Preparing For the Aftermath of the Medicare Data Release

 The Centers for Medicare and Medicaid Services has just released a large set of data [http://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-04-09.html] regarding the provision of services to Medicare patients and the payment of providers for those services.

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New York Federal Court Awards Excess Insurer Full Policy Limits in Bad Faith Claim Against Primary Insurer

In a March 31, 2014 decision, the Northern District of New York found a primary insurer liable to an excess insurer for bad faith settlement practices in the defense of its insured in an underlying motor vehicle lawsuit. After a bench trial in Quincy Mutual Fire Insurance Co. v. New York Central Mutual Fire Insurance Co., Civil Action No. 3:12-CV-1041, the Court found that New York Central, as the primary insurer, acted in bad faith and grossly disregarded the interests of Quincy, the excess carrier, by: (1) refusing to increase its settlement offer for almost four years; (2) refusing to tender its policy limits until three weeks before trial where the damages were indisputably in excess of the primary limits several years earlier; and (3) failing to conduct or obtain an analysis and valuation of the underlying litigation’s potential jury verdict value until mere weeks before the scheduled damages-only trial. The Court found that New York Central’s conduct caused it to lose two opportunities to settle the case at times in which liability against its insured was clear and Quincy’s excess exposure would have been none or significantly less than the full amount of its policy limits. Importantly, the Court recognized that Quincy, as the excess insurer, had no duty to undertake a defense in the underlying litigation, and therefore rejected New York Central’s argument that Quincy’s conduct in monitoring the litigation contributed to its damages. As a result, the Court awarded Quincy the full amount of its policy limits in damages, plus prejudgment interest.

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Seventh Circuit Rejects Staff Counsel Challenge

While most state courts have sustained the right of insurers to use staff counsel, nearly all require that the insured be advised that the lawyers in question are employees of the insurance company. A new Indiana case has raised and decided the question of whether this disclosure must be made at the time of representation or, as the insured argued in this case, at the time of the issuance of the subject insurance policy.

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DRI Offers CLE Registration Incentives For In-House Claims People

As much as insurers value the opportunity to attend excellent coverage seminars for CE/CLE credit and networking opportunties, the cost of registering can be a deterrent in these times of tightening education and training budgets. 

One of the jobs of the DRI Law Institute that I chair has been finding ways to get more in-house people to our programs.   Yes, we believe that more outside counsel will also show up if their clients are attending.  We also believe, however, that these programs are more interesting and engaging if the full specturm of the defense community is represented.  I

Here are three initiatives that DRI is taking to encourage in-house claims people to register:

1.  If your companyr schedules a meeting of its panel counsel in conjunction with a DRI seminar, DRI will provide a meeting room and will comp your employees attendance, hotel and travel costs in proportion to the number of people who attend and register.   A meeting can range anywhere from 5 people with a cup of coffee to 500 with coffee and cookies.  The more people, the greater the comped advantages for your company (see attached flyer).

2.  Alternatively, if you are a member of DRI and your duties focus on the hiring or supervision of outside counsel, you may attend any DRI seminar for free. (see attached flyer)

3,  Finally, even if you are not a DRI member, you are allowed to attend up to one free seminar a year if a member of DRI who is attending that seminar agrees to sponsor you.  (see attached flyer)

I hope to see you at a future DRI seminar.  For a list of upcoming programs, go to www.dri.org/events

 

Obstacles to Class Actions on Insurance Matters

Typically class actions and claims for insurance bad faith do not mix.  This is for the simple reason that insurance bad faith actions usually involve individualized facts, individualized policies and separate claims handling.  Uniform claims, therefore, are less prevalent in insurance bad faith, and thus less likely to satisfy the class action requirements under Civil Rule 23(a) of numerosity, commonality, typicality and adequate representation.  However, class actions can nevertheless play a role in insurance bad faith claims and insurance coverage cases. 

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Liability Caused by Hackers Not Covered by CGL Policies

Summary judgment was granted in favor of insurers (including Zurich and Mitsui Sumitomo), against Sony in a case of first impression on the issue of insurance coverage for cyber liabilities under commercial general liability primary policies. The New York state court ruled that primary insurers are not obligated to defend Sony against lawsuits brought by thousands of customers whose personal information was stolen when Sony's networks were hacked. Zurich American Insurance Co. v. Sony Corporation of America, et al., Case No. 651982/2011, in the Supreme Court of the State of New York, New York County, Judge Jeffrey K. Oing presiding. Sony's lawsuit followed the April 2011 incident when hackers broke in to the Sony PlayStation Network and obtained personally identifying information of up to 77 million customers. Sony was sued in 65 class action lawsuits around the country alleging various causes of action, including invasion of privacy. The lawsuits were consolidated in Multi-District Litigation ("MDL") now pending in the Southern District of California. Zurich filed a declaratory judgment action in New York state court. Cross-motions for summary judgment on the duty to defend were filed by the parties. The central question was whether the claims in the MDL implicated the Personal and Advertising Injury coverage the offense of "oral or written publication, in any manner, of material that violates a person's right of privacy" (the "Privacy Offense"). It was undisputed that privacy violations were alleged, so "publication" was the critical issue. Sony argued that the dissemination of information to the hackers constituted publication because the phrase "in any manner" gave an expansive meaning to the term publication. The insurers argued that coverage for P/AI Injury requires that the offense be committed by the insured and, in this case, Sony had not published anything. At most, the publication was the result of the hackers' conduct. In fact, Sony had tried to protect the information and was sued for negligent data security. The court ruled with the insurers, finding no duty to defend because there was no possibility of coverage under the policies' Privacy Offense coverage. There are more and more instances of breaches of security leading to disbursement of private information that customers believe to be protected by businesses. On the insurance market are products designed to cover "cyber" risks including data breaches. The New York court's ruling is important in addressing businesses' attempts to fit new technology-related risks into "brick and mortar" policies that were never contemplated to cover these types of risks.

Busy Month for NY Court of Appeals

 

There’s been a good deal of activity in New York’s high court this February. Here’s the round-up:

  • K2 Investment Group, LLC v. American Guarantee & Liability Ins. Co.: In this much-anticipated decision, the Court of Appeals declined to overrule Servidone Const. Corp. v. Security Ins. Co. of Hartford, 64 NY2d 419 (1985), by holding that an insurer that breaches its duty to defend is not barred from later relying on policy exclusions as defenses to coverage. The court found no justification for overruling Servidone, in that there was no indication that “the Servidone rule has proved unworkable, or caused significant injustice or hardship, since it was adopted in 1985.” Invoking the rule of stare decisis, the court also reasoned that “insurers and insureds alike should ordinarily be entitled to assume that the decision will remain unchanged unless or until the Legislature decides otherwise.” Two justices dissented, concluding that “[a]n insurer should be subjected to some legal consequence for breaching its duty to defend an insured.” The dissent contends that such a rule would provide insurers with an incentive to defend their policyholders and would encourage declaratory judgment actions to resolve coverage disputes. The dissent also reasoned that “[b]ringing all of the interested parties—injured plaintiffs; insured defendants; and insurance carriers—together in a judicial forum further contributes to the efficient resolution of factual issues for the benefit of litigants without unduly burdening the ability of injured parties to obtain recovery for covered losses.”
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Can only the named insured satisfy the SIR, or can it be satisfied by other insurance or by the payment of a contractual indemnitor?

In its simplest terms, a self insured retention (“SIR”)  is an agreed sum that the insured agrees to pay before the insurance policy is required to respond to the loss.    Can only the named insured satisfy the SIR, or can it be satisfied by other insurance, by the payment of a contractual indemnitor or by a co-defendant? The Florida Supreme Court recently weighed in on this issue in Intervest Construction of Jax, Inc. v. General Fidelity Ins. Co., No. SC11-2320 (Feb. 6, 2014). It found that the sums paid by a contractual indemnitor could be used to satisfy the insured's SIR so as to trigger the insurer's obligations. In addition, the Court held that the insured's right to be "made whole" under the "make whole doctrine" took precedence over the insurer's subrogation rights under the "transfer of rights" provision. 

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Missouri Bar Against Negligence Claims Against Churches Bars Coverage For Clergy Abuse Suit

When is it unreasonable for an insurer to benefit from a policyholder’s legal strategy in defending the underlying claim that the insurer is contesting coverage for? That was the question posed to the U.S. Court of Appeals for the Eighth Circuit in its consideration of a recent Missouri sexual abuse case in Chicago Ins. Co. v. Archdiocese of St. LouisNo. 12-4012 (8th Cir. Jan. 29 2014).

 

 

 

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New Consequences For Failing to Defend in West Virginia?

The federal Fourth Circuit, which has historically had a reputation as being among the more conservative jurisdictions with respect to insurance coverage issues, has issued an unpublished opinion, declaring for the first time that policy holders may recover damages for “aggravation” and “inconvenience” resulting from the refusal of an insurer to provide a defense owed under its liability policy.

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Extrinsic Evidence and the Duty to Defend

When does an insurer have a duty - or not - to defend an insured, and what facts can be used to make this determination?  These are two of the most common, yet challenging questions faced by insurers.  To help clarify the issue, the topic of today’s post is the use of extrinsic evidence for purposes of determining the duty to defend in Oregon.  As part of our discussion, we address the use of extrinsic evidence endorsements and their potential utility. 

 

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Most Important Coverage Rulings of 2013: Part II

On Monday, we discussed ten of the most important coverage rulings from the past year.  Here is the rest of the Top 25.

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The Most Important Coverage Rulings of 2013: Part I

 2013 was a year of triumph and tragedy for insurers. Positive financial results and the absence of domestic natural catastrophes such as Superstorm Sandy help to buoy the bottom line while the Marathon bombings in Boston and growing data concerning global warming raised the spectre of future uncertainty in underwriting risk. Disputes over the scope of coverage for construction claims and privacy suits continued to dominate coverage litigation, with legislatures taking a growing role in seeking to ‘reform’ policies to mandate coverage. And instead of the traditional lump of coal, insurers woke on Christmas morning to find a brace of opinions from Illinois and Wisconsin finding coverage for a load of manure. A fitting end to a strange year.

Here is a sampling of the most important rulings of the past year.

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Excess Insurance and Umbrella Coverage: When Is the Defense Duty Triggered?

          Pure Excess and Umbrella liability insurance are often confused for the same thing, and the terms routinely are used interchangeably.  In fact, umbrella coverage is often just a type of excess insurance that provides coverage different than pure excess insurance.  Usually, an umbrella policy may provide pure excess insurance under one coverage form and drop-down umbrella coverage under a separate coverage form.  Under pure excess coverage, a defense obligation may be triggered only when the underlying insurance is exhausted by payment of settlements or judgments.  By contrast, under umbrella coverage, a defense obligation under the latter may be triggered on a primary basis due to gaps in coverage.

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More on Insurance and Indemnity Contracts

Diane’s October 18 post points up the distinction between insurance and indemnity contracts, and calls to mind another important point about these risk transfer mechanisms: to the extent that insurance and indemnity contracts operate independently of each other (a question apparently to be taken up by the Texas Supreme Court), they may not be co-extensive in the protections they provide as respects the duty to defend and indemnify losses, as follows:

  • Defense: The duty to defend under an insurance policy is broader than the duty to indemnify; thus, additional insureds typically are entitled to a defense from the insurer if the pleadings merely allege that the loss arose out of the named insured’s work for the additional insured. In contrast, the duty to indemnify for costs of defense under an indemnity contract typically is only as broad as the duty to indemnify--it gives rise to a right of reimbursement for the costs of defense only if the indemnifying party is found to be at fault.
  • Indemnity: The scope of indemnification afforded under an insurance policy typically also is broader than that afforded under an indemnity contract. Additional insured endorsements often afford coverage not only for an additional insured’s vicarious liability, but also for its partial (and sometimes sole) fault. Indemnity contracts typically are fault-based; recovery is limited to the indemnified party’s vicarious liability.

These differences derive from the unique undertakings in each agreement. Although insurance and indemnity contracts often refer to each other, typically they don’t purport to govern the other, as indeed the parties to each are different. It will be interesting to see how a different outcome in In Re Deepwater Horizon might implicate these rights.