Attorneys handling life insurance claims in Texas might one day run across a situation where a company is attempting to collect life insurance benefits due to the death of an employee. An article in the New York Times discusses this issue. Here is what the article tells us.
Employees at The Orange County Register received an unsettling email from corporate headquarters this year. The owner of the newspaper, Freedom Communications, was writing to request workers' consent to take out life insurance policies on them.
But the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Reporters and editors resisted, uncomfortable with the notion that the company might profit from their deaths.
After an intensive lobbying campaign by Freedom Communications management, a modified plan was ultimately put in place. Yet Register employees were left shaken.
The episode at The Register reflects a common but little-known practice in corporate America: Companies are taking out life insurance policies on their employees, and collecting the benefits when they die.
Because so-called company-owned life insurance offers employers generous tax breaks, the market is enormous; hundreds of corporations have taken out policies on thousands of employees. Banks are especially fond of the practice. JPMorgan Chase and Wells Fargo hold billions of dollars of life insurance on their books, and count it as a measure of their ability to withstand financial shocks.
But critics say it is immoral for companies to profit from the death of employees, while employees themselves do not directly benefit. And despite a law enacted in 2006 that sought to curb the practice -- companies now are restricted to insuring only the highest-paid 35 percent of employees, who must give their consent -- it remains a growing, opaque and legal source of corporate profit.
"Companies are holding this humongous amount of coverage on the lives of human beings," said Michael D. Myers, a lawyer in Houston who has brought class-action lawsuits against several companies with such policies.
Companies and banks say earnings from the insurance policies are used to cover long-term health care, deferred compensation and pension obligations.
"Life insurance is one of the ways of strengthening the long-term health of the pension plan and ensuring its ability to pay benefits," Freedom Communications' chief executive, Aaron Kushner, said in an interview.
And because such life insurance policies receive generous tax breaks -- investment returns on the policies are tax-free, as are the death benefits eventually received -- they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. Companies argue that if they had to finance such obligations with investments taxed at a normal rate, they would incur losses and would not be able to offer the benefits to employees.
But in many cases, companies and banks can use the tax-free gains for whatever they choose. "If you want to take that money and go build a new bank branch, fine," said Joseph E. Yesutis, a partner at the law firm Alston & Bird who specializes in banking regulation. "Companies don't promise regulators they will use it for any specific purpose."
Hundreds of billions of dollars of such policies are in place, providing companies with a steady stream of income as current and former employees die, even decades after they have retired or left the company.
Aon Hewitt estimates that in new policies worth at least $1 billion are being put in place annually, and that about one-third of the 1,000 largest companies in the country have such policies. Industry analysts estimate that as much as 20 percent of all new life insurance is taken out by companies on their employees.
But determining the exact size of the market for corporate- and bank-owned life insurance is impossible. With the exception of banks, companies do not have to report their insurance holdings.
"There is no reliable reporting of the use of who's buying life insurance, of what they're buying it for," said Steven N. Weisbart, chief economist of the Insurance Information Institute.
Banks have to report their holdings because regulators want to know how much cash they could access if they had to redeem the policies in a pinch before the death of the insured employee.
That figure, known as the "cash surrender value" -- or the amount they could withdraw immediately -- provides a glimpse of just how big such policies can be.
Bank of America's policies have a cash surrender value of at least $17.6 billion. If Wells Fargo had to redeem its policies tomorrow, it would reap at least $12.7 billion. JPMorgan Chase would collect at least $5 billion, according to filings with the Federal Financial Institutions Examination Council.
Because banks could collect the cash from insurance companies quickly, if needed, life insurance holdings are considered Tier 1 Capital, a basic measure of a bank's strength. Many banks have 10 to 25 percent of their Tier 1 Capital invested in life insurance policies, according to Goldstein Financial Group, a broker dealer.
Insurance industry experts say that most big banks have delayed new life insurance purchases, in part because of limits on how much insurance they can hold. Yet the value of existing policies continues to grow, with the gains from invested capital outpacing the benefits paid out as employees die.
Corporate- and bank-owned life insurance grew out of so-called key person insurance policies that protected companies against the economic consequences related to the death of top executives. The New York Times Company has taken out life insurance policies on some top employees.
But absent meaningful regulation around the practice, it grew unchecked, and soon companies were taking out policies on many poorly paid employees like janitors, then reaping millions in profit when they died.
A string of class-action lawsuits, some filed by Mr. Myers, went after companies abusing the practice. Several companies, including Walmart, settled the suits, paying millions to low-ranking employees who had been covered. The I.R.S. took companies including Winn-Dixie and Camelot Music to court for using policies as tax avoidance schemes.
Critics began calling the policies "dead peasant" insurance, an allusion to Nikolai Gogol's novel "Dead Souls," in which a con man buys up dead serfs to use them as collateral in a business deal.
Despite the criticism, companies and banks continued to use the policies to chase returns. In the years before the financial crisis, life insurers for banks including Wachovia and Fifth Third Bancorp invested their premiums in a hedge fund run by Citigroup.
As the value of the fund rose, the profits were recorded on the companies' balance sheets, raising earnings. But when the hedge fund collapsed during the market panic, so did the value of the policies, leading the banks to take substantial write-downs.
Efforts have been made to better regulate the practice. The 2006 Pension Protection Act included a set of best practices for companies taking out life insurance on employees.
"The government has taken great strides to clean it up," said J. Todd Chambley, who runs the executive benefits practice at Aon Hewitt.
Still, the notion of life insurance policies benefiting company balance sheets, rather than individuals, remains subject to criticism.
Responding to attacks on the Freedom Communications plan, Mr. Kushner defended himself in a letter to employees. "Life insurance is not ghoulish, nor are the people who sell it, nor are those who buy it," he wrote. "Life insurance, by its very nature, was created to benefit the people we love and care about most."
Attorneys handling life insurance claims in Texas might one day run across a situation where a company is attempting to collect life insurance benefits due to the death of an employee. An article in the New York Times discusses this issue. Here is what the article tells us.
Dallas insurance attorneys need to understand the 8 corners rule as it relates to insurance policies and lawsuits. A U.S. District Court, N.D. Texas, Fort Worth Division case helps understand this rule. The style of the case is, Acadia Insurance Company v. Jacob and Martin, Ltd. Here is some of the relevant information.
This is an insurance coverage dispute in which Plaintiffs seek a declaratory judgment as to their duties to defend and indemnify Defendants in an underlying state court action. Accordingly, the following facts are drawn from the live pleading in the underlying action. Plaintiffs issued general liability and umbrella policies to Jacob and Martin, Ltd. Jacob and Martin contracted with the city of Gordon, Texas, to design and install a new sewer system. Turner was the lead engineer on the project, and Lovelady was a project engineer. Martin is the general partner of Jacob and Martin.
The City of Gordon also contracted with Granbury Contracting & Utilities, Inc. to install sewer lines. While working on the project, Lovelady directed Eliseo Alberto Ramirez Rodriguez ("Ramirez"), an employee of Granbury, to open a manhole, climb inside it, and remove a plug from the sewer line. When Ramirez removed the plug, "toxic fumes were released and Ramirez died from asphyxia due to methane gas inhalation." Ramirez's parents filed suit against Jacob and Martin, Lovelady, Turner, and Martin under the Texas Wrongful Death and Survival statutes.
Thereafter, Plaintiffs filed a complaint seeking a declaration that they owe no duty to defend or indemnify Jacob and Martin, Lovelady, Turner, and Martin in the underlying lawsuit. Plaintiffs filed a motion seeking summary judgment.
Plaintiffs seek summary judgment that they own no duty to defend or indemnify Defendants in the underlying suit. The duties to defend and indemnify are distinct.
An insurer owes a duty to defend its insured if the plaintiff's factual allegations potentially support a covered claim. An insurer's duty to defend is determined solely by the allegations in the underlying pleadings, without regard to their truth or falsity, in light of the policy provisions. This is known as the "eight-corners" or "complaint-allegation" rule. "The rule takes its name from the fact that only two documents are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of the third-party claimant."
Here, Plaintiffs contend they owe no duty to defend because the underlying suit falls within the pollution exclusion of the policies. The generally liability policy issued by Acadia excludes:
*3 "[b]odily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" ... [a]t or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste ....
Similarly, the umbrella policy issued by Continental Western excludes: " '[b]odily injury' or 'property damage' which would not have occurred in whole or part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time ...." The Continental Western policy continues:
This exclusion does not apply if valid "underlying insurance" for the pollution liability risks described above exists or would have existed but for the exhaustion of underlying limits for "bodily injury" and "property damage." Coverage provided will follow the provisions, exclusion, and limitations of the "underlying insurance."
Both policies define "pollutants" as follows: "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."
The underlying plaintiffs contend, when Ramirez removed the plug, "toxic fumes were released and Ramirez died from asphyxia due to methane gas inhalation." Defendants do not dispute that methane is a pollutant or that the exclusions otherwise apply to the facts alleged in the underlying suit. Rather, Defendants ask the Court to consider extrinsic evidence that they contend demonstrates Ramirez may have died from a lack of oxygen. Accordingly, Defendants argue summary judgment should be denied because facts outside the underlying pleadings may give rise to coverage.
Although the Texas Supreme Court has not decided the issue, several courts "have drawn a very narrow exception [to the eight-corners rule], permitting the use of extrinsic evidence only when relevant to an independent and discrete coverage issue, not touching on the merits of the underlying third-party claim." Here, however, the extrinsic evidence Defendants ask the Court to consider "engage[s] the truth or falsity of ... facts alleged in the underlying case." As such, the Court will not consider any evidence beyond the policies and underlying pleading. Accordingly, the Court concludes that Plaintiffs are entitled to summary judgment on their duty to defend based on the complaint-allegation rule.
This should be confusing to most people. What is important to take from this case is that an experienced Insurance Law Attorney is needed when making claims against an insurance company.
Arlington insurance attorneys want to know the proper way to state a claim against an insurance adjuster so as to keep a case in State Court rather than have an insurance company get the case removed to Federal Court. A recent case from the US District Court, Northern District, Dallas Division, shows how to be successful in this effort. The case is styled, Sara Esteban v. State Farm Lloyds and Aaron A. Galvan. Here is the relevant information from the case.
This case arises out of an insurer's alleged failure to properly adjust and pay the full proceeds due on a claim made under an insurance policy. Esteban purchased an insurance policy fromState Farm to insure real property that she owned. A wind and hailstorm struck, causing significant damage to homes and businesses in the area. The Property suffered roof and water damage as a consequence of the storm, and Esteban submitted a claim to State Farm to cover the costs of repair. Galvan was assigned by State Farm to adjust Esteban's claim. At all relevant times during the adjustment of Esteban's claim, Galvan acted as an independent adjuster and was not an employee of State Farm. Esteban alleges that Galvan "improperly adjusted" her claim, and that his subsequent report "failed to include many of Esteban's damages." More specifically, Esteban charges that "his estimate did not allow adequate funds to cover repairs to restore her home" and that Galvan "misrepresented the cause of, scope of, and cost to repair the damage to Plaintiff's Property, as well as the amount of and insurance coverage for Plaintiff's claim/loss under Plaintiff's insurance policy." Esteban also insists that Galvan advised her as to how she could repair the Property in order to prevent further damage, but that this advice was negligent and false.
Esteban maintains that, as a consequence of Galvan's misrepresentations, State Farm wrongfully denied portions of her claim and misrepresented the amount of damages, which in turn prevented her from properly repairing the Property and caused further damage. Specifically, while State Farm and Galvan represented that Esteban's damages were only $1,932.72, Esteban insists that her damages exceed $33,000. Esteban asserts that State Farm has not performed its contractual duty under the Policy and that it has failed to settle her claims in a fair manner. She also insists that Defendants' respective failures to properly adjust, inspect, or communicate with her regarding her claims, or to later fully compensate her, constitute violations of the Texas Insurance Code.
The parties' main point of contention is whether Defendant Galvan was properly joined in this action. Defendants maintain that Esteban cannot assert a claim against Galvan as a matter of Texas law because he is an independent adjuster hired by State Farm, and thus owes Esteban no duty under the law. They also maintain that Esteban fails to make sufficient allegations in her Petition so as to state a claim against Galvan. Esteban counters that Galvan can be held individually liable under Texas law for his conduct in adjusting the claim, and she insists that she has stated sufficiently particular facts to make out a claim against him individually.
Esteban focuses specific attention on her claims under Chapter 541 of the Texas Insurance Code, insisting that she has pled sufficient facts to make out a claim that Galvan engaged in unfair settlement practices in his role as adjuster of her claim. Esteban points to cases from the Texas Supreme Court, the Fifth Circuit, and federal district courts to demonstrate that numerous courts have found that an adjuster can be held individually liable under the Texas Insurance Code.
Defendants respond by arguing that Galvan is improperly joined in this case because, as an independent adjuster, Galvan cannot be held liable to an insured for improper investigation or advice. Defendants cite to numerous Texas appellate cases holding that independent adjusters lack a sufficient relationship with insured parties to be held liable under various legal theories, including for violations of the Texas Insurance Code. Defendants attempt to distinguish those cases that Esteban cites, arguing that those cases only establish that adjusters employed by the insurer can be held liable under the Texas Insurance Code.
The Texas Insurance Code permits any person "who sustains actual damages" to bring an action "against another person for those damages caused by the other person engaging in . . . an unfair or deceptive act or practice in the business of insurance." TEX. INS. CODE ANN. § 541.151. An "unfair or deceptive act or practice in the business of insurance" includes engaging in "unfair settlement practices with respect to a claim by an insured," which, in turn, includes
(1) misrepresenting to a claimant a material fact or policy provision relating to coverage at issue; (2) failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of:
(A) a claim with respect to which the insurer's liability has become
reasonably clear; or . . . (3) failing to promptly provide to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or offer of a compromise settlement of a claim.
A "person" under the Code includes "an individual, corporation, association, partnership, reciprocal or interinsurance exchange, Lloyd's plan, fraternal benefit society, or other legal entity engaged in the business of insurance, including an agent, broker, adjuster, or life and health insurance counselor." The Texas Supreme Court has determined that the "adjustment of claims and losses" qualifies as "the business of insurance," thus making an adjuster a "person" under the Insurance Code.
The Court concludes that Esteban's factual allegations are sufficient to state a claim under the Texas Insurance Code. Esteban alleges in her Original Petition that Galvan "improperly adjusted" her claim, and that his report therefore "failed to include many of Esteban's damages." She charges that "his estimate did not allow adequate funds to cover repairs to restore her home" and that Galvan "misrepresented the cause of, scope of, and cost to repair the damage to Plaintiff's Property, as well as the amount of and insurance coverage for Plaintiff's claim/loss under Plaintiff's insurance policy." While these allegations are relatively spare and lacking in specificity, the Court determines that they allege sufficient facts under the lenient Texas fair notice standard such that Defendants would have adequate notice of the "nature and basic issues of the controversy and what testimony will be relevant."
Specifically, the Petition alleges that Galvan was an adjuster engaged in the business of insurance, and therefore a "person" under the Texas Insurance Code. Additionally, the Petition alleges that Galvan improperly adjusted Esteban's claim and misrepresented certain key facts related to her damages and coverage, which is sufficient to state a claim under § 541.060. These allegations are sufficient to state a claim under the Texas Insurance Code, and Galvan is therefore properly joined as a party to this action.
Insurance lawyers as well as all other lawyers understand that reading the law is not enough. It has to be researched to find changes and facts that may exist. Read all the way to the end to understand this. But first here is a case to read. It is a 1970, Texas Supreme Court opinion styled, State Farm v. Matlock. Here is the relevant information.
The Matlocks suffered injuries in an accident with a car driven by a man identified in this record only as a man with one leg. They knew the name of this man, but did not testify about his name. Upon the theory that he was an uninsured motorist and without joining him as a defendant, the Matlocks filed a direct action against their own insurer, State Farm, and asserted its liability under its policy terms to cover the Matlocks for damages for bodily injury caused by an uninsured motorist. The Matlocks obtained a judgment in the courts below.
State Farm is before this court upon points which urge that the Matlocks failed to obtain a judgment against the uninsured motorist. It says that a judgment against the uninsured motorist is a condition precedent to the Matlocks' action against State Farm. State Farm also has a point, which it insistently urges in its motion for rehearing, that the Matlocks failed to prove that the driver of the other vehicle was an uninsured motorist. The Court was convinced that State Farm is correct in the contention that the Matlocks failed to discharge their burden of proof in this latter proposition citing:
Since the absence of insurance upon the offending vehicle and its driver is a condition precedent to the applicability of the uninsured driver endorsement, we hold that the burden of proving such absence is upon the claimant. However, we must keep in mind that proving a negative is always difficult and frequently impossible and that, consequently, the quantum of proof must merely be such as will convince the trier of the facts that all reasonable efforts have been made to ascertain the existence of an applicable policy and that such efforts have proven fruitless. In such an event, and absent any affirmative proof by petitioner (the insurance company), the inference may be drawn that there is in fact no insurance policy in force which is applicable.
Mr. Matlock was the only person who testified about the uninsured status of the driver of the other vehicle. He testified that he bought his own policy from Earl Oxford who was the recording agent for State Farm. He said he knew the name of the other driver, but he identified him in this record only as a man with one leg. Plaintiff did not prove the make, model, or license number of the other vehicle, and this information was easily available. Here is quoted the only evidence which Matlock presented to prove the one-legged operator was an uninsured motorist:
Q. Go ahead. Did Mr. Oxford ever tell you anything about whether or not this man that you had the accident with had liability insurance?
A. He said that he checked with him, and he didn't have any type of insurance.
State Farm objected to the answer as hearsay and because there was no proof that Oxford had authority to make statements and admissions that were binding upon State Farm. The trial court overruled the objections. Oxford did not have the authority to bind State Farm by his statement. Oxford, as State Farm's recording agent, sold the policy to the Matlocks, and Matlock testified that Oxford was still with State Farm, 'so far as I know.' There is no other proof of Oxford's agency powers.
The Court concluded that the Matlocks failed to prove that the other operator was an uninsured motorist.
Now read this:
The insurer has the burden of proof in a dispute as to whether a motor vehicle is uninsured.
This is a change in the law that occurred in 2007 and is found in the Texas Insurance Code, Section 1952.110.
This is an example where the law changed. What was the common law, i.e. that the insured had to prove the other driver was uninsured has changed is now changed by statute. Now the insurance company has to prove the the other driver is insured in order to properly deny benefits.
Fort Worth insurance attorneys handling car wreck cases need to understand how underinsured insurance coverage works. There are many aspects of this understanding. One thing to know is that when a claim for underinsured benefits is made, the burden of proof is on the insurance company to prove the underinsured driver is actually underinsured. This is exemplified in a 1999, Austin Court of Appeals case styled, Wiley v. State Farm Mutual Automobile Insurance Company. Here is relevant portions of the opinion.
Kay Wiley was injured in an automobile collision caused by Satyn Kaura. Unable to recover her full damages from Kaura, Wiley sued Kaura's insurer, Farmers, and her own insurer, State Farm in separate suits. She settled with Farmers. After a trial to the court based on stipulated facts, the court found State Farm was liable to Wiley by virtue of her underinsured motorist policy. This court affirmed the judgment.
The collision occurred in September 1993. Kaura's insurance carrier, Farmers, initially did not compensate Wiley for her personal injuries. In October 1993, Wiley told State Farm she intended to file claims under her policies for personal injury protection (PIP) and underinsured motorist benefits.
Wiley sued Kaura in September 1995, recovering a default judgment on February 20, 1996; State Farm did not consent to that suit, nor did it agree that Kaura was liable for the accident, that it was bound by a judgment rendered against Kaura, or that Wiley was entitled to damages. After Wiley obtained a default judgment against Kaura on February 20, 1996, the following events occurred in 1996:
February 23 Wiley demands that State Farm pay its policy limits under her uninsured motorist policy.
March 20 State Farm informs Wiley it does not believe she has an uninsured motorist claim; State Farm requests additional information to assess the underinsured motorist claim.
April 10 Wiley reasserts coverage under her uninsured motorist policy and advises State Farm that it has the burden of proving whether Kaura was insured.
May 9 State Farm refuses to pay on the uninsured motorist policy because Kaura was insured by Farmers.
June 10 Farmers denies coverage to Kaura for failing to notify it of Wiley's suit.
June 17 Wiley informs State Farm of Farmers's refusal to pay, and demands that State Farm pay its policy limits.
July 1 State Farm advises Wiley that it will handle her claim as an uninsured motorist claim.
Wiley rejected State Farm's settlement offers that followed. In her petition, she alleged the highest offer was $6000.
On November 12, 1996, Wiley filed separate suits against Farmers and State Farm. In her suit against Farmers, she alleged she was a third-party beneficiary of Kaura's policy with Farmers; Farmers settled, paying Wiley $20,000. In her suit against State Farm, she sought recovery of the policy limits under her underinsured motorist policy. Contending State Farm had the burden to prove whether Kaura was insured, she also requested recompense for the attorney's fees she incurred in her suit against Farmers. Though State Farm, in its original answer, denied that Kaura was uninsured, it deleted that allegation in an amended answer. State Farm disagreed that it was obligated to seek a judicial determination regarding Kaura's coverage status.
The court found that Wiley had suffered $25,295.49 in damages from the collision. The court found State Farm was entitled to an offset for the $20,000 Farmers paid to Wiley as well as for $3972.31 State Farm had paid under her personal injury protection policy, and rendered judgment for $1323.18 under her policy for her uncompensated damages. The district court denied Wiley's claim for the $5887.50 in attorney's fees incurred suing Farmers.
Wiley contends that the court erred by denying her claim for the attorney's fees she incurred suing Kaura's insurer, Farmers. She contends that State Farm was contractually bound to sue Farmers to prove Kaura's insured status. Wiley argues that State Farm's failure to sue Farmers compelled her to sue Farmers herself; she contends that State Farm must compensate her for the attorney's fees she incurred as a result.
Normally, to recover attorney's fees in a suit against the insurer on an insurance contract, the claimant must show she recovered a valid claim in a suit on a contract, was represented by an attorney, presented the claim to the opposing party, and had the opposing party fail to tender the amount owed before thirty days expire after presentment.
This court concluded that the trial court did not err by declining to award Wiley attorney's fees from State Farm. Though the trial court found State Farm liable to Wiley on the underinsured motorist policy, the court did not find a breach of contract; that failure to find is not challenged. The record shows that State Farm had no obligation to pay Wiley under the policy until the damages were established in this suit. The record also supports the trial court's rejection of Wiley's contention that State Farm breached a duty established by the policy provision that states, "If we and you do not agree as to whether or not the vehicle is actually uninsured, the burden of proof as to that issue shall be on us." Though Wiley contends this provision obligated State Farm to sue Farmers to prove Kaura's insured status, the provision lacks an express requirement that State Farm sue anyone. Nor did the court find an implied requirement to sue, because State Farm could carry its burden of proof numerous ways other than suing the supposed insurer of the other party. The policy provision allocates the burden in a dispute between the contractual parties, but does not create an affirmative duty to sue others. Because the contract did not impose a duty on State Farm to sue Farmers, the trial court did not abuse its discretion by declining to assess against State Farm the attorney's fees Wiley incurred in suing Farmers.
Though Wiley's suit against Farmers reduced State Farm's liability to Wiley from $20,000 to just over $5000, that fact does not require a finding that State Farm breached a contractual duty to her by not undertaking the suit against Farmers that reduced its liability. Because evidence supports the conclusion that State Farm did not breach the insurance contract by not suing Farmers, it was concluded that the court did not abuse its discretion by declining to award attorney's fees to Wiley on a breach-of-contract theory.
Dallas life insurance lawyers need to keep up with the law as it evolves throughout the United States. The Washington Examiner published an article on June 6, 2014, that is interesting reading. The title of the article is, First Circuit rules John Hancock Life Insurance doesn't have to discover deaths, notify beneficiaries. Here is what the article tells us.
The U.S. Court of Appeals for the First Circuit has ruled that John Hancock Life Insurance Company did not breach its contract in a class action lawsuit in regard to how it handed unclaimed insurance policy proceeds.
The appeals court ruled that Richard Feingold's class action lawsuit against John Hancock Life Insurance Company and John Hancock Life & Health Insurance Company was properly dismissed for failure to state a claim, according to the May 27 opinion.
Sandra Lynch, Bruce M. Selya and William J. Kayatta made the ruling, while Lynch authored the opinion.
Feingold sued the defendants for damages said to have arisen from Hancock's adherence to contractual terms requiring that it be given notice of the death of its insureds before death benefits are paid out to beneficiaries, according to the opinion.
"Specifically, Hancock is said to have an obligation, stemming from a regulatory agreement between Hancock and several states, to discover such deaths and notify beneficiaries," the opinion states. "The district court dismissed the complaint for failure to state a claim."
On appeal, Feingold primarily argued the agreement Hancock entered with several state governments in June 2011 regarding its handling of unclaimed insurance policy proceeds imposed new obligations on Hancock as to beneficiaries of its insureds under state law.
The appeals court disagreed and affirmed the district court's decision to dismiss the class action lawsuit.
Feingold filed the class action complaint on Jan. 30, 3013, alleging that Hancock owed Feingold damages based on its handling of unclaimed benefits under its life insurance policies.
On Feb. 26, 2013, Hancock moved to dismiss the complaint and the district court held a hearing on July 25, 2013, and issued a memorandum and order granting Hancock's motion to dismiss on Aug. 19, 2013.
The court applied both Massachusetts and Illinois law to Feingold's claims because it concluded that the relevant laws of both states were the same and so it did not need to resolve the choice of law issue, according to the opinion.
"On appeal, Feingold challenges the district court's refusal to consider the GRA in assessing the plausibility of his claims for unjust enrichment, conversion, and breach of fiduciary duty," the opinion states. "He argues that Hancock breached the GRA and that this breach makes his common law claims plausible because he is a third-party beneficiary to the GRA."
Feingold also argues, in the alternative, that Hancock's breach of the Global Resolution Agreement supports his common law claims even if he is not a GRA third-party beneficiary, according to the opinion.
"These arguments fail because Feingold is not a third-party beneficiary to the GRA, and so Hancock owes Feingold no enforceable duties under that agreement," the opinion states.
"At most, Feingold is an incidental, as opposed to direct, beneficiary of the GRA. This is particularly so given that the GRA is a contract with state governments.
"Hancock's compliance with a different section of the Unclaimed Property Act based on an event unrelated to Mollie Feingold's death does not state a plausible violation of Illinois law."
U.S. Court of Appeals for the First Circuit case number: 13-2151
This ruling says an insurance company has no obligation to keep up with people who have died that are insured by them. It is up to the beneficiaries to make claims for benefits.
Fort Worth insurance attorneys will tell you that you have to read the policy to understand how coverage applies. A good example of this is from the Houston Court of Appeals [1st Dist.]. The style of the case is Oleksy v. Farmers Insurance Exchange. Here is some of the relevant information.
Oleksy went snowmobiling in New York with his friend Paul Pochron and several other people. Pochron was seriously injured when his snowmobile collided with Oleksy's. Pochron and his wife later sued Oleksy in Fort Bend County. Pochron alleged that Oleksy was a resident of Texas and that the snowmobile accident occurred in New York. The petition did not clearly identify the owner of the snowmobile used by Oleksy.
Oleksy filed a declaratory judgment action against Farmers Insurance, his homeowner's insurance carrier, seeking a declaration that Farmers has a duty to defend and to indemnify him in the lawsuit filed by Pochron. Although his homeowner's policy includes an exclusion for personal injuries arising from the use of motor vehicles, Oleksy based his claim for coverage on an exception to that exclusion. The relevant policy provisions are:
Section II-- Liability Coverage
Coverage C (Personal Liability)
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:
1. Pay up to our limit of liability for the damages for which the insured is legally liable. Damages include prejudgment interest awarded against the insured; and
2. Provide a defense at our expense by counsel of our choice even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate.
Section II-- Exclusions
1. Coverage C (Personal Liability) and Coverage D (Medical Payments to Others) do not apply to:
f. bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of:
(1) motor or engine propelled vehicles or machines designed for movement on land, including attached machinery or equipment;
(2) trailers, semi-trailers or mobile homes;
Which are owned or operated by or rented or loaned to an insured.
However, this exclusion does not apply to:
(1) motor vehicles which are not subject to motor vehicle registration and are:
(d) designed and used for recreational purposes; and are:
(i) not owned by an insured; or
(ii) owned by an insured while on the residence premises.
Farmers filed an answer, counterclaim, and for declaratory relief seeking a declaratory judgment that Oleksy is not entitled to coverage because the motor-vehicle exclusion applies.
Farmers moved for summary judgment based on the motor-vehicle exclusion in the homeowner's policy. As summary-judgment evidence, Farmers attached the insurance policy, Pochron's petition, a copy of the New York statute requiring registration of snowmobiles, and excerpts from Pochron's deposition and Oleksy's recorded statement. Farmers argued that the recreational-vehicle exception did not apply because the snowmobile was subject to registration in New York and because Pochron's deposition and Oleksy's statement supported an inference that the insured, Oleksy, owned the snowmobile.
Oleksy argued that the question of whether the snowmobile was " subject to motor vehicle registration" had to be decided pursuant to Texas law which is a statutory choice-of-Texas-law provision. Oleksy thus argued that the exception applied because the snowmobile was not subject to motor-vehicle registration in Texas. He also argued that he did not own the snowmobile based on undisputed evidence that Pochron obtained title to the snowmobile in his own name, maintained possession of it, paid insurance premiums for it, and had an insurance policy that named him as its owner. As summary-judgment evidence, Oleksy attached: the homeowner's insurance policy; Pochron's first amended petition; an email from the Texas Department of Motor Vehicles stating that it does not title or register snowmobiles; an affidavit from Pochron in which he avers that he owned the snowmobile in question; and his answers to interrogatories, in which Oleksy denied ownership of the snowmobile.
The trial court granted summary judgment in favor of Farmers, denied Oleksy's motion, and issued a final declaratory judgment that the insurance policy provided no coverage for the snowmobile accident and that Farmers had no duty to defend or indemnify Oleksy in connection with the Pochron lawsuit. The court agreed Farmers's motion for summary judgment purported to be a hybrid motion both (1) establishing the applicability of the exclusion as a matter of law and (2) negating the exception because there was no evidence to support it. But its motion relies in part on its contention that snowmobiles are subject to motor-vehicle registration and in part on its contention that Oleksy owned the snowmobile, an argument that it abandoned on appeal. In light of this courts' conclusion that snowmobiles are not subject to " motor vehicle" registration under New York or Texas law, the court cannot agree that Farmers conclusively disproved the applicability of the recreational-vehicle exception. Therefore, it was held that the trial court erred in granting summary judgment in favor of Farmers.
Oleksy moved for summary judgment based on the applicability of the recreational-vehicle exception. But his arguments were based on Texas motor-vehicle registration and the question of who owned the snowmobile. In supplemental briefing requested by this court, Oleksy argued for the first time that the New York Vehicle & Traffic Laws establish as a matter of law that snowmobiles are not subject to motor-vehicle registration. But Oleksy did not make that argument in his motion for summary judgment in the trial court. A motion for summary judgment " must stand or fall on the grounds expressly presented in the motion." TEX.R. CIV. P. 166a(c) Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal.
Summary judgments ... may only be granted upon grounds expressly asserted in the summary judgment motion. A court cannot grant summary judgment on grounds that were not presented. A motion for summary judgment must itself expressly present the grounds upon which it is made, and must stand or fall on these grounds alone. As observed by the Supreme Court of Texas, to act otherwise by rendering judgment based on a ground not raised in the trial court may prejudice the nonmovant's ability to demonstrate that the issue raises a genuine issue of material fact.
The trial court denied Oleksy's motion for summary judgment, and given the arguments that were made, the court cannot say that it erred in doing so.
Grand Prairie insurance lawyers will see insurance policies that contain arbitration provisions. The United States 5th Circuit issued an opinion in 2014 that should be read. The style of the case is Why Nada Cruz, L.L.C. v. Ace American Insurance Company. Here is some of the relevant information.
On August 15, 2010, the vessel "Sweet Dreams" sunk. Appellants Greg Anderson and Why Nada Cruz, L.L.C., also known as Why Not Cruise (collectively "Anderson"), sought recovery for the loss under a yachtsman policy of insurance ("Policy") issued by Appellee ACE American Insurance Company ("ACE"). The Policy included a provision requiring disputes to be settled by binding arbitration. The Policy further provided that the "request for arbitration must be filed within one (1) year of the date of loss or damage."
ACE advised Anderson on September 20, 2010 that it had denied his claim. On July 7, 2011, Anderson's counsel sent ACE a letter stating:
If you need any other information for your evaluation of the claim then let me know and I will do what I can to get you the information as quickly as possible. Afterwards, if ACE still denies the claim then please contact me to make arrangements for requesting arbitration under the policy. Otherwise, we have been instructed to file a lawsuit on August 8, 2011 to preserve our client's claims.
It appears that ACE did not respond to the letter. On August 11, 2011, instead of filing for arbitration, Anderson sued ACE in Texas state court to recover under the Policy for the sinking of the vessel "Sweet Dreams." ACE removed the case to federal court and filed an unopposed motion to compel arbitration and abate the court proceedings, which the district court granted on February 14, 2012.
More than eight months later, in October 2012, Anderson filed an arbitration demand with the American Arbitration Association ("AAA"). Once the parties selected an arbitrator, ACE sought dismissal of the arbitration proceeding on the ground that Anderson had failed to comply with the Policy's requirement that a request for arbitration be filed within one year of the loss.
After receiving briefing and evidence from the parties, the arbitrator entered an award dismissing the arbitration on the ground that the arbitration was not filed in a timely manner and did not meet the specific requirements, as detailed within the Insurance Policy. Specifically, the arbitrator found that "the filing for arbitration dated 25th October 2012, was over two years two months after the date of loss. The arbitrator rejected Anderson's contention that ACE's apparent failure to respond to his July 7, 2011 letter waived or tolled the one-year deadline for requesting arbitration. The arbitrator noted that Anderson's communications made it clear that Anderson was aware, before the deadline, of the Policy's arbitration requirement. The arbitrator explained that given
the knowledge of the terms of the Policy requiring arbitration to be filed within twelve months of the date of the loss, and that the Court had ordered arbitration, the undersigned arbitrator finds it questionable why Claimants delayed their actual filing of the arbitration over eight months after being ordered by the Court and considers this action a critical factor and unreasonable response.
After the arbitral award was issued, Anderson asked "if the arbitrator would allow for a Motion to reconsider." The arbitrator declined, explaining that "both the claimants and respondents had every opportunity to forward to me all documentation concerning the timeliness issues in this case in initial discovery."
On ACE's motion, the district court entered an order confirming the arbitration award and dismissing the suit with prejudice. On July 5, 2013, Anderson moved for a new trial and to vacate the arbitration award. Along with the motion, Anderson's counsel submitted an affidavit providing several justifications for the eight-month delay between the district court's order compelling arbitration and Anderson's arbitration request, including that during this period: (1) "[i]n addition to handling this case and other numerous legal matters . . . [, Anderson's counsel] had to prepare and did go to trial on three separate cases"; (2) ACE's original counsel switched firms; (3) Anderson's counsel took a summer vacation; and (4) counsel for both parties had several discussions about the logistics of filing for arbitration. The motion for a new trial was denied on September 30, 2013. Anderson filed a timely notice of appeal.
Sections 10 and 11 of the Federal Arbitration Act, 9 U.S.C. §§ 1-16 ("FAA"), provide "the exclusive means for setting aside or changing an arbitration award challenged under the FAA." Section 10 permits vacatur only when, among other things, "the arbitrators were guilty of misconduct . . . in refusing to hear evidence pertinent and material to the controversy" or "the arbitrators exceeded their powers."
Anderson's contends that the arbitrator exceeded his powers, in violation of § 10(a)(4) of the FAA, by concluding that Anderson's request for arbitration was dilatory under the Policy. Where arbitrators act contrary to express contractual provisions, they have exceeded their powers. If the contract creates a plain limitation on the authority of an arbitrator, we will vacate an award that ignores the limitation. Nevertheless, a reviewing court examining whether arbitrators exceeded their powers must resolve all doubts in favor of arbitration.
Anderson has not shown that the arbitrator exceeded his powers in dismissing the arbitration due to Anderson's failure to timely request arbitration under the Policy terms. Anderson argued that the arbitrator should have found that Anderson timely requested arbitration in his July 7, 2011 letter to ACE, which was sent less than one year after he submitted his claim. But the Policy required the arbitration "request" to be "filed," which may require something more formal than a letter to ACE. And Anderson's July 7, 2011 letter may not have been a "request" for arbitration because it made any request contingent on ACE's further rejection of Anderson's claim. Moreover, Anderson acknowledges that the term "request," as used in the Policy, is ambiguous, and that the Policy does not specify the form that a request should take or to whom it should be made. Given the "exceedingly deferential" standard of review, Petrofac, the court could not fault the arbitrator for his resolution of those ambiguities.
Accordingly, the arbitrator did not exceed his powers by declining to find that Anderson's reference to arbitration in his July 7, 2011 letter was a "request for arbitration." Anderson further contends that, in determining that Anderson's arbitration request was untimely, the arbitrator impermissibly relied on events that occurred after the Policy's one-year deadline for requesting arbitration. In particular, Anderson asserts that the arbitrator's consideration of the eight-month delay between the district court's order compelling arbitration and Anderson's arbitration demand has no basis in the Policy language.
The arbitrator's discussion of that delay can be fairly read as relating not to the issue of whether Anderson failed to file an arbitration request within one year of the loss, but to Anderson's equitable argument that ACE waived or tolled the one-year deadline by not responding to the July 7, 2011 letter. In rejecting Anderson's waiver argument, the arbitrator noted that: (1) ACE's September 20, 2010 letter denying Anderson's claim specifically referenced the Policy's arbitration clause and the one-year contractual limitations period; (2) Anderson's December 9, 2010 and July 7, 2011 letters to ACE acknowledged the Policy's arbitration requirement; (3) Anderson did not file an arbitration demand until more than 26 months after the loss and 8 months after the district court compelled arbitration; and (4) when Anderson did eventually demand arbitration, he made the demand without assistance from ACE. In light of these findings, and their purpose, the arbitrator did not exceed his powers in considering Anderson's actions after the one-year deadline for filing an arbitration request had run, or in rejecting Anderson's argument that this deadline was waived or tolled.
Anderson's second issue on appeal: that the arbitrator improperly denied him an opportunity to present evidence showing the reasons for the eight-month delay between the district court's order compelling arbitration and Anderson's arbitration demand. Anderson states that, during that period, his counsel had three trials and went on summer vacation; ACE changed counsel; the parties discussed alternatives to submitting the arbitration to the AAA; and the parties had several discussions regarding the wording of the arbitration demand and the payment of filing fees. Anderson contends that the arbitrator's refusal to permit a motion for reconsideration, with which he could present this evidence, violated FAA § 10(a)(3)'s prohibition on arbitrators "refusing to hear evidence pertinent and material to the controversy," and rendered the arbitration proceeding fundamentally unfair.
The court could not fault the arbitrator for declining to consider evidence that was not timely presented to him. ACE raised, in its application to dismiss the arbitration proceeding, the issue of the delay between the district court's order compelling arbitration and Anderson's arbitration demand to the AAA. Anderson had ample opportunity to present, in his response brief, evidence explaining and mitigating the impact of that delay, and supporting his waiver defense. Courts have held that "arbitrators enjoy inherent authority to police the arbitration process and fashion appropriate remedies to effectuate this authority." Thus, the arbitrator did not commit misconduct, in violation of § 10(a)(3), by declining to give Anderson a second opportunity, after the arbitration award already had issued, to present evidence supporting his opposition to dismissal of the arbitration.
Dallas insurance lawyers will occasionally have a claim against an agent. With that in mind, a Houston Court of Appeals [1st Dist.], opinion is worth reading. The opinion is styled Houston v. Escalante. Here is some of the relevant case information.
Escalante's Comida Fina, Inc. sued its former insurance agent, Houstoun, Woodard, Eason, Gentle, Tomforde and Anderson, Inc., d/b/a Insurance Alliance for breach of contract and violations of the Deceptive Trade Practices Act and the Texas Insurance Code. The breach of contract claim was based on the failure to procure an insurance policy with coverages requested by Escalante's, and the DTPA and Insurance Code claims were for misrepresentations and non-disclosure of information about the policy and the coverage afforded thereunder. The jury returned a verdict in favor of Escalante's, and the trial court signed a final judgment awarding $56,835 in actual damages, $75,780 in additional damages for Insurance Alliance's "knowing" violation of the DTPA and the Insurance Code, attorney's fees, costs, and pre- and post-judgment interest.
Between 2003 and 2008, Escalante's owned and operated four restaurants in the Houston area. Between 2003 and 2006, the property and casualty insurance policy on the restaurants was with Ohio Casualty Group. The Ohio Casualty Policy provided, subject to certain exceptions, coverage against the loss of business income caused by an off-premises power or utilities outage. In 2005, Hurricane Rita struck Houston. Escalante's subsequently made a claim against the policy and Ohio Casualty paid the claim.
The Ohio Casualty Policy recited (Section III, n.):
The following items are added to the Additional Coverages section of Part A coverage of the Property Coverage form:
n. Off Premises Power Failure
We will pay up to $25,000 for loss of Business Income and Extra Expenses caused by the failure of power or other utility service supplied to the described premises if the failure occurs away from the described premises.
The failure of power or other utility service must result from direct physical loss or damage by the Covered Cause of Loss.
We will only pay for the loss you sustain after the first 24 hours following the direct physical loss to the off premises property. Off Premises Power Failure under this Additional Coverage does not apply to failure of power or other utility service resulting from direct physical loss or damage by any Covered Cause of Loss to overhead transmission lines.
Patrick Torres, the president of Escalante's, testified that during this same time period, Insurance Alliance's principal, Kirk Gentle, was seeking to regain Escalante's as a client. Toward this end, Escalante's provided Insurance Alliance with a copy of its then-current policy and agreed to purchase coverage under a new policy procured by Insurance Alliance if the coverage matched the Ohio Casualty coverage but cost less. According to Torres, Insurance Alliance told him that it had such a policy. Torres specifically reminded Insurance Alliance of his prior claim from Hurricane Rita and emphasized that the coverage he sought from Insurance Alliance had to be the same as that provided by the Ohio Casualty Policy. In fact, Torres asked if the coverage under the new policy matched the Ohio Casualty Policy "apples to apples," and was assured that it did.
In reliance upon Insurance Alliance's assurances, Escalante's declined to renew the Ohio Casualty Policy and, instead, purchased a new insurance policy issued by Allied Property & Casualty Insurance Company from Insurance Alliance in 2006. No claims were made on the Allied Policy during the first year, and the policy was renewed for 2007-2008.
In September 2008, Hurricane Ike caused a temporary loss of electrical power at all four Escalante's restaurants, and Escalante's lost revenue as a result of the interruption. Apart from minor damage suffered at one location, none of the other restaurant locations suffered physical damage, but all experienced food spoilage and business interruption. Escalante's complained that it never recovered for these losses under the Allied Policy because losses caused by an off-premises power failure were expressly excluded from coverage.
Exclusion (e) to Section B of the Allied Policy stated:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other causes or event that contributes concurrently or in any sequence to the loss.
e. Off-Premise Services
The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises.
But if a failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
Escalante's maintained that had the Allied Policy's coverage been identical to the prior Ohio Casualty Policy, as Insurance Alliance had assured, the restaurants' losses would have been covered. Escalante's sued Insurance Alliance for its failure to procure coverage that matched the prior Ohio Casualty Policy "apples to apples."
This is an overview of the dispute and the discussion by the court is extensive. It is well worth reading when considering to sue an agent for failing to provide proper insurance coverage.
Dallas and Fort Worth insurance lawyers need to keep up with events happening in the world of insurance claims. The Southeast Texas Record published an article of general interest recently. The title of the article is. "BP Files Emergency Appeal To U.S. Supreme Court To Intervene In Suspension Of Claims Payouts." Here is what the article tells us.
BP has asked the U.S. Supreme Court to intervene after the U.S. Fifth Circuit Court Appeals disallowed maintaining a temporary stay in claims payouts following allegations of fraud within the 2010 Deepwater Horizon oil spill claims process.
BP has already paid out an estimated $3.7 billion to more than 38,000 claimants. The company successfully received a stay on the claims process in December following several revelations that businesses who were not actually harmed by the oil spill were receiving claims.
However, the stay was lifted last week by U.S. District Judge Carl Barbier and applies to 30,000 further business claims that will begin being processed again today albeit under a different funding program that is estimated to save BP millions and root out claims by companies who cannot provide proof of injury.
BP's emergency request to the U.S. Supreme Court includes again staying payments for business claims, many of which they claim are not related to actual losses.
In addition to bringing attention to payments to businesses that do not appear to have lost revenue during the oil spill, critics have made several claims that the payout process as a whole is open to fraud.
Previous fraud accusations in the claims process include a report by Special Master Louis Freeh that linked a $370,000 commercial shrimper's claim Casey Thonn to a $40,000 referral fee allegedly received by Court Supervised Settlement Program (CSSP) attorney Lionel Sutton.
In the report, Freeh found that the Andry Lerner law firm had provided the referral fee to Sutton in what he said was a system that amount to "money laundering," which included funneling the payment to a water reclamation company. Although Sutton was found not to have helped the claim get settled that payout was later ordered to be returned after Thonn was found to have based it on earnings he never filed with the Internal Revenue Service.
In addition to the Thonn case, it was determined that Mikal Watts, a San Antonio attorney who at one time claimed to have represented over 44,000 claimants, was found to have allegedly faked social security numbers of at least half of the claimants on his list and even listed a number of deceased claimants.
Watts' claims comprised 76 percent of all claims against the BP Seafood Fund for which the oil giant had set aside $2.3 billion, but only 648 of those were pursued. A separate stay was granted concerning Watts' claimants after he revealed he was under investigation by federal authorities.
Following allegations of systemic fraud, BP set up a hotline in which they quickly received a tip that senior attorneys working in the Mobile, Ala. CSSP office were allegedly defrauding the claims process. After evidence was provided to the court, the CSSP said two Mobile employees were temporarily suspended and that one of the employees was found to have improperly accessed claims files while the other employee processed six claims that had a fraud stop put on them until an investigation can be completed.
The anonymous caller to the hotline alleged that CSSP employees were taking kickbacks in exchange for granting claims to family members.
Aledo insurance lawyers need to know how partial payment of an insurance claim works in a claim for violating the Prompt Payment of Claims Act. A 2004, Texas Supreme Court case styled, Republic Underwriters Insurance Company v. Mex-Tex, Inc. helps an insurance law attorney to understand. Here is the relevant information.
Facts: The roof atop a shopping mall was damaged by a hail storm. Before Republic agreed to pay for the replacement, Mex-Tex, owner of the mall, retained a roofer on a priority basis to replace the roof in order to avoid further injury to the tenants from future rains at a total cost of $179,000. Republic estimated the cost of replacing the roof with an identical make to be $145,460 and tendered that amount. The new roof was substantially similar in kind and quality to the old one, but the additional cost was due to the method of the roof's attachment to the building and the high priority of the job. Republic refused to pay the balance of the claim and Tex-Mex sued. Tex- Mex sought to recover the balance of the amount owed plus a statutory 18% penalty on the entire claim. Republic argued that the penalty, if any, should be assessed only on the disputed amount, rather than on the entire claim. The trial court entered the judgment in favor of Tex-Mex and Republic appealed. The Amarillo Court of Appeals affirmed, holding that the policy did not require the replacement roof to be identical and that Republic's tender of the amount it believed was owed on a claim did not stop the accrual of Texas Insurance Code, Prompt Payment of Claims Act penalties, or prejudgment interest, on what was later judicially determined to be the full amount of the claim. The Texas Supreme Court granted review.
The Texas Supreme Court reversed and remanded, agreeing that replacement of a damaged roof with one of "like kind and quality" fell within the policy but rejecting the lower court's holding that the Prompt Payment of Claims Act calls for an 18% penalty of the amount of the claim, not just the amount outstanding after partial tender.
The court observed that interpreting "claim" as the amount ultimately determined to be owed net of any partial payments made prior to such determination was consistent with the statutory goal of encouraging prompt payment by insurers of undisputed amounts. The court also found a lack of support for the trial court's conclusion that Republic's payment was in full satisfaction of the claim. Therefore, the statutory penalty could be imposed on $33,540, the difference between the trial courts' determination of the claim amount and the partial payment tendered by Republic, from the day of payment until the date of the judgment.
Parker County insurance attorneys need to know the exclusions in homeowners policies and how courts interpret those exclusions. A 2007, Dallas Court of Appeals case is one worth reading. It is styled, Crocker v. American National General Insurance Co. Here is some of the relevant information.
The insureds had a homeowner's insurance policy issued by American. The policy included a standard "surface water" exclusion. Because of improper design, the insureds' raised patio collected water, which ran into the insured's home. Armstrong, who represented an independent adjusting firm, was retained by one of the insurance companies to investigate the claim. After Armstrong's report, coverage for the claim was denied under the "surface water" exclusion. The insureds' brought suit against the insurance companies for breach of contract and for breach of common law and statutory duties of good faith, arguing that the "surface water" exclusion did not apply because the water was on the patio and never actually touched the surface of the ground. The insured's also filed suit against Armstrong alleging negligence per se for violations of Texas Penal Code sections 22.02, 28.03, and 28.04; violations of Texas Insurance Code, Section 542.060; and for violations of the DTPA. Both carriers and Armstrong moved for summary judgment. The trial court granted summary judgment for all of the defendants, holding that the water which had fallen on the raised patio constituted "surface water" as a matter of law. Neither American nor Armstrong has addressed the "surface water" exclusion in their motion for summary judgment. The insureds' appealed.
The Court of Appeals affirmed the trial court, holding that the plain meaning of the words "surface water" could reasonably include water that had collected on the surface of the insured's patio, and thus, the "surface water" exclusion applied to the insureds' claim. The court found that "surface water" is defined as water or natural precipitation diffused over the surface of the "ground" until it evaporates, is absorbed by the land, or reaches channels where water naturally flows. The court then found that to limit the term "ground" to dirt would exclude all man-made surfaces and, therefore, render the exclusion virtually meaningless in the multitude of man-made environments. The court also found that since the carriers' had a valid exclusion they could not be liable for any bad faith claims. The court further found that the summary judgment was valid for both American and Armstrong, under the "surface water" exclusions even though they had not affirmatively pled the exclusion. The court further held that Armstrong as an independent adjuster, owed no duty to the insureds' and, therefore, could not be liable for bad faith claims; and the insureds' had not properly briefed the Penal Code claims against Armstrong.
Dallas area insurance attorneys will eventually try a case wherein, part of the case is won and part is lost. If this happens, does it affect an award of attorney fees? This question is answered in a Fort Worth Court of Appeals case opinion issued in 2014. The style of the case is, Farmers Group v. Poteet. The opinion is long and deals with many other issues. Here is the relevant part.
After a November 2002 discharge of smoke and soot from her heating and air-conditioning system, Poteet reported her claim to Farmers, which investigated and initially determined that the discharge of smoke and soot was caused by cracked heat exchangers in the home's heating system and that the loss was covered under Poteet's homeowners' policy as "sudden and accidental damage from smoke." Farmers paid for remediation and repair, including temporarily relocating Poteet and her daughter to a hotel during the process, cleaning and replacing furniture and carpet, repainting of the ceiling, and cleaning the home's walls and contents.
Poteet was dissatisfied with the remediation and cleaning efforts and claimed that continued presence of soot in the air of the home was causing her and her daughter to experience respiratory problems and rendered the home uninhabitable. Poteet hired a Certified Industrial Hygienist, Robert Miller, to investigate whether soot was still present in the home. Miller determined there was still soot present in the house.
The parties disagreed as to any additional amounts for further remediation or additional living expenses owed by Farmers under its policy. Farmers invoked the appraisal provision in the policy on February 26, 2003.
7. Appraisal. If you and we fail to agree on the actual cash value, amount of loss, or cost of repair or replacement, either can make a written demand for appraisal. Each will then select a competent, independent appraiser and notify the other of the appraiser's identity within 20 days of receipt of the written demand. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a district court of a judicial district where the loss occurred. The two appraisers will then set the amount of loss, stating separately the actual cash value and loss to each item. . . .
If the appraisers fail to agree, they will submit their differences to the umpire. An itemized decision agreed to by any two of these three and filed with us will set the amount of the loss. Such award shall be binding on you and us.
Each party will pay its own appraiser and bear the other expenses of the appraisal and umpire equally.
The attorney who assumed Poteet's representation and filed the suit for damages against Farmers represented her throughout the case--including the summary judgment proceedings in which she did not prevail, the appeal to this court in which she did not prevail with the exception of the claim for breach of the appraisal provision, the petition to the supreme court that was denied, the jury trial regarding her claimed damages as a result of that breach, and this appeal--testified at trial that his fees for the entire litigation totaled $401,144.00. He segregated out fees for "things that we could not receive attorney's fees for," in the amount of $53, 493.00. But the only fees segregated out were for the portion of the suit against the Kaisers. The remainder was $347,651.00. Then, he "further segregated this thing so that everybody will understand how much we have spent for this particular case, the appraisal process." This amount, $243,355.70, was precisely seventy percent of the remainder.
The Texas Supreme Court has reaffirmed the rule that if any portion of an attorney's fees relates solely to a claim for which fees are unrecoverable, the claimant "must segregate recoverable from unrecoverable fees. Parties seeking attorney's fees under Texas law 'have always been required to segregate fees between claims for which they are recoverable and claims for which they are not.
The exhibit showing Poteet's attorney's fees does not indicate that the fees have been segregated between those incurred for recoverable and non-recoverable claims. There is merely an estimate at the bottom of the exhibit that seventy percent of the fees are recoverable. The exhibit itself is full of charges for non-recoverable fees for claims involving the Kaiser co-defendants and for claims against Farmers on which Poteet did not prevail, including the first round of summary judgment motions, preparations for trial in 2006, appellate work that preceded the first appellate court decision, and appellate work seeking reconsideration and supreme court review.
An attorney can provide a rough estimate of the percentage of time necessarily spent on a claim that was part of the overall lawsuit. But here, Poteet's attorney made his "rough estimate" by lumping together hundreds of hours spent working to recover damages that Farmers had no duty to pay. Most significantly, there is no estimate of the reasonable and necessary fees incurred in pursuing the sole claim that survived the first appeal of this lawsuit.
The Texas Supreme Court has added that the degree of the plaintiff's overall success goes to the reasonableness of a fee award, and the most critical factor in determining the reasonableness of a fee award is the degree of success obtained.
Poteet failed to segregate her attorney's fees related to the alleged breach of the appraisal provision from those fees incurred in pursuit of the claims upon which she did not prevail in the prior appeal from the summary judgment and the claims upon which we have held that damages are not recoverable on this appeal. However, her failure to segregate her attorney's fees does not mean she cannot recover any fees at all. Unsegregated attorney's fees for the entire case are some evidence of what the segregated amount should be. And a remand is required for a separate but equally important reason. Because this court has held that the trial court erred in failing to disregard jury findings of damages totaling $31,300.00, the award of attorney's fees must be redetermined for that reason as well.
Dallas life insurance attorneys need to know about this Federal case. It is a 1996, Southern District of Texas opinion. It is styled, Bates v. Jackson National Life Insurance Company. Here is some of the relevant information.
Bates' children sued Jackson National for proceeds of a life insurance policy issued to Bates. Plaintiffs asserted causes of action for breach of contract, bad faith, Insurance Code violations and DTPA violations.
On October 31, 1991 and November 1, 1991, Bates was diagnosed with phlebothrombosis and diabetes, respectively. On November 12, 1991, Bates submitted an application to Jackson National in which he represented he had not consulted or been treated by a physician in the last five years and that he had not submitted to an x-ray or any laboratory studies or tests. Furthermore, Bates represented in the application that he had not been told he had any disease, abnormality or diabetes. The policy was issued and the application was attached to and made a part of the policy.
On November 11, 1992, Mr. Bates was murdered by an ex-lover of his girlfriend / common law wife. Plaintiffs timely filed a claim with Jackson National. Jackson National denied coverage based on material misrepresentations made by Bates in the application for insurance.
Plaintiffs acknowledge that the application contained false representations and that Jackson National relied on those representations. Plaintiffs dispute, however, that Bates intended to misrepresent information to Jackson National or that the misrepresentations were material.
In its' discussion of this case this court said a material misrepresentation in an insurance application does not defeat recovery if the misrepresentation was made innocently and in good faith. An insured's mere knowledge of his or her health condition is insufficient to prove intent to deceive as a matter of law. Accordingly, a fact issue exists as to whether or not Bates intended to deceive Jackson National.
Jackson National owed the beneficiaries of the policy no duty of good faith and fair dealing as they are merely third-parties claiming under the policy, not an insured of Jackson National. Even if Jackson National owed the beneficiaries a duty of good faith and fair dealing, the evidence demonstrates a reasonable basis for questioning their claim. Therefore, Jackson National did not breach the duty of good faith and fair dealing.
Plaintiffs do have standing under the Texas Insurance Code to assert Insurance Code violations. Section 541.060 allows "any person" who has sustained actual damages to assert claims under the statute. The Texas Supreme Court has narrowly construed the term "any person," but has not squarely addressed the issue before this Court. This case is directly on point with another opinion. In the other opinion, the San Antonio Court of Appeals held that beneficiaries under a policy may assert claims under the statute. Until persuasive authority is presented that the Texas Supreme Court would hold otherwise, federal courts will follow the other opinion. Because a reasonable basis exists for Jackson National to question this claim, however, no violation of the statue occurred.
Accordingly, summary judgment is granted for Jackson National as to Plaintiff's bad faith and Insurance Code claims. Plaintiffs' breach of contract claim, however, must be tried to determine if Bates intended to deceive Jackson National.
Arlington insurance lawyers need to know the cases where an insured can sue under an insurance policy and where they cannot. It is not always easy to do. A 1996, Beaumont Court of Appeals opinion is a good case to read. The style of the case is, Rumley v. Allstate. Here is some of the relevant information.
Joyce Rumlet, (Wife) sustained personal injuries in a one car vehicle accident in which her husband, Wilburn Rumley, was the driver. Mrs. Rumley filed a claim for benefits under their policy with Allstate. Allstate paid Personal Injury Protection benefits but refused to pay liability because the policy contained a family member exclusion. At the time, the Texas Supreme Court was reviewing a case on this issue but had not yet issued an opinion. In that decision, the Texas Supreme Court invalidated the family member exclusion. Wife sued Allstate and Ted Pate, a senior staff claims representative for Allstate, for breach of duty of good faith and fair dealing, violations of the Texas Insurance Code, Section 541.060 and violations of the Texas Deceptive Trade Practices Act, Section 17.46.
Allstate filed a Motion for Summary Judgment on the grounds that Wife's claim was a third party claim for which Allstate owed no duty of good faith and fair dealing; there was a reasonable basis for denying the claim in that the family member exclusion was an unsettled issue of law; and there was no special or contractual privity between Pate and Rumley. The trial court granted summary judgment. Wife appealed.
This Court held in favor or Allstate and the claim representative.
In the opinion, this court stated that a third party claimant cannot pursue an action against an insurer for unfair claims settlement practices under the Texas Insurance Code.
Although Wife was a named insured on the policy and premiums were paid from community funds thereby establishing Wife's contractual relationship with Allstate, when Wife asserted a liability claim against her spouse, she assumed a posture of a third party claimant.
In the context of her claim based upon her husband's negligence, Wife was antagonistic to both Allstate, the insurer, and her spouse. She did not rely upon Allstate's good faith any more than any other injured party would.
As a third party claimant, Wife had no standing to assert extra-contractual and statutory claims against Allstate or the claims representative for denial or delay in the payment of her claim.