Reinsurance Law Blog

Reinsurance Law Blog

Failure to reevaluate case after partial summary judgment is bad faith 8th Circuit, Nebraska

Posted in Insurance Bad Faith, New Case

In Bamford, Inc. v. Regent Insurance Company, one of Bamford’s employees caused an accident and Bamford told Regent to settle the resulting claims within its policy limits of $6M.  There was no settlement, and a judgment was entered against Bamford for $10.6M.    The damages included a claim on behalf of the other driver’s estate.  A pipe was dislodged from the Bamford truck, went through the other car and through the other driver, pinning him to the car. There was a policy limits offer from the underlying plaintiffs.   Before trial, the court struck Bamford’s loss of consciousness defense and directed a verdict against Bamford on liability. After the excess verdict, Bamford sued Regent for failure to settle the case within the policy limits. A jury found for Bamford, and Regent appealed.  The 8th Circuit affirmed.

Under Nebraska law, an insurer’s bad faith failure to settle within policy limits can be demonstrated by:

[1] the insurance company’s unwarranted rejection of an offer to settle within the policy limits, or [2] a complete and total failure to take into account the potential liability of its insured for an excess judgment, or [3] an insurer’s failure to timely and adequately inform its insured of the insurer’s adverse interest, of settlement, demands and offers, and of the potential value of the case.

Regent claimed that its failure to settle was not bad faith, but was an honest mistake in judgment.  Regent pointed to its multiple efforts to settle; its  increase of its reserves and offers; the advice and valuations of adjusters and two mediators as well as senior management; Nebraska’s reputation as a conservative jury verdict jurisdiction; the valuation of opposing counsel that the verdict would be at least in the $3.5 to $4.5 million range; and Regent believed that settlement negotiations would continue during the trial.  But, while this evidence might support a verdict in favor of Regent, there was evidence to support the jury verdict, and the judgment against Regent was affirmed.

Here, the jury could have concluded that Regent—by relying on valuations received from mediators, counsel, and internal adjusters—reasonably embraced a low value for the [underlying plaintiffs’] claims early in the case, but ultimately acted in bad faith in failing to reassess the value of the claims in light of case developments and advice from its own players that the low value was inaccurate.

 

Total or partial loss, replacement cost vs. actual cash value; interpleader 8th Circuit Missouri

Posted in Contractual Liability, New Case

In Federated Mut. Ins. Co. v. Moody Station and Grocery,  Federated insured Moody Station for $225,000.00 for fire loss and other casualties. When the property was damaged by fire, Federated paid Moody Station’s mortgagee $131,898.44, and interpleaded about $40,000 of the remaining $90,000 policy limits to be distributed between Moody Station and its lessee.  Eventually, the funds were distributed (approximately) as $30,000 to Moody Station and $10,000 to the lessee.  Attorneys fees were awarded to Federated.  Federated contested paying the remaining limits since Moody Station had not replaced the property as required by the policy. Moody Station argued that it suffered a total loss and, by Missouri’s total-loss statute, should recover the policy limits. Alternatively, Moody Station argued that, even with a partial loss, its damage exceeded the policy limit.

The district court found that because Moody Station had not repaired or replaced the damaged property, the replacement-cost provision is a valid condition precedent limiting Moody Station to the actual cash value of the property.  The loss was a partial loss, since a sign and another building were not damaged in the fire.  The district court’s determination of the actual cash value of the loss was based on evidence and was affirmed.  But since Federated was not a disinterested stakeholder — claiming it did not owe anything more on the claim — it was not entitled to attorneys fees.

Cancellation notice is not cancellation — 10th Circuit, Oklahoma (unpublished)

Posted in Contractual Liability, New Case

In Self v. Travelers, the Self’s insured their son’s truck on May 5 for 6 months.  On June 25, the insurance company sent the Selfs a notice of cancellation, which said the policy was being cancelled because the Selfs did not respond to the insurance company’s request for an interview to verify the policy information.  The notice was dated June 25, and was to become effective July 10.  The accident occurred on July 29.  Summary judgment to the insurance company was affirmed on appeal.  The policy and Oklahoma law limited the grounds for cancellation after the policy had been in effect for 60 days.  The notice was sent within 60 days, but the date the policy was cancelled was beyond 60 days.

The plaintiffs aptly state the issue on appeal as follows:
[T]he dispositive question in this coverage dispute is when did SFIC “cancel” the Policy? Did SFIC cancel the Policy on June 25, 2014 (day
51), when it mailed the Notice of Cancellation? If so, the cancellation occurred during the first 60 days [that the Policy was in effect] and was, therefore, timely and valid. Or, did SFIC “cancel” the Policy on July 10, 2014 (day 66) when the Policy ultimately became ineffective? If so, the cancellation occurred after 60 days and was, therefore, untimely and invalid [because the Policy did not permit cancellation after the 60th day except for specific reasons that did not apply here].

Plaintiffs argued that to “cancel” a policy means “to render [it] ineffective.” The Selfs contend that the Policy remained “effective” until July 10, 2014, and therefore could not have been “cancelled” until that date. The Tenth Circuit disagreed, stating

This argument confuses the act of cancellation with its effective date. Under the unambiguous Policy terms, cancellation occurs upon mailing notice, not upon the effective date specified in the notice.

Breach of cooperation clause precludes coverage — Arkansas Court of Appeals

Posted in Contractual Liability, Duty to Defend, New Case

In Spore v. Geico, 2016 Ark. App. 306, Spore was injured in a car accident with Adrian, who was driving a car insured by Geico, through a policy issued to Lolita Ford. Lolita Ford ignored all of Geico’s requests for information about the accident, and Geico filed a declaratory judgment action claiming Lolita Ford’s breach of the cooperation clause excused it from liability under the policy. Summary judgment to Geico was affirmed. The failure of Ford to respond to numerous requests for information or to the trial court’s orders was a breach of the cooperation clause, and the entry of a default judgment was prejudicial to Geico.

ATV type vehicle is a motor vehicle and not covered for UM or UIM — Missouri law

Posted in Contractual Liability, New Case

Progressive Preferred Ins. Co v. Reece

When Jeff Reece was injured on the highway in his John Deere Gator, he sought uninsured / underinsured motorist benefits from Progressive.  Progressive said the Gator was a motor vehicle that is owned by or available for the regular use of you or a relative, and was not a covered auto and thus was excluded from coverage.  In other words, the Gator was not an insured vehicle under the policy, and thus there was no coverage for Mr. Reece’s injuries.  Summary judgment to the insurance company, Progressive was affirmed.

The Reeces claimed the term “motor vehicle” was ambiguous.  In Medical Payments Coverage section of the Policy, the term “motor vehicle” is defined as “a land motor vehicle designed for use principally on public roads.” But that only applied to medical payments, not to the rest of the policy. The term “motor vehicle” is not defined for purposes of the Underinsured Motorist Coverage section of the Policy. The Gator was a motor vehicle as commonly understood, and there was no coverage.

 

Anti-concurrent causation — roof collapse 10th Circuit, Colorado

Posted in Contractual Liability, Insurance Bad Faith, New Case

In Gallegos v. Safeco Ins. Co. of America, Gallegos made a claim against Safeco when his roof collapsed due to snow and ice.  Safeco denied the claim, saying the collapse was caused, at least in part, by improper maintenance and construction. Summary judgment to Safeco was affirmed.  It was undisputed that improper maintenance contributed to the collapse; the defense was raised and preserved in the reservation of rights letter; and Safeco’s payment of the repair costs during the litigation did not waive its defenses.

The insurance policy contained an “anti-concurrent causation” clause that significantly limited Safeco’s liability. That provision states that the policy does “not cover loss caused directly or indirectly by any of [the specifically excluded perils]. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” Since the undisputed evidence showed that improper maintenance and/or construction of the roof was a cause, at least in part, of the roof collapse, there was no coverage.

Concurrent cause, financial institution bond, computer virus and theft claim covered 8th Circuit, Minnesota

Posted in New Case, Uncategorized

In State Bank of Bellingham v. BancInsure, Inc., one of the Bank’s computers became infected with malware, allowing a criminal third party to transfer $485,000 from the Bank to a foreign bank account. BankInsure, sold a financial institution bond to Bank, which provided coverage for losses caused by such things as employee dishonesty and forgery as well as computer system fraud.  BancInsure claimed the loss was not covered based on employee-caused loss exclusions, exclusions for theft of confidential information , and exclusions for mechanical breakdown or deterioration of a computer system, so Bank sued — and won. The district court held “that the computer systems fraud was the efficient and proximate cause of [the Bank’s] loss,” and “neither the employees’ violations of policies and practices (no matter how numerous), the taking of confidential passwords, nor the failure to update the computer’s antivirus software was the efficient and proximate cause of [Bank’s] loss.” Further, the district court held “it was not then a ‘foreseeable and natural consequence’ that a hacker would make a fraudulent wire transfer. Thus even if those circumstances ‘played an essential role’ in the loss, they were not ‘independent and efficient causes’ of the loss.” The district court awarded Bank $620,187.36, which included prejudgment interest. It denied summary judgment to BancInsure on its counterclaims for breach of contract and malicious prosecution. The court also awarded attorneys’ fees to Bank based on the denial of summary judgment on the malicious prosecution claim.

Since Minnesota treats financial institution bonds like insurance, it was proper to use insurance cases involving concurrent cause issues to determine this case.  The bond did not have “anti-concurrent causation” language.  The efficient and proximate cause of the loss in this situation was the illegal transfer of the money and not the employees’ violations of policies and procedures.

Make whole rule preempted by federal law, 8th Circuit, Arkansas

Posted in Contractual Liability, New Case

In Bell v. Blue Cross and Blue Shield of Oklahoma, an insured federal employee sued her health-care plan administrators for a declaratory judgment that she was not required to reimburse the plan after settling with an automobile liability insurer since she had not been made whole. Judgment for the administrators was affirmed on appeal.

When Bell was injured in a car wreck, she received medical treatment which was paid for by Blue Cross.  Later, she got money from the other driver’s insurance company.  Blue Cross said it was entitled to be repaid the cost of the medical treatment, but Bell claimed Blue Cross was not entitled to any money until she was made whole — fully compensated for her injuries.  See Shelter Mut. Ins. Co. v. Kennedy, 347 Ark. 184, 60 S.W.3d 458, 461 (2001). The Arkansas make whole rule was preempted by federal law, and Blue Cross was entitled to be reimbursed.

Reinsurance arbitration clause invalidated; Missouri law

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

In Leonberger v. Missouri United School Insurance Council, a bus driver accidentally killed a student after he left the bus.  There was a lawsuit, and the criminal acts exclusion was raised after the driver pled guilty to the charge of second-degree involuntary manslaughter. After the student’s parents got an $11.5M judgment, the driver sued the reinsurer and the insurer for bad faith.  The reinsurer demanded the claim be arbitrated.  The trial court’s denial of a motion to compel arbitration was affirmed.  It was claimed that reinsurance was not insurance, as Missouri law prohibits mandatory arbitration agreements in insurance contracts, but excepts reinsurance from the prohibition.  The court found the policy was not strictly a reinsurance contract, because of the great degree of control that the reinsurer exerted on the underlying litigation.

The terms of the . . . contract clearly indicate that despite its moniker, the contract is not strictly a reinsurance agreement, excusing it from the prohibition against mandatory arbitration clauses set forth in Section 435.350. It is not a mere contract of indemnity against loss but is, in fact, a contract of indemnity against liability. Homan, 136 S.W.2d at 299. By its terms it provides excess insurance and is, in essence, a co-insurer for MUSIC’S insureds. The contract does not simply operate to provide reinsurance between two sophisticated insurance companies, MUSIC and Appellant. As such, it is an insurance contract and its mandatory arbitration clause is unenforceable and cannot be enforced against Respondent under Section 435.350.

In addition, Missouri’s prohibition against mandatory arbitration in insurance contracts was not preempted by federal law.

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