compensation insurance coverage and retaining the right to assert common-law claims in court.

The Oklahoma Supreme Court found

The Opt Out Act is an unconstitutional special law, creating an impermisible select group of employees seeking compensation for work-related injuries for disparate treatment, in violation of art. 5, §59 of the Oklahoma Constitution.

The Oklahoma Supreme Court did not address any other claimed constitutional deficiencies in the law.

The Oklahoma Supreme Court rejected Dillards claim that the class to be considered is made up of employers, rather than employees.

Title 85A O.S. Supp. 2015 §203(B) provides:

The benefit plan shall provide for payment of the same forms of benefits included in the Administrative Workers’ Compensation Act for temporary total disability, disfigurement, amputation or permanent total loss of use of a scheduled member, death and medical benefits as a result of an occupational injury, on a no-fault basis, and with dollar, percentage and duration limits that are at least equal to or greater than the dollar, percentage, and duration limits contained in §§45, 46, and 47 of this title. For this purpose, the standards for determination of average weekly wage, death beneficiaries, and disability under the Administrative Workers’ Compensation Act shall apply under the Oklahoma Employee Injury Benefit Act, but no other provision of the Administrative Workers’ Compensation Act defining covered injuries, medical management, dispute resolution or other process, funding, notices or penalties shall apply or otherwise be controlling under the Oklahoma Employee Injury Benefit Act, unless expressly incorporated. [Emphasis supplied.]

Rather than providing employees of qualified plan employers equal rights with those of employees falling within the Workers’ Compensation Act, the clear, concise, unmistakeable, and mandatory language of the Opt Out Act provides that, absent the Act’s express incorporation of some standard, such employers are not bound by any provision of the Workers’ Compensation Act for the purpose of: defining covered injuries; medical management; dispute resolution or other process; funding; notices; or penalties. The statutory language itself demonstrates that injured workers under the Opt Out Act have no protection to the coverage, process, or procedure afforded their fellow employees falling under the Administrative Workers’ Compensation Act. There is little question that §203 specifically allows the employers creating their own plans to include conditions for recovery making it more difficult for the injured employee falling within to recover for a work-related injury than a counterpart covered by the Administrative Act.

While finding the opt out provisions unconstitutional, the Supreme Court did not determine whether Vasquez had a viable claim, which was pointed out by the dissent.  The dissent said that preexisting conditions and/or degenerative conditions are not covered under the Workers Compensation Act, so it may have been permissible to decline coverage under OEIBA.



Failure to Provide Expert Witness Report until Eve of Trial Warrants Exclusion – 8th Circuit, Minnesota

Posted in Insurance Bad Faith

In Amplatz v. Country Mut. Ins. Co., an insured sued her insurance company for property damage caused by hail, water and wind. The insurance company denied coverage of water damage to the interior because the water leaked inside due to the insured’s deferred maintenance.

The insured obtained an expert witness report stating water leaked inside due to the covered wind and hail damage. The insured withheld the report from the insurer until one month before trial. The insurer sought to exclude the expert witness report because the insured’s delay unfairly prejudiced the insurer.

The insured also objected to the jury instructions because the instructions used the term “damage” rather than the policy language “Covered Cause of Loss.” The insured claimed the word choice mislead the jury regarding which damage qualified as a covered loss.

Judgment was proper for the insurer because the insured’s failure to provide the expert witness report was an “egregiously untimely disclosure.” Furthermore, jury instructions stating the claimed damage must have occurred during the coverage period or have been caused by damage that occurred during the coverage period were not misleading.

Knowledge of theft before policy issued precludes coverage, 6th Circuit, Ohio

Posted in New Case

Construction Contractors Employer Group discovered that an employee had misappropriated certain funds and that another $1 million was missing. It then purchased an employee-theft insurance policy with Federal Insurance Company (“Federal Insurance”). After Federal Insurance executed the policy, Construction Contractors determined that the same employee had misappropriated the missing $1 million. Federal Insurance denied Construction Contractors’ claim for the $1 million, and Construction Contractors filed suit. The district court granted Federal Insurance’s motion for summary judgment, concluding that any loss caused by one employee is considered a “single loss” under the policy and that Construction Contractors had “discovered” the loss before the execution of the policy. The Sixth Circuit affirmed.

Construction Contractors wrote payroll checks for its customers. Construction Contractors later hired AlphaCare to write the payroll checks. When Construction Contractors came up short one month, it began to investigate. In October, Construction Contractors learned that it was behind on its taxes because AlphaCare didn’t pay them like it was supposed to, and that AlphaCare was diverting money (wire fraud). Construction Contractors also learned that $1M was unaccounted for.

In January, Construction Contractors applied for a crime-coverage insurance policy, which included coverage for employee theft, from Federal Insurance. In its application, Construction Contractors disclosed the following:

Construction Contractors disclosed the following:

Since 2002, [Construction Contractors] was in contract with AlphaCare [] to provide specific management duties for [it]. Those duties included the direct management of the corporate bookkeeping and payroll processing. Effective July 31, 2012, [Construction Contractors] terminated its contract with [AlphaCare] for breach of contract. [AlphaCare] was contractually responsible for processing our participants’ payroll and remitting payroll taxes to the proper taxing authorities. A subsequent review of [AlphaCare’s] performance has indicated [its] failure to report, reconcile and remit certain payroll taxes.

A subsequent review of [Construction Contractors’] accounting records indicated unauthorized transfers from [Construction Contractors] owned accounts to ACS owned accounts from 2009 to 2012. Further investigation is in process, and the potential for criminal prosecution is being evaluated by our company attorneys.

Federal issued a policy which excluded “any loss that an Insured is aware of prior to the inception date of [the] Policy;” stating that all losses from a single employee or company is one loss; and stating that losses discovered during the policy would be covered.

For purposes of the policy, “discovered” is defined as “knowledge acquired by an Executive or Insurance Representative of an Insured which would cause a reasonable person to believe a covered loss has occurred or an occurrence has arisen that may subsequently result in a covered loss.” The definition continues by stating that losses excluded from coverage are those “sustained prior to the inception date of any coverage” as well as where “the exact amount or details . . . are unknown.”

After the policy was issued, Construction Contractors figured out how Alpha Care stole the money, and made a claim, which was denied. The Sixth Circuit noted that while “mere suspicion” is not discovery of a loss, Construction Contractors knew that $1M was missing and unaccounted for when it applied for the insurance. The undisputed facts demonstrate that Construction Contractors knew of the wire-fraud loss before executing the insurance policy with Federal Insurance. Because Construction Contractors discovered the wire fraud prior to the policy’s execution and the check theft and wire fraud constitute a single loss, the check-theft loss is excluded from coverage under the policy.