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
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.
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.
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.
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.
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 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.
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.
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
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.
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