Reinsurance Law Blog

Reinsurance Law Blog

Dispute Remains as to Coverage — Missouri law

Posted in Contractual Liability, New Case

On motion for summary judgment, movants established most of their claim for equitable garnishment against insurer except whether policies covered defendant in underlying action.  Verified petition does not establish facts because a verified petition does not require first-hand knowledge as an affidavit does.  Insurer’s offer of defense, with or without reservation of rights, did not establish, beyond any contrary inference, an implied or express waiver of the right to deny coverage.   The more formalities required of insurer’s notice, the more material facts—absence of those formalities—movants must establish to prevail on summary judgment.  Ruling on summary judgment on which circuit court certifies no just reason for delay is subject to appeal.
JOSEPH SMITH, Plaintiff-Respondent, vs. MARYLAND CASUALTY COMPANY, Defendant-Appellant, and ANDREW SHAYATOVICH, Defendant-Respondent.
Missouri Court of Appeals, Southern District – SD33341

Life insurance proceeds are not marital property; Arkansas law

Posted in Contractual Liability, New Case

In Hargrove v. Hargrove, the trial court’s division of life insurance proceeds was error in light of an Arkansas statute which  excluded from the definition of “marital property” “property acquired prior to marriage or by gift or by reason of the death of another, including, but not limited to, life insurance proceeds.” Thus, life insurance proceeds on a spouse’s child by a previous marriage was not marital property, even if marital property was used to pay the premiums.

Compulsory Insurance — non auto case 8th Circuit

Posted in Contractual Liability, New Case

Most people are familiar with laws that require drivers to have insurance.  These are called compulsory insurance laws.  But in Northwest Airlines, Inc. v. Westchester Fire Insurance Co., compulsory insurance laws were applied to an on the ground airplane accident at the Las Vegas airport.

Northwest used PALS to maintain its planes in Las Vegas.  When one of PALS employees forgot to set a parking brake, one of Northwest’s planes rolled off the runway and was damaged in excess of $10,000,000.  PALS was insured by Westchester for $5 million as required by a county ordinance.  PALS did not tell Westchester about the accident (although Northwest did); and PALS did not answer the lawsuit filed by Northwest.  Northwest got a default judgment.  Westchester then sought a declaration that it wasn’t liable on its policy because of PALS failure to cooperate by not telling Westchester about the accident or giving notice of the suit.

But since the insurance was required by law, Westchester could not get out of liability because of the insured’s acts in failing to tell Westchester of the accident or the underlying lawsuit. Rather, under the compulsory insurance doctrine, an insurer cannot avoid paying the injured party because of the insured’s lack of notice or cooperation where the insurance policy was purchased to comply with the requirements of a statute, and the plaintiff was an injured member of the class the statute was intended to protect.

Also, the court noted that Northwest told Westchester about the accident and the lawsuit and that Westchester “spurned” this notice.  This is important because the compulsory insurance doctrine balances the injured party’s right to compensation against the insurer’s right to notice and cooperation.

Choice of Law in Auto Policy, 10th Circuit — Minnesota, Colorado law

Posted in Contractual Liability, Insurance Bad Faith, New Case, Vehicle

In Kipling v. State Farm Mutual Automobile, the plaintiff and her husband were injured in a car accident in Colorado. Plaintiff’s husband was killed.  Plaintiff was in a car provided by her husband’s employer (Quicksilver) when the accident occurred.  The sole cause of the accident was the negligence of the driver of the vehicle that collided with the Suburban. But the driver of that vehicle had inadequate liability insurance . Plaintiff therefore sought underinsured motorist (UIM) benefits under several State Farm policies.  State Farm paid the UIM benefits available under the policy covering the car Plaintiff was in at the time of the accident; and under  a separate policy issued in Colorado by State Farm to Quicksilver on a 2005 Ford pickup.

Plaintiff also sought UIM coverage under Minnesota policies issued by State Farm to Quicksilver. When the claim was denied, Plaintiff sued State Farm in federal court in Colorado.  State Farm argued Minnesota law applied and prohibited stacking of UIM policies (that is, obtaining UIM benefits under more than one policy) and that Plaintiff did not meet the definition of insured under the language of the policies. Plaintiff argued that Colorado law applied, permitted stacking, and prohibited a policy from limiting UIM coverage to those occupying the covered vehicle at the time of the accident, as in the Minnesota policies. The parties did not dispute that if Minnesota law applied, Plaintiff was not entitled to coverage. The district court denied State Farm’s summary-judgment motion, stating that Colorado law applied.

The Tenth Circuit reversed. It found that Colorado conflict of laws applied, and contract conflict-of-laws principles apply even though tort liability underlies any liability-insurance or UIM-insurance claim, and even though the court must consider statutes that override contract provisions on public-policy grounds. Since the trial court did not apply contract conflict of laws analysis, the case was remanded so the trial court could apply those principles in the first instance.

New 10th Circuit case finds claim note waives attorney client privilege

Posted in New Case

Route 66’s hail claim was, for the most part, denied by Seneca after Western Claims looked at the roof and said it wasn’t damaged. Seneca settled with Route 66 and then sued Western Claims and its adjuster for the amount of the settlement and defense costs.

In discovery, Seneca disclosed a claim note that stated Seneca had settled the Route 66 litigation for “$1 million dollars new money” “on advice of Counsel.” Western

Claims then filed a motion seeking to compel Seneca to produce, among other things, documents Seneca relied on in settling the Route 66 litigation. Seneca responded, claiming attorney-client privilege and work-product protection justified its refusal to produce the [attorneys]  correspondence. Over Seneca’s objection, the district court granted Western Claims’ motion to compel the correspondence between it and its attorneys.

At trial, various Seneca Insurance witnesses testified they relied on advice of counsel in settling the underlying case. Thus, the case was distinguished from Frontier Refining, Inc. v Gorman-Rupp Co.,136 F.3d 695 (10th Cir. 1998), where Frontier denied reliance on its counsel’s advice in determining to settle the underlying action.

 Seneca contends Frontier’s holding requires reversal because, like Gorman-Rupp, Western Claims had access to information regarding the reasonableness of the Route 66 settlement from sources other than the Isbell and Abowitz correspondence. This case, however, differs significantly from Frontier in that the “other sources”—namely Seneca’s officers—generally did not rely on their own reasons for settling with Route 66 for $1 million. Instead, they chose to rely on “advice of counsel” to justify the reasonableness of the settlement.

Thus, discovery was appropriate as to the attorneys’ advice to Seneca.


Seneca Insurance v. Western Claims


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.