Reinsurance Law Blog

Reinsurance Law Blog

No bad faith where law is unsettled — Iowa workers compensation

Posted in Contractual Liability, Disability Benefits, Insurance Bad Faith, New Case

In Paulino v. Chartis, Paulino was injured at work, resulting in Paulino becoming a paraplegic.  As a result, Paulino needed certain living accommodations when he was discharged from rehabilitative services.  Since no specialized living accommodations were available, Paulino remained in the rehabilitative hospital, and Chartis quit paying.  The workers compensation court initially denied Paulino’s claim for more time in the hospital, and then reversed its decision. Later, Paulino sued Chartis for bad faith.  The trial court granted summary judgment to Chartis and the 8th Circuit affirmed.

Under Iowa law, a prima facie claim of bad-faith denial of insurance benefits requires proof of two elements: (1) that the insurance company “had no reasonable basis for denying the plaintiff’s claim” and (2) “the defendant knew or had reason to know that its denial or refusal was without a reasonable basis.” Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). A court may find as a matter of law that the defendant had a reasonable basis if the claim is “fairly debatable.”  A claim is fairly debatable if “it is open to dispute on any logical basis”—that is, “if reasonable minds can differ on the coverage-determining facts or law.”

The Eighth Circuit, like the trial court, found the actions of Chartis “fairly debatable” thus affirming summary judgment.

Oklahoma law limited damages for uninsured motorists is unconstitutional

Posted in New Case, Vehicle

As part of tort reform, Oklahoma passed a law that precluded uninsured motorists from recovering damages for pain and suffering and other non-economic damages.  The Oklahoma Supreme Court struck down this law as a special law in Montgomery v. Potter.  The court states:

Section 7-116 creates an impermissible special class by restricting damages in civil negligence actions for victims who also happen to be uninsured drivers while the general class of automobile accident victims is not prevented from the recovery of damages for pain and suffering. Because 47 O.S.2011, § 7-116 impacts less than an entire class of similarly situated claimants it is under-inclusive and, therefore, we find it to be an unconstitutional special law prohibited by art. 5, § 46 of the Oklahoma Constitution.

No right to statutory damages under ERISA / COBRA for failure to give notice where plaintiff was not harmed; 8th Circuit

Posted in Contractual Liability, New Case

In Cole v. Trinity Health Corporation, the Eighth Circuit affirmed the trial court’s grant of summary judgment to an ERISA plan that failed to give statutory notice of COBRA (Consolidated Omnibus Budget Reconciliation Act) rights to continued health care coverage after Ms. Cole was terminated from employment.  COBRA requires that an employee be offered the right to continued health care coverage after that coverage would otherwise end.  Under COBRA, the employee must pay up to 102% of the cost of coverage under the plan.  The trial court found that Ms. Cole and her family continued to receive health care benefits after she no longer qualified for them, and that the cost of COBRA coverage to her would have exceeded the amount of health care benefits she lost.  As a result, the trial court declined to award statutory damages for the failure to notify Ms. Cole about her COBRA rights, and granted summary judgment to Trinity.

The trial court declined to award the Coles statutory damages and granted summary judgment to Trinity Health. The trial court reasoned the Coles were not entitled to actual damages because the amount of their unreimbursed medical bills was less than the COBRA premiums they would have had to pay to maintain medical insurance. The trial court also reasoned the Coles were not entitled to statutory penalties because “Trinity Health acted in good faith,” “the Coles were not harmed or prejudiced by Trinity Health’s tardy notice of their COBRA rights,” and “the Coles were provided continued medical coverage for approximately eleven months after Bonnie’s termination.”

The appellate used an abuse of discretion standard in reviewing the trial court’s rulings, but indicated that even under a more traditional de novo standard of review, the trial court’s rulings would be affirmed.  There were no factual disputes, and the finding that failure to give the required notice did not harm the plaintiffs was within the evidence.

Arkansas uses significant contacts to determine UM choice of law

Posted in New Case, Vehicle

In Hoosier v. Interinsurance Exchange of the Automobile Club, 2014 Ark. 524, the insureds got their policy in California, then moved to Texas.  A new declarations page was issued showing the change of residence to Texas.  The insureds were in an accident in Arkansas.  After settling with the tortfeasors, the insureds sought UM (uninsured motorist) coverage.   After the accident, the insureds moved back to California.  Under California law, uninsured motorist coverage only pays the difference, if any, between the tortfeasor’s liability limits and the insured’s UM limits, while in Texas, the insured is entitled to the tortfeasor’s liability limits plus UM coverage until the insured is made whole.

The Court said that as to an automobile-insurance policy, unless some other state has a more significant relationship to the transaction and the parties, the law of the state which the parties understood to be the principal location of the insured risk during the term of policy controls. At the time of the accident, the place of performance, the location of the subject matter of the contract, and the residence of the insureds were all in Texas. Thus, Texas law applied.

The dissent stated that the Court had previously applied the place of the contract to insurance choice of law issues, and should explain why it is changing the standard.

Primary vs excess carrier — bad faith failure to settle within primary limits — Missouri law

Posted in Insurance Bad Faith, New Case

In Scottsdale Insurance Company and Wells Trucking, Inc.,  vs. Addison Insurance Company and United Fire & Casualty Company, the Missouri Supreme Court en banc decided that the primary carrier had a duty to settle within its policy limits, and its failure to do so within a reasonable time could subject it to bad faith liability.  An excess judgment is not required to maintain an action against an insurer for bad faith refusal to settle. The insurer’s duty is to protect the insured’s financial interests, which are impacted by an insurer’s breach of duty whether the breach results in an excess judgment or an excess settlement. Additionally, an insured’s premiums pay, in part, for the insurer’s obligation to act in good faith when settling a third-party claim. Further, United Fire’s ultimate settlement for its policy limits is not fatal to a bad faith refusal to settle action. An insurer may be liable over and above its policy limits if it acts in bad faith in refusing to settle the claim against its insured within its policy limits when it has the chance to do so. The crux of Wells Trucking and Scottsdale’s claim is that United Fire had numerous opportunities to settle fully the wrongful death claim against Wells Trucking for United Fire’s $1 million policy limits, that United Fire wrongfully refused to do so until after the family no longer was willing to accept a $1 million settlement, and that United Fire’s payment up to the policy limits does not make Wells Trucking whole or put Wells Trucking in the same position as if United Fire had performed its obligations in good faith. Summary judgment for the primary carrier was reversed.

No claim for bad faith adjusting — Okla law

Posted in Insurance Bad Faith, New Case

In Trinity Baptist Church v. Brotherhood Mutual Insurance Services, LLC, 2014 OK 106, a church filed a claim with its insurer for damage to its sanctuary after a severe winter storm. The insurer hired an independent insurance adjuster (Sooner) to adjust the claim. After a lengthy process, the church sued its insurer and the independent adjuster alleging breach of contract, bad faith, and gross negligence. The church settled with its insurer, and the trial court granted summary judgment for the independent adjuster. Summary judgment was affirmed.  The independent adjuster: 1) was not subject to the implied covenant of good faith and fair dealing as it was not a party to the insurance contract and had no special relationship with the insured; and 2) owed no legal duty to the insured that would subject it to liability in tort for negligent adjustment of the claim.

Thus, the Oklahoma Supreme court ruled there is no good faith duty between an insured and an adjuster — most of the time; and an adjuster cannot be sued for negligence or gross negligence since the independent adjuster owes no duty to the insured.  This holding was based, in part, on the idea that if the adjuster owed a duty to the insured, it would “thrust the adjuster into what could be an irreconcilable conflict between such duty and the adjuster’s contractual duty to follow the instructions of its client, the insurer.”  “If the agent or independent contractor fails to adequately perform the functions, the insurer is liable, not under the doctrine of respondeat superior, but because of its own failure to comply with its non-delegable duty of good faith.”  Wathor, 2004 OK 2, n. 6

Assumption of liability, duty to defend; fair notice rule 10th Cir (Texas law)

Posted in New Case

In Martin K. Eby Construction v. OneBeacon Insurance, Eby agreed to indemnify Kellogg for all claims, including attorneys’ fees and expenses, “directly or indirectly arising from or caused by or in connection with the performance or failure to perform any work” by Eby.  20 years or so ago, Eby was working on a water pipeline when it damaged a methanol pipeline and caused a leak.  The leak was discovered 20 years later.  The owner of the methanol pipeline tried to recover the expenses from Kellogg and Eby. Kellogg and Eby prevailed, but Kellogg incurred over $2 million in attorneys’ fees and costs. Kellogg invoked Eby’s indemnity promise, suing Eby and its liability insurer, Travelers Casualty and Surety Co. The district court granted summary judgment to Eby and Travelers, and the 10th Circuit affirmed.

First, the court found Eby’s indemnity promise unenforceable because it covered all claims, including claims involving Kellogg’s malfeasance.  Although Eby’s conduct caused the leak, Kellogg was sued for not discovering it.  Thus, Texas’ fair notice rule applied when the indemnity clause covers the indemnitee’s fault implicitly, but not explicitly.

Under Texas’ fair notice rule, promises to indemnify a party for its own fault must be expressly stated and conspicuous. A clause is “conspicuous” when it would attract the attention of a reasonable person. Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 511 (Tex. 1993), such as different size type, all capital letters in a heading, and different colors. Here, the indemnity agreement was halfway through a 197 page document; with no differentiation. While the indemnity agreement was also mentioned in a 4 page contract, its terms were not mentioned.

Since the indemnity clause is not conspicuous, it is unenforceable. Since the indemnity clause is unenforceable, there is no agreement by Eby to indemnify Kellogg, and thus, no requirement that Eby’s insurer, Traveler’s, defend Kellogg.

Tenth Circuit rules pollution exclusion unambiguous (applying Utah law)

Posted in New Case

In Headwaters Resources v. Illinois Union Insurance Co., the insured used fly ash to construct a golf course in a residential area.  Neighbors complained the fly ash polluted the groundwater and the dust from the fly ash was an irritant.  Headwaters wanted a defense from these claims, but its insurance companies said the pollution exclusion applied and precluded coverage.  Summary judgment in favor of the insurance companies was affirmed on appeal.

The district court found that certain of the at-issue pollution exclusions unambiguously applied to bar coverage and that the remaining pollution exclusions, although possibly ambiguous, still applied because the complaints unquestionably alleged traditional environmental pollution. As a result, the complaints triggered the pollution exclusions in all of the policies, and the district court granted summary judgment in favor of the insurance companies.

The various policies that insured Headwaters contain similar but not identical exclusionary language. Broadly stated, the pollution exclusions are forms of the “total pollution exclusion” that “[t]he majority of courts have held [to be] ‘clear and unambiguous.’”  The district court found that the “the complaints in the . . . lawsuits alleged bodily injury and property damage arising out of the actual or threatened dispersal of pollutants from waste that was processed by Headwaters.”

In sum, the exclusions were not ambiguous, the exclusions applied to the fly ash, and summary judgment was proper.

Default Judgment damages speculative — unsupported by the record. Arkansas Law

Posted in New Case

In MCSA, LLC v. Thurmon,  2014 Ark. App. 540,  the Thurmons got a default judgment against MCSA (Medical Center) for more than $645,000 after Mrs. Thurmon fell on the premises.  This amount was more than 20 times the medical bills presented.  The only exhibit offered was proof of medical bills and related travel expenses. While the trial court found the Thurmons’ testimony to be credible and compelling, the appellate court noted that theirs was the only testimony, and . . . lacked any supporting computation, analysis, objective proof, or expert opinion. Although counsel suggested separate figures for pain and suffering, mental anguish, loss of consortium, and future medicals, there was no foundation for these figures and no proof other than the Thurmons’ simply agreeing to the amounts. Based on the record, the damages were “speculation and conjecture.”