Source: https://thefederation.site-ym.com/page/ECContent
Timestamp: 2019-04-23 06:22:59+00:00

Document:
If you defend bad faith cases, we have all experienced the frustration when a case that should be removed to federal court cannot, because Plaintiffs’ counsel has named the local adjuster as a defendant. If a recent Arizona opinion is any indication, the tide may be shifting to allow you to properly remove the case after the adjuster is dismissed. Two weeks ago, the Honorable Susan M. Brnovich of the Arizona District Court granted an Order Dismissing bad faith and aiding and abetting claims against a Third Party Administrator (“TPA”) and its adjuster in a worker’s comp/ bad faith case entitled Centeno v. American Liberty Ins. Co., et al., 2019 WL568926 (D. Ariz. Feb 12, 2019). In Centeno, Plaintiff injured her back when she tripped and fell while providing services at a patient’s house in the course of her employment. Thereafter, she filed a workers’ compensation claim with American Liberty Insurance Company (“ALIC”). ALIC initially accepted the claim and then ultimately denied the claim when it determined the incident did not occur on the job. Centeno initiated litigation before the Industrial Commission of Arizona (“ICA”) which ruled in her favor and awarded medical and financial benefits. Centeno then filed a bad faith lawsuit against the insurer (ALIC), the TPA (S&C Services) and its adjuster (Randi Kerner) which defeated diversity. The TPA and adjuster moved to dismiss all claims against them. That included a bad faith claim against the TPA and a claim against the adjuster and TPA for aiding and abetting ALIC and for punitive damages against all defendants.
The District Court granted the Motion to Dismiss the TPA and adjuster. The Court found that in order for there to be bad faith, a contractual relationship was required. And since there was no contractual relationship between Centeno and the TPA or adjuster, Centeno’s bad faith claim failed as a matter of law. The Court also held that in order to present a valid aiding and abetting bad faith claim against a TPA or an adjuster, a plaintiff must allege bad faith acts committed by the TPA or by the adjuster “separate and apart” from the alleged bad faith acts of an insurer. In Centeno, the Complaint did not allege bad faith acts by the TPA or adjuster “separate and apart” from the alleged bad faith acts by the insurer. Thus, Centeno failed to state a claim for aiding and abetting and all claims against the TPA and adjuster were dismissed.
While the order dismissing the TPA and adjuster is helpful in the defense of these types of cases, Plaintiffs may still bring a viable aiding and abetting claim against a TPA or adjuster if Plaintiff alleges bad faith acts by the TPA or adjuster separate and apart from the acts giving rise to the claims against the insurer. See, e.g., Swift v. Wesco Ins., No. CV-18-01531-PHX-JJT, at *4 (D. Ariz. Sept. 24, 2018) (collecting cases); Jones v. Colo. Cas. Ins. Co., 2013 WL 4759260, at *3 (D. Ariz. Sept. 4, 2013); Young v. Liberty Mut. Grp., Inc., 2013 WL 840618, at *3 (D. Ariz. Mar. 6, 2013). We can expect that counsel will now start alleging facts outside the parameters of an adjuster’s employment to circumvent a proper removal.
The last time I was in Austin was in 1978. I was 10 years old, taking a weekend trip with my family from Houston to see the Hill Country and the Capital. I don’t have much recollection of the city, but I distinctly remember the beauty of the bluebonnets and indian paintbrush wildflowers in the Hill Country. I can’t wait to return with FDCC in March and see Austin with grown-up eyes (complete with both contacts and reading glasses – ah, well).
I hope you’ll be able to join your FDCC brothers and sisters in Austin, March 24-28. The Extra-Contractual Section is collaborating with the Life Health & Disability Section to present a program on how courts in both ERISA cases and bad faith cases against insurers are trying to expand the types of actions and damages available to beneficiaries, policy-holders and third parties. We will examine how the boundaries are being pushed and how we can try to keep them in place. If you’ve looked at the Austin program guide in the Federation Flyer you should have recently received, you’ll find an incredible variety of discussions, presentations and opportunities for fun. I hope you’ll join us!
I recently stumbled across a bad faith decision out of the Eastern District of Michigan that made me pause, mostly because the facts in the underlying claim were so similar to those I see on a daily basis. The case is Wausau Underwriters Insurance Company v. Reliable Transportation Specialists, Inc. et al., 2018 U.S. Dist. LEXIS 178313 (October 17, 2018), and it involved a trucking accident in Detroit. One truck driver got out of his cab and walked into the path of another truck, which ended up injuring the pedestrian truck driver’s leg and foot. It appears clear that the pedestrian truck driver was on his mobile phone at the time and was not wearing his safety vest, both violations of the rules of the owner of the premises where both trucks were unloading. Nevertheless, the pedestrian truck driver prevailed and recovered an $8.7M verdict against the trucking company and driver who hit him. It appears to have been a classic reptilian argument by the plaintiff’s attorney.
The verdict was appealed and affirmed, and the predictable bad faith action followed. The U.S. District Court denied Wausau’s Motion for Summary Judgment on the bad faith count in October. The case is still pending and I will be following it closely. I urge you to check it out if you get a chance.
Is Statutory Interpleader the Answer?
Having lived in South Carolina for 28 years, I think I can say with certainty that most South Carolinians live for Autumn. While Summer is welcomed in May, by mid-September we’re ready for cooler weather and college football. A refreshing.
The Extra-Contractual Section has refreshed, as well. I’m honored to be serving as Chair of the Section and immensely grateful for the Section’s Vice-Chairs: Terence M. Ridley, Emma M. Tortorici, David Godwin, Josh Snell, John Wilkerson and Joanne Locke.
While we typically focus on case law addressing extra-contractual issues, Missouri recently enacted a statute that makes good sense and will hopefully stem the tide of bad faith set-ups in that state. Outgoing Missouri governor Eric Greitens signed Missouri House Bill 1531, which creates an unlikely solution for dealing with the problem of multiple claimants making settlement demands in a claim with insufficient policy limits - interpleader. Interpleader has typically been dismissed as resolution tool because it does not absolve the insurer of the duty to defend, does not necessarily result in a release for the insured and, in fact, may lead to the rejection of a reasonable, within-limits settlement offer and threats of bad faith.
Under Missouri’s new law, which became effective on August 2, 2018, if an insurer files an interpleader within ninety days after receiving the first offer of settlement or demand for payment by a claimant and timely deposits all of its applicable limits of coverage into court within thirty days of the court granting the interpleader, then the insurer shall not be liable to any insured or defendant for any other amount in excess of insurer’s contractual limits of coverage, not just in the interpleader but in any other action. This is conditioned upon the insurer defending the insured(s) in good faith from claims or lawsuits that arise by the accident or occurrence.
The law has, obviously, not been tested in the courts yet. Opponents of the bill worried that the insurer might tender its limit in court and half-heartedly defend the insured, without obtaining a release or dismissal of claims against the insured. The insurer, however, is obligated under the law to continue a good faith defense of the insured. This law appears to offer a common-sense solution to the problems presented by underinsured policyholders and multiple claimants. Maybe Florida will take notice?
For the Annual meeting, July 29-August 3, at Wailea Beach Resort & Spa on the island of Maui, we have paired up with the ADR section on a joint presentation entitled: “Can You Keep A Secret? Current Trends in the Use of Confidential Mediation/Settlement Agreements or Formal Protective Orders for Preventing Disclosure”. The discussion will focus on whether nondisclosure agreements and confidential mediation statutes really work to protect settlement discussions and party conduct from third party discovery or use in a bad faith action? Speakers include Mills Gallivan, Angela Flowers and Neil Hartzell. Plan to attend on Tuesday morning, July 31 in the Mauna Loa room.
Terence M. Ridley won complete affirmance for an insurer in two published opinions from the Tenth Circuit involving an improperly obtained, eight-figure appraisal award. In Auto-Owners v. Summit Park, 886 F.3d 852 and 886 F.3d 863 (10th Cir. 2018), Terence won a complete victory on appeal in the Tenth Circuit for Auto-Owners Insurance Company. In two published opinions, the Tenth Circuit affirmed in toto several orders WTO had won in the trial court. As a result of the orders, Auto-Owners had recovered nearly $11 million paid towards an improper appraisal award, obtained sanctions against the policyholder and its counsel, and received an award of over $300,000 in attorney fees against the opposing lawyers.
The policyholder, which is a homeowner’s association, and its lawyers filed two separate appeals to overturn the sanctions orders. The Tenth Circuit rejected their arguments, holding that (i) the association was obligated to comply with the trial court’s orders, (ii) the trial court did not err in vacating the eight-figure appraisal award, and (iii) the trial court did not abuse its discretion in sanctioning the association and its lawyers. The Tenth Circuit ruled specifically that the opposing lawyers had made false representations, had failed to correct false testimony, and that the trial court had reasonably concluded that the association had acted in bad faith in appointing a biased appraiser.
In Hughes v. First Acceptance Insurance Company of Georgia, Inc., the Georgia Court of Appeals addressed whether the insurer acted reasonably in failing to respond to a “time-limited settlement offer.” After the insurer failed to respond, the parties involved in a motor vehicle accident with the insured proceeded to a jury trial, resulting in a verdict for the parties in excess of the policy limits, for which the insured’s estate was liable. The insured caused a five-vehicle accident, resulting in his death and injuries to others, including a mother and child. Hughes v. First Acceptance Ins. Co. of Ga., 808 S.E.2d 103, 105 (Ga. Ct. App. 2017). The liability limits of the insured’s policy with First Acceptance Insurance Company of Georgia, Inc. were $25,000 per person and $50,000 per accident. Id. After the accident, counsel for the mother and child contacted First Acceptance to notify it that he would send a demand letter once his clients finished treatment. Id. First Acceptance subsequently sent two letters to all injured parties, seeking participation in a settlement conference. Id. Four months later, counsel for the mother and child sent two letters to counsel for First Acceptance. Id.
Both of these letters provide the basis for the plaintiff’s claims for failure to settle, punitive damages, and attorney fees against the defendant insurer. The first letter acknowledged First Acceptance’s previous communications, stated the mother and child’s interests in resolving their claims within the insured’s policy limits and in attending a settlement conference, referenced the second letter, which counsel described as the letter of representation and insurance information request, and included the uninsured/underinsured motorist coverage. Id. The first letter further stated that, once counsel for the mother and child determines the available UM benefits, then “a release of your insured from all personal liability except to the extent other insurance coverage is available will be necessary in order to preserve my clients’ rights to recover under the UM coverage and any other insurance policies.” Id. It continued, “In fact, if you would rather settle within your insured's policy limits now, you can do that by providing that release document with all the insurance information as requested in the attached, along with your insured's available bodily injury liability insurance proceeds.” Id. The second letter requested the insurance information from First Acceptance within 30 days and stated, “Any settlement will be conditioned upon [the] receipt of all the requested insurance information.” Id. Counsel for the mother and child asserted that these letters constituted an offer to settle their claims and a 30 day deadline for a response. Id.
Counsel for First Acceptance received the letters but did not provide the insurance information or follow up with counsel for the mother and child, so counsel for the mother and child sent a letter withdrawing its offer to settle and filed a personal injury action against the insured’s estate. Id. at 105-06. Counsel for the mother and child rejected further offers to settle their claims within First Acceptance’s policy limits, and the mother and child eventually obtained a jury verdict of over $5 million against the estate. Id. at 106. The administrator of the estate and plaintiff in this action filed suit against First Acceptance, alleging that First Acceptance negligently or in bad faith failed to settle the mother’s insurance claim and seeking recovery of the judgment over the policy limits, punitive damages, and attorney fees. Id. The trial court granted summary judgment to First Acceptance on all claims, and the plaintiff appealed to the Georgia Court of Appeals. Id.
The ordinarily prudent insurer is the standard to determine whether the insurer is liable under a claim for negligent or bad faith refusal. Id. (quoting Cotton States Mut. Ins. Co. v. Brightman, 580 S.E.2d 519, 521 (Ga. 2000)). “An insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person's attorney.” Id. at 109 (quoting Holt, 416 S.E.2d at 276). Generally, the issue of bad faith depends on whether the insurer acted reasonably in responding to a settlement offer. Id. (quoting Cotton States, 580 S.E.2d at 521). The insurer must give equal consideration to the interests of the insured in avoiding liability for an excess judgment when deciding whether to settle a claim within the policy limits. Id. (quoting S. Gen. Ins. Co. v. Holt, 416 S.E.2d 274, 276 (1992)). When the plaintiff bases liability on the insurer’s negligent or bad faith refusal, the insurer may be liable “if, but only if, such ordinarily prudent insurer would consider that choosing to try the case rather than accept an offer to settle within the policy limits would be taking an unreasonable risk that the insured would be subjected to a judgment in excess of the policy limits.” Id. (quoting Baker v. Huff, 747 S.E.2d 1, 7 (Ga. Ct. App. 2013)). The insurer’s adherence to the ordinarily prudent insurer standard is a question for the jury. Id. (quoting Baker, 747 S.E.2d at 7). Moreover, “[t]he possibility of settling other claims within the policy limits and the insurer's knowledge of such possibility are not dispositive of the failure to settle claim in this case,” but they are factors for a jury to consider in determining whether the insurer acted reasonably in response to a settlement offer. Id. at 107. See Fortner v. Grange Mut. Ins. Co., 686 S.E.2d 93 (Ga. 2009).
The Court of Appeals held the circumstances created genuine issues of fact regarding whether the letters created a time-limited settlement offer and whether the insurer acted reasonably in responding to such an offer. Id. at 109. The Court affirmed the trial court’s summary judgment ruling on punitive damages based upon the plaintiff’s failure to support his claim with any evidence of willful or wanton conduct by the insurer; negligence, without evidence of willful or wanton conduct, is not enough to impose punitive damages. Id. at 108. See Ga. Code Ann. § 51-12-5.1(b).
Terence Ridley, a partner in the national litigation firm Wheeler Trigg O’Donnell LLP (WTO), and former FDCC Director, recently argued and won a case in the Colorado Court of Appeals. The appellate court reversed and remanded the case for a new trial, and affirmed a sanctions award against the plaintiff’s counsel. The defendant’s insurer hired Ridley to handle the appeal after the trial judge directed that the defendant be found at least 51% liable, leading the jury to award the plaintiff over $1,000,000.
The case, Claycomb v. Fox (2016CA1333), involved a two-vehicle accident in 2012. The plaintiff claimed that WTO’s client pulled out in front of him, and that the resulting collision caused severe injuries to the plaintiff. At the close of evidence at trial, the plaintiff moved for a directed verdict that the defendant was at least 51% liable as a matter of law. The trial court agreed and instructed the jury to find the defendant more than 50% liable. The jury then awarded almost 1.3 million to the plaintiff, finding that defendant was 80% liable, the plaintiff 20% comparatively at fault.
Post-verdict in the trial court, WTO won sanctions against the plaintiff’s counsel for filing frivolous post-trial motions. On appeal, WTO argued that the judge erred by determining as a matter of law that the defendant was at least 51% liable, because the allocation of fault was a question of fact for the jury – not a question of law for the judge. A three-judge panel unanimously agreed. The Court of Appeals vacated the verdict and remanded for a new trial, while also affirming the sanctions on opposing counsel.
For the Winter Meeting at Amelia Island, the Extra-Contractual Section is pairing up with the Appellate Section for the presentation: “Reversal of Misfortune: How to Establish Favorable Precedent Affecting Bad Faith Litigation.” The presentation will develop an understanding of the benefits of employing a proactive approach creating favorable precedent, under which emerging insurance bad-faith issues are identified early and an active trial and appeal strategy is pursued in cases with the best facts and in the best jurisdictions. Our all-star panel consists of Vicki Roberts, Laurie Hepler and Scott Hofer. Look for it once the schedule is published and we hope you will join in the discussion.
For the Annual meeting, July 29-August 3, at Wailea Beach Resort & Spa on the island of Maui, we are working with the ADR section on a joint presentation. We are currently developing the topic and assembling a panel. We welcome any ideas, and if you are interested in speaking, please let us know.
Insurance Expert Resource: We are working on a project to update the resource list of bad faith experts. This will include known plaintiff as well as go-to defense experts. In order to make it as useful as possible, we need contributions from everyone. So if you have a current list that you are willing to share, please forward it to Wystan Ackerman at wackerman@RC.com .
FDCC Amicus Brief: A huge thanks to all E-C section members for your contribution to the brief prepared by the FDCC for submission to the Supreme Court of Nevada in the matter Century Surety Company v. Dana Andrew, Case No. 73756. The brief offers the Court a 50-state survey on the issue: “Whether, under Nevada law, the liability of an insurer that has breached its duty to defend, but has not acted in bad faith, is capped at the policy limit plus any costs incurred by the insured in mounting a defense, or is the insurer liable for all losses consequential to the insurer's breach?” The Court has not yet ruled on the FDCC’s Motion for Leave to File the brief. If it is accepted, it will be available at the Court’s website.
In National Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 2017 NY Slip Op 06513 (N.Y. Sup. Ct. App. Div. Sept. 19, 2017), a power-generating turbine was taken out of operation because of excessive vibrations caused by a crack in the turbine's rotor. The insured sought coverage for its losses under its property insurance policy tower. The unit was taken out of operation during the policy period and had been functioning properly until that time, notwithstanding the pre-policy crack in the rotor. It was undisputed that the crack started prior to the inception of the policy and continued to lengthen during the policy period. Notably, the unit functioned in line with an alarm and trip system with protocols established when the insurance policy was underwritten and was functioning properly under these protocols until the date it had to be taken off line because of the excessive vibrations caused by the expanding crack.
In affirming the grant of partial summary judgment to the insured and against the carriers, the court stated that the insured's property sustained a physical loss or damage during the policy period. A key factor in finding for the insured was the lack of any provision in the policy excluding physical loss or damage originating prior to the commencement of the policy period. The appellate court also affirmed the finding of time-element damages for the entire period when the unit was not available to generate electricity (8 months). The court noted that New York case law does not generally provide business interruption losses beyond the time needed to physically restore the property, but that those cases (retail) were not applicable here. Because the unit was not available for power generation for the 8-month period, the insured was unable to earn future capacity revenues during the liability period. The court rejected the application of the time element exclusion that provides no coverage for any increase in loss due to retroactive or future changes in capacity or bonus payments in effect at the time of loss. Those payments were defined in the policy to be those paid in return for attaining or exceeding certain production levels. Here, the insured was a regulated entity that sold at actual production capacity, not when it attained or exceeded specific production levels. According to the court, the carriers did not meet their burden to show that the exclusion applied.
This summary first appeared in http://www.inredisputesblog.com/ .
Most courts hold that communications and other documents between an insurer (the “cedent”) and its reinsurer are generally not relevant and not discoverable in a coverage action with a policyholder. Courts often note that reinsurance information reflects a business decision by the primary insurer to spread risk or to satisfy statutory reserve requirements, neither of which are typically relevant to coverages issues raised by a specific claim under the policy. However, a bad faith claim can present an exception to the rule.
One recent example is ContraVest Inc. v. Mt. Hawley Ins. Co., No. 9:15-cv-00304-DCN, 2017 U.S. Dist. LEXIS 48638 (D.S.C. Mar. 31, 2017). In that action, a claimant-assignee of a policyholder’s insurance claim brought a lawsuit against the insurer for declaratory judgment, bad faith, breach of contract, and unjust enrichment. The dispute concerned an owners association lawsuit against the policyholder (a developer) for construction defects. The insurer refused to defend and denied coverage for the claim. The policyholder settled the claims and assigned its rights and claims against the insurer to the owners association who filed the coverage action. During discovery the owners association sought production of all of the insurer/cedent’s communications with its reinsurers for all of the insured’s claims made under the pertinent policies. Despite this broad request not limited to the claim at issue, the magistrate judge issued a report and recommendation compelling the insurer/cedent to produce the communications. The district court affirmed the ruling, finding that communications with the reinsurer were relevant and probative of the insurer/cedent’s good faith to the extent the communications provided an explanation for granting or denying portions of the insured’s claims or otherwise described the handling of the insured’s claims. Because the owners association alleged that the insurer/cedent had changed its interpretation of the policies once it was evident that it would have to provide coverage, the insurer/cedent’s prior handling of claims under the same policies was relevant and, consequently, discoverable.
ContraVest is a good example of how carefully crafted bad faith allegations can open doors to the discovery of reinsurance information usually found to be irrelevant. Insurers facing such claims should include in their litigation strategy a plan to limit the scope of their communications with reinsurers and avoid allowing the court to decide the issue. This may entail an agreement with the policyholder for a limited production or a search for communications regarding specific issues raised in the litigation. Developing such a strategy requires an early analysis of reinsurer communications to provide sufficient foundation as to what must be protected.

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