National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

OK. I admit it--I didn't wait for Santa Claus this year.  I am now the ecstatic owner of a new IPad.  Having spent much of Thansgiving weekend playing Scrabble on line with a friend in Mississippi and listening to Bob Dylan on Pandora, I am also discovering the wealth of useful legal applications that this new technology presents for coverage practicioners.

A particularly cool new app is "Picture It Settled", a free program designed by a San Antonio lawyer that allows you to automatically track all the demands and offers in a settlement negotiation.  Anyone who has sat through a construction defect mediation can immediately grasp the value of this app.  It also has a particularly cool alogrithm that creates a predictive capability once you've entered the numbers from several past mediations, allowing you to more accurately guess the ultimate cost of settlement and the most likely response to settlement offers and demands.

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In ZRZ Realty Co., et al. v. Beneficial Fire and Casualty Insurance Company, et al. (OR SC S057155), the Oregon Supreme Court allowed the plaintiffs to recover part of their attorney fees incurred to establish insurance coverage in a dispute regarding environmental contamination resulting from the plaintiffs’ activities dismantling U.S. Navy and merchant marine vessels at a site on the bank of the Willamette River in Portland, Oregon.

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We're pleased to learn that the National Insurance Law Forum has been selected as a Top Insurance Blog for 2011 by the LexisNexis Insurance Law Community.  Many thanks to LexisNexis staff, the Insurance Law Community's Advisory Board and our readers for your continued interest in our blog.  A complete list of Top Inusrance Blogs for 2011 can be found here.

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In Ohio Cas. Ins. Co. v. Chugach Support Servs., 2011 U.S. Dist. LEXIS 115759 (W.D. Wash. Oct. 6, 2011), the District Court for the Western District of Washington, applying Washington law, found that an insurance certificate only evidences the existence of a policy, and, as a matter of law, it cannot satisfy the written contract or written agreement requirement of a CGL policy’s additional insured provision.

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The National Insurance Law Forum is pleased to have been nominated for inclusion in the LexisNexis Top 50 Insurance Law Blogs of 2011.  If you'd like to show your support for our blog, please conisder providing your comments here by Friday, October 7.  Thanks for your many years of interest and support!

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In a recent unpublished opinion, the 11^th Circuit Court of Appeals determined that a suit seeking damages for violation of FACTA (involving the issuance of a receipt to a customer that did not delete the last five digits of the credit card number) did not involve a “publication” of material and therefore did not trigger a defense obligation under the “personal and advertising injury” coverage.    In E. T. Limited, Inc. v. Essex Ins. Co.,1:08-cv-22302-WJZ (applying Florida law), view, the insured posited that FACTA violations fell within the offense:  “oral or written publication, in any manner, of material that violates a person’s right of privacy.”   The insured argued that the term “publication” was ambiguous and that the phrase “in any manner” broadened its meaning to include the provision of a receipt. The Court of Appeals disagreed.  

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        I often receive phone calls from adjusters asking for coverage advice with respect to matters pending in Massachusetts that, in fact, have little to do with Massachusetts insurance coverage principles. While it’s hardly intuitive, the location of the accident giving rise to an insurance coverage dispute often makes little difference with respect to which state’s law should apply. This is because of the crucial role that state “choice of laws” rules play in such cases. Thus, the fact that an Ohio manufacturer has been sued for copyright infringement in Massachusetts rarely means that Massachusetts law will apply to the issue of whether liability insurance is available for the Massachusetts litigation.

       The problem with “choice of laws” is how different the rules are from state to state. The traditional rule was lex loci contractus, that is to say, the law of the place of contracting. Generally, this resulted in the selection of the law where the insured was headquartered and the policy issued, although some courts have since refined the doctrine to use out of state laws where the loss involves an insured facility in a state other than that where the insured is headquartered. See, e.g. Diamond International Corp. v. Allstate Ins. Co., 712 F.2d 1498, 1502 (1st Cir. 1983)(applying New Hampshire law to loss arising out of insured facility in New Hampshire even though the policy was issued in New York).   Other courts evolved a variation of this approach in the context of environmental claims during the past two decades and held that the “law of the site” should control, even if it was not an insured facility.

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The Massachusetts Reinsurance Bar Association (MReBA), of which I am the Secretary, is hosting its third annual claims symposium at the Harvard Club in Boston.  Registration is $150 for industry people and $250 for others.  To register, go to the MReBA web site:  www.mreba.org

This year's keynote speaker will be Tracey Laws, Senior Vice President and General Counsel of the Reinsurance Association of America. She will focus her remarks on the current regulatory climate in which all of us conduct business.

The focus of this year's symposium will be on communications, relationships and privilege issues.  In the wake of last year's Regence debacle, there is great urgency to finding ways to preserve traditional means of communication, auditing and claims association without imperilling the cedent's defenses by forfeiting attorney-client privileges.

The symposium will feature three panels where outside counsel and senior industry claims people will discuss:

1. Protecting Attorney-Client Privilege in Communications Among Cedents and Reinsurers

This panel will explore the balance between a reinsurer’s need for information about an underlying claim and the risks of losing attorney-client privilege when information is conveyed to a reinsurer.

2. “Right of Association” and “Claims Control” Clauses

This panel of MReBA members will address the contractual wordings that govern the relative rights and responsibilities of cedents and reinsurers in handling underlying claims, including the practical realities of sharing responsibility for the resolution of those claims.

3. Interactive Workshop

This year the audience participation part of our program challenges you to find solutions to the thorny issues presented by our first two panels. We look forward to your input on improving the working relationship between cedents and reinsurers when difficult problems arise in underlying claims.

The symposium will conclude with remarks from David Brummond, the U.S. Treasury Department’s Senior Sanctions Advisor on OFAC who will discuss emerging regulatory trends and the growing role of the federal government as an insurance rulemaker. 

I hope to see many of you there!

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Back in January,we posted a story concerning an ugly bit of litigation in New York City between Liberty Mutual and one of its defense firms in which a dispute concerning overdue fees had degenerated into allegations that a senior claims executive ("Mr. X") was demanding kickbacks for assigning more files and the law firm was trying to blackmail the carrier by revealing details of Mr. X's use of a lawyer's apartment for sexual trysts.

We are happy to report that this tawdry mess that was Michael J. Devereaux & Associates vs. Liberty Insurance Underwriters,has come to a conclusion.  It was reported this week that the parties have come to terms and agreed to settle.  In a statement to the press, Michael J. Devereaux claimed that Liberty Mutual had agreed to pay the firm's fees.  “Our attorney’s fees and costs are being paid,” said Mr. Devereaux. “I consider it a vindication of our firm” he said, adding Mr. X has been fired.  For its part, Liberty Mutual said, “We are pleased that litigation has been resolved, and that we have concluded our relationship with the Devereaux firm.”

The issue of possible kickbacks and corrupt relationships between claims adjusters and outside counsel is a serious one that companies take pains to police and prevent.   I myself have always made it a policy to keep my guest bedroom so messy that no self-respecting clients would want to use if for a tryst.

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Not all courts read policies with a blind eye or with a goal of maximizing coverage. In Continental Casualty Company v. Howard Hoffman and Associates, 2011 IL App (1st) 100957 (August 15, 2011),sixteen different probate estates filed claims against a law firm for embezzling funds from their accounts. The amounts at issue far exceeded $300,000. The perpetrator of the embezzlement, a probate paralegal at the firm, pled guilty to 11 separate charges of theft and a judgment for restitution was entered in favor of each of the 11 different estates involved in the criminal charges. 

The insured’s professional liability policy had limits of liability of $100,000 per claim and $300,000 in the aggregate. The court found that the “per claim” limit of liability of $100,000 applied to all of the civil claims asserted against the firm, and not the aggregate limits, as all of the insured’s acts or omissions were connected to one overall scheme of the insured’s probate paralegal to divert funds fraudulently from the estates to herself. As such, the claims of all of the estates should be treated as a single, ”related claim” under the policy.

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There is a wealth of case law concerning the extent to which insurers may be entitled to contest the merits of consent judgment settlements in which their policyholders assign their contractual (and extra-contractual) rights against the insurer in return for a covenant not to execute. As many insurers have discovered to their misfortune, moreover, much of this case law is adverse to insurers and often limits their defenses to issues of coverage and claims of fraud and collusion. As a result, insurers very often seek to intervene in the tort case to challenge the amount of the agreed damages and create a detailed factual record to support subsequent claims of fraud and collusion. But may a liability insurer intervene to challenge the verdict itself by picking up its insureds’ abandoned post-trial motions or, if necessary, pursuing an appeal to set aside the excess verdict? 

That issue is due to be considered this October by the Supreme Judicial Court of Massachusetts in the matter of Bejarano v. Goldberg. In 2003, Jose Bejarno two obstetric residents,

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The risk of future liability exposures due to MSP issues have caused insurers and defense counsel to resort to various different stratagems in an effort to ensure that Medicare liens will be satisfied without subsequent risk to the settling parties. Among these stratagems is a demand that the plaintiff’s attorney agree to indemnify the defendant and its settling insurers for any ensuing liens due to the plaintiff’s failure to pay them out of the settlement proceeds. The willingness of plaintiff’s counsel to agree to such proposals or the ability of defense counsel to advance them has been significantly compromised by a series of recent state bar ethics opinions, however.

In the most recent such opinion, the Virginia State Bar has approvedLegal Ethics Opinion 1858 which concludes that a plaintiff’s lawyer may not ethically agree to indemnify a defendant’s insurer for future claims resulting from the plaintiff’s failure to satisfy liens which he is obligated to pay from the settlement proceeds because such an undertaking would, in effect, obligate the lawyer to pay the client’s debts in violation of Rule 1.8(e) of the Rules of Professional Responsibility and would create a conflict of interest between the plaintiff and his lawyer pursuant to Rule 1.7(a) as the lawyer’s personal interest in avoiding liability for the debts of his client may be at odds with his client’s desire to settle the case. The Ethics Committee further found that it was a violation of Rule 8.4(a) for defense counsel to include such a provision in settlement agreements owing to the fact that it created an inducement to the plaintiff’s lawyer to violate Rules 1.7(a) and 1.8(e).

The Virginia opinion is in accord with several other recent state or local bar ethics opinions, including Formal Opinion 2010-3 of the New York City Bar Association and Opinion 2010-154 of the Board of Professional Responsibility of the Supreme Court of Tennessee. Similar opinions that seem less specific to Medicare lien issues have also been adopted by Ethics Boards in Arizona, California, Florida, Illinois, Indiana, Kansas, Missouri, North Carolina, South Carolina, Vermont and Wisconsin.

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In Schorno v. State Farm Fire and Casualty Company, 2011 U.S. App. LEXIS 16211 (9th Cir August 3, 2011), the Ninth Circuit Court of Appeals in an unpublished opinion affirmed a ruling of the U.S. District Court for the Western District of Washington granting State Farm Fire & Casualty Co.’s motion for summary judgment that it had no duty to defend its insured, Schorno, against claims of sexual abuse.

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Where do bad opinions come from? We were taught in law school that “hard cases make bad law.” I’m not sure that’s true, but I have discovered in the past 30 years that a lot of really dumb appellate opinions result from cases where the insurer won at trial. Somehow less consideration is given to the unfortunate precedential value of an adverse ruling when an insurer is defending an appeal than contemplating taking one. In such circumstances, cases develops a momentum of their own that is resistant to rational disposition.

The latest unfortunate opinion in this category comes from Massachusetts where a small dispute concerning a neighbor’s air conditioner has generated a most unfortunate precedent adopting an expansive determination of what constitutes “loss of use” for purposes of finding general liability coverage for “property damage.” 

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