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No Duty to Defend No Possible Duty to Indemnify
Legal Conclusions are Not Allegations of Fact
Post 4734
Zox LLC ("Zox") appealed the district court's grant of summary judgment in favor of West American Insurance Company. The district court held that West American had no duty to defend or indemnify Zox in an underlying trademark dispute between Zox and a group of entrepreneurs known as the "Zox Brothers" ("the Zox Litigation"). Zox contends the district court erred because the Zox Brothers sought damages for three potentially covered claims: (1) malicious prosecution; (2) disparagement; and (3) use of an "advertising idea."
In ZOX LLC, a California Limited Liability Company, v. West American Insurance Company; et al., No. 23-55125, United States Court of Appeals, Ninth Circuit (February 9, 2024) the Ninth Circuit resolved the dispute.
ANALYSIS
Under California law, a liability insurer owes a broad duty to defend its insured against claims that potentially seek damages within the coverage of the policy. Coverage turns not on the technical legal cause of action pleaded by the third party but on the facts alleged.
While the duty to defend is broad, an insurer will not be compelled to defend its insured when the potential for liability is tenuous and farfetched. To determine whether the duty to defend was triggered, the Ninth Circuit was compelled to compare the allegations in the Zox Brothers' pleadings ("the Pleadings") with the terms of West American's Insurance Policy ("the Policy").
Malicious Prosecution
To plead a malicious prosecution claim, the Zox Brothers must plead facts to prove that an underlying action was initiated or maintained (i) by, or at the direction of, [Zox] and pursued to a legal termination in favor of the Zox Brothers; (ii) without probable cause; and (iii) with malice. The Zox Brothers did not plead facts, nor provide extrinsic evidence, to satisfy any of the requisite elements of a malicious prosecution claim. The Pleadings did not trigger coverage for malicious prosecution.
Disparagement
To plead a disparagement claim, the Zox Brothers must plead facts to show a false or misleading statement that (1) specifically refers to the Zox Brothers' product or business and (2) clearly derogates that product or business. The Ninth Circuit was required to look past labels and at the facts alleged. Zox was unable to cite a single factual pleading in support of a disparagement claim.
Appropriation of Advertising Ideas
Zox contends that the Zox Brothers triggered coverage by claiming that Zox appropriated their "advertising ideas" by using the "Zox" name and "passing off" their products as Zox Brothers' goods. An "advertising idea" is a "process or invention" used to market one's goods. The district court did not err in finding that the Pleadings did not trigger coverage for a "use of another's advertisement" claim.
CONCLUSION
For the reasons stated by the Ninth Circuit, outlined above, it found that West American did not have a duty to defend or indemnify Zox in the Zox Litigation because, there was no duty to defend.
Where there is a duty to defend, there may be a duty to indemnify; but where there is no duty to defend, there cannot be a duty to indemnify.
ZALMA OPINION
The Ninth Circuit applied the clear and unambiguous language of the policy to the "facts" alleged; found that the allegations were mostly speculative or based on legal conclusions, failure to allege facts to support the three claims failed and, therefore, the Ninth Circuit had no choice but to affirm the summary judgment find no duty to defend nor a duty to indemnify.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Agent's Statement Binds Insurer
It is not Bad Faith Only to Deny a Claim
Post 4734
The California Court of Appeals dealt with a claim by Wynzell Lynn, Jr. in a breach of insurance contract case against defendants are AAA Life Insurance Company and its agent, Craigory Webb. Plaintiff appealed from a final judgment of dismissal that was entered after the trial court struck certain causes of action in plaintiff's operative complaint and sustained the defendants' demurrer as to other causes of action, without leave to amend.
In Wynzell Lynn, Jr. v. AAA Life Insurance Company et al., F085402, California Court of Appeals, Fifth District (February 9, 2024) explained in a lengthy opinion why the trial court erred.
FACTUAL BACKGROUND
Plaintiff purchased from defendant AAA Life Insurance Company (AAA) a life insurance policy for himself, along with a child term rider (rider) providing up to $10,000 in coverage per insured child. According to the First Amended Complaint (FAC) plaintiff understood from his prepurchase conversations with Webb that the rider would cover all of the children in plaintiff's household, even those without a biological or legally defined relationship (i.e., as an adopted child, foster child, or stepchild) to him. However, when one of the children in plaintiff's household-17-year-old Mahki Bowen-was murdered while the rider was in effect, AAA rejected plaintiff's claim for coverage because Bowen was not plaintiff's biological or legally recognized child (i.e., adopted child, foster child, or stepchild).
When plaintiff first contacted Webb within their household were four children under the age of 19: three with plaintiff's surname, plus Bowen, who was the biological child of plaintiff's fiancee and another man. Bowen's biological father had died in 2007, when Bowen was four years old, and Bowen had lived in plaintiff's household, as part of plaintiff's family, since he was about six years old. Although the FAC alleges that Bowen "was [plaintiff's child since he was approximately six years old," all agree that Bowen was not plaintiff's biological, step, adopted, or foster child.
Webb, as the agent for the insurer, stated, "'the rider covers all your children for $7.00."
The three-page rider contained the following relevant provisions. The rider "provides term life insurance coverage for each Insured Child." An Eligible Child must be dependent upon the Insured for support and living within the Insured's household or attending an educational institution as a full-time or part-time student.
In November 2020, about seven months after plaintiff's policy became effective, tragically, Bowen was fatally shot. On the date of his death, Bowen was 17 years old, unmarried, financially dependent on plaintiff, and living in plaintiff's household. Plaintiff contacted Webb to inform him of the death, and Webb "again represented to [plaintiff] that the Child Term Rider would provide coverage" and told plaintiff how he could initiate his claim. AAA formally denied plaintiff's claim under the rider, stating in its final rejection letter that Bowen was "not a 'qualifying child.' "
DISCUSSION
Breach of Contract (Express Contract Theory)
The trial court sustained the demurrer for failure to plead a breach of the rider by AAA.
Here, the definition of "Eligible Child" as it appears in the rider's first paragraph is, on its face, ambiguous, in that it is susceptible to more than one reasonable interpretation as to whom the term covers . The Court of Appeals noted that definition of this term as denoted in the first paragraph, can reasonably be read as the trial court read it, to limit coverage as of the policy's effective date, to children who meet all of the undisputed criteria and are the insured's biological, adopted, step, or foster children (that is, children who are encompassed in the categories specified in the second paragraph of the definition). The definition can also reasonably be read to provide coverage, as of the policy's effective date, for children who meet all of the undisputed criteria and are openly held out by the insured to be his children, consistent with California parentage law. As discussed below, "California parentage law creates a presumption that a person who openly holds out a child as his own is the child's natural parent." (emphasis added)
To the extent the rider can reasonably be interpreted to provide coverage for a child with a relationship to the insured akin to Bowen's relationship with plaintiff, the FAC properly pleads the element of breach-the only element the trial court found missing.
Defendants' contention that the phrase "all of the Insured's. children" an interpretation of the rider to the effect it covers children who were adopted by the insured or became his stepchildren or court-appointed foster children after it took effect, but not the insured's existing adopted children, stepchildren, and court-appointed foster children as of its effective date, would be unreasonable. The Court of Appeals concluded that "Eligible Child" in the first paragraph of the rider is ambiguous, in that it is reasonably susceptible to two interpretations.The FAC, liberally construed, indicates that plaintiff held Bowen out as his child; the FAC also alleges that Bowen lived in plaintiff's household and was dependent on plaintiff for support. Accordingly, in light of its ambiguity, the definition of "Eligible Child" in the first paragraph must be construed to protect that expectation.
In addition, in Shade Foods, Inc. v. Innovative Products Sales &Marketing, Inc. (2000) 78 Cal.App.4th 847 (Shade Foods) the Court of Appeals held that an insurance carrier is "bound by its agent's interpretation of coverage under the policy," and an agent's authority to bind the principal "unquestionably extends to giving ambiguous contract provisions an interpretation that the insurer itself might reasonably adopt." As a result, the court concluded, the insurer was "bound by its agent's interpretation of the contract."
Breach of the Covenant of Good Faith and Fair Dealing
The mere fact that an insurer withholds coverage based on an erroneous interpretation of the policy does not necessarily mean there was a breach of the covenant; to be liable in tort, the insurer must have acted unreasonably. Although the reasonableness of an insurer's denial of benefits" 'is ordinarily a question of fact,'" a court can conclude as a matter of law that an insurer's denial of a claim is not unreasonable, as long as there existed a genuine issue as to the insurer's liability.
The trial court's dismissal of the FAC's cause of action for breach of contract on an express contract theory, defendants argue in the alternative that plaintiff cannot plead this tort claim (i.e., breach of the covenant) because AAA's interpretation of the rider was reasonable and therefore shielded by the genuine dispute doctrine. The Court of Appeals agreed with AAA and it affirmed the trial court's dismissal of plaintiff's breach of covenant claim.
Negligence
An insurance agent has an obligation to use reasonable care, diligence, and judgment in procuring insurance requested by an insured. The law is well established in California that an agent's failure to deliver the agreed-upon coverage may constitute actionable negligence and the proximate cause of an injury. Accordingly, it concluded the FAC alleges adequate facts to show a special duty of care, breach of that duty, causation, and damages.
The judgment of dismissal was, therefore, reversed. The matter is remanded with instructions to the trial court to vacate the order sustaining the demurrer without leave to amend and to enter a new order (1) overruling the demurrer to the breach of contract (express contract theory) cause of action and (2) sustaining the demurrer to the breach of the covenant of good faith and fair dealing cause of action with leave for plaintiff to further amend his complaint to allege, if he is able, causes of action against AAA for breach of contract by estoppel, against AAA and Webb for violation of Business and Professions Code section 17200 et seq., against AAA and Webb for negligent misrepresentation, against AAA and Webb for negligence, and for reformation based on mutual mistake. The parties shall bear their own costs on appeal.
ZALMA OPINION
This case, over a $10,000 dispute, went through a claim denial, a demurrer dismissing the entire action, an appeal, a reversal of the breach of contract claim, and a return to the trial court to allow amendment of a statutory breach claim, if possible, and trial on the breach of contract case. No bad faith because it took the court to find a statute making a person "held out as a son" to be a son even if there is no physical, natural relationship nor a relationship by adoption. This is a case where the concept of "millions for defense and not a dime for tribute" requires reconsideration, mediation and settlement.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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https://youtu.be/su9qwq568dU
Convicted Arsonist Must Pay Restitution
Post 4731
A fire at a residential property destroyed several structures and made nearly all of the owner's personal property unsalvageable. M.W. pleaded guilty to first degree reckless burning for his role in starting the fire. The trial court ordered M.W. to pay over $1 million in restitution.
In State Of Washington v. M.W., No. 85908-1-I, Court of Appeals of Washington, Division 1 (January 29, 2024)
FACTUAL BACKGROUND
According to the affidavit of probable cause, on July 5, 2021, a fire occurred in Battle Ground, WA, involving a structure locally known as the "Old Cherry Grove Church," two dwellings, and a storage structure, all located on the same property. The property is owned by Steven Slocum. The damage resulted in a total loss of the structures and their contents.
Within two months after the fire, the investigating officer obtained recorded verbal and handwritten statements from five juveniles, including M.W., who came forward and admitted involvement in throwing a "mortar type firework" at Slocum's property.
The State charged M.W. with first degree arson. On January 5, 2022, the State charged M.W. by amended information with first degree reckless burning, to which M.W. pleaded guilty on the same day. M.W.'s statement on plea of guilty. M.W. agreed to pay restitution in full to all victims on charged counts, including dismissed counts and causes.
The trial court found that there was good cause to continue the hearing because there appeared to be a potentially complete loss of property and because of Slocum's emotional state. The court entered an order extending the restitution deadline to August 4, 2022 and a separate order setting a contested restitution hearing for August 3, 2022.
At the restitution hearing on September 28, 2022, the trial court took testimony from Slocum and admitted exhibits into the record. Slocum testified his property included a former church and his home, a parsonage house, and three separate buildings for classrooms, and carports. Slocum purchased the property because it had ample storage space, he was "kind of a hoarder," he had "a lot of stuff," and "this was an ideal place to have it." Slocum decorated the church with "a lot of antiques" and completed "repairs and upgrades." His collection included "[a] lot of phonographs, old victrolas and Edison cylinder players and musical- musical things." Slocum also bought a "couple of pianos, player pianos and a lot of slot machines." Slocum kept several items of family sentimental value in his home, such as furniture pieces, photographs, his mother's jewelry box and purse, his father's TV shop's test equipment, and an Aga cookstove.
Slocum and his nephew were in the back of the church on July 5, 2021, when the fire started. Slocum called 911 and was unable to extinguish the fire using a fire extinguisher. While on the phone with emergency dispatchers, he started taking pictures. The court admitted several photographs into evidence, including ones Slocum took during the fire and after the fire documenting the damage. State Farm prepared an estimate to rebuild the structures for $999,354.74. State Farm paid $569,255.85 for the damage to the buildings and Geico paid $7,000.00 for the truck. The remaining vehicles were not covered by insurance.
Courts in other contexts have construed "good cause" to require a showing of some external impediment that did not result from a self-created hardship that would prevent a party from complying with statutory requirements.
The fact that he could not salvage anything from his destroyed home also speaks to the difficulty in cataloging and estimating his personal property losses within 180 days after the disposition hearing. The trial court did not abuse its discretion in finding there was good cause to extend time for the restitution hearing.
M.W. argued there was insufficient evidence of the value of the items ordered as restitution. Restitution must be limited to easily ascertainable damages for, relevant here, injury to or loss of property. Where the offender has contractually undertaken to pay restitution pursuant to a plea agreement, the offender is bound by the terms of the agreement.
When disputed, the facts supporting a restitution award must be proved by a preponderance of the evidence. Evidence supporting restitution is sufficient if it affords a reasonable basis for estimating loss and does not subject the trier of fact to mere speculation or conjecture.
M.W. argues for the first time in his reply brief that State Farm's estimate does not make sense but at another point, it estimated loss as $999,354.74 and indicated it issued him a check for $569,255.85. The Court of Appeals noted that this argument appears to misread the State Farm documents, which separate the repair costs for the church structure and the dwelling structure, and plainly indicate a replacement cost of $999,354.74 for the two.
Given the extensive nature of the personal property loss, the amount for which Slocum had insured it provided a reasonable basis for estimating that he had suffered loss in at least that amount.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Ambiguous Exclusion Unenforceable
Unrepaid, Unrecoverable, or Outstanding Credit Exclusion Unenforceable
Huntington National Bank ("Huntington") sued AIG Specialty Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (together, "AIG") alleging breach of contract and bad faith stemming from AIG's denial of insurance coverage for Huntington's settlement of a bankruptcy fraudulent transfer proceeding brought by the trustee of a bankrupt company. In granting summary judgment for AIG, the district court held that:
Huntington's claim for insurance coverage was uninsurable under Ohio law,
Huntington's claim was independently excluded under the insurance contract's exclusion for "unrepaid, unrecoverable, or outstanding credit" and
the larger settlement rule did not apply to Huntington's settlement.
In Huntington National Bank v. AIG Specialty Insurance Co., et al., No. 23-3039, United States Court of Appeals, Sixth Circuit (February 1, 2024) the Sixth Circuit resolved the dispute.
FACTS
AIG issued to Huntington a bankers professional liability insurance (BPL) policy for that provided coverage up to $15 million, after a $10 million retention. Any liability exceeding the primary policy was covered by an excess policy issued by National Union for the same coverage period, which provided $10 million in excess coverage. The parties do not dispute that these policies apply to Huntington's claim.
The policy covers any actual or alleged Wrongful Act of any Insured in the rendering or failure to render Professional Services.Relevant to the dispute are exclusions specific to Huntington's performance of "Lending Acts." The relevant exclusion clarifies that "[t]he Insurer shall not be liable to make any payment for Loss in connection with any Claim or Claims made against any Insured: for the principal and/or interest of any unrepaid, unrecoverable, or outstanding credit."
The policy was implicated when Huntington unwittingly became the bank for a fraudulent company, Cyberco Holdings, Inc. Cyberco represented that it purchased computer equipment from a vendor, Teleservices. In reality, Teleservices was a paper company that Watson created to perpetuate his fraud.
Huntington's security department discovered that the FBI was investigating Cyberco, that Watson had been permanently blacklisted by the National Association of Securities Dealers, and that he had confessed to and served time for fraud-related crimes. But the Huntington security department did not share any of this with the team responsible for Cyberco. From May 2004 to October 2004, Cyberco gradually repaid its entire loan, a relief for the Huntington team. Later in 2004, the FBI raided Cyberco's offices, and Watson committed suicide shortly thereafter.
Following the FBI raid, creditors of Cyberco and Teleservices, both entirely fraudulent companies, discovered that the companies were bankrupt. The trustees of Cyberco and Teleservices filed adversary proceedings against Huntington, claiming that Huntington put its desire to be repaid ahead of its concerns that Watson was committing fraud and, by doing so, perpetuated the Ponzi scheme to its benefit and other lenders' detriment.
The bankruptcy proceedings were long and complex, including two trials and multiple opinions. Huntington argued it was not liable for any repayments before April 30, 2004, and that its liability was thus limited to the $12,821,897.07 in loan repayments for which the Sixth Circuit had already found Huntington liable. On the other hand, the trustee argued that Huntington had knowledge of the voidability of the transfers it received after November 16, 2003, making $35,968,475, plus interest, the proper recoverable amount. In March 2018, Huntington settled with the trustee for $32,000,000.
THE INSURANCE CLAIM
Throughout the bankruptcy litigation, Huntington sent AIG several requests for coverage. AIG disclaimed coverage, acknowledging that there was "potential coverage" under the policy because the Wrongful Acts alleged arose from Huntington's performance of banking services to Cyberco, but citing exclusions. AIG refused Huntington's claims.
Huntington subsequently sued AIG. AIG also moved for summary judgment, asserting that Huntington's settlement payment was not a "Loss" under the policy and, even if it was, Endorsements 5, 7, and 10 precluded coverage.
The district court granted AIG's motion for summary judgment on the grounds that Huntington's claim was uninsurable under Ohio law. The district court also granted summary judgment for AIG on the grounds that Huntington's claim was independently excluded by Endorsement 7, which bars recovery for "unrepaid, unrecoverable, or outstanding credit."
ANALYSIS
Under Ohio law, an insurance policy is a contract between the insurer and the insured. It is "well-settled" in Ohio law that, where provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured.
Exclusions of coverage must be clear and unambiguous to be enforceable. Where exceptions, qualifications, or exemptions have been added to an insurance contract, there is a general presumption that anything not clearly excluded by such provisions is included in the insured's coverage.
Under the insurance policy, the definition of "Loss" excludes "civil or criminal fines or penalties imposed by law, punitive or exemplary damages . . . or matters that may be deemed uninsurable under the law pursuant to which this policy shall be construed."
Huntington's claim was for $15,000,000 of a $32,000,000 settlement of a bankruptcy fraudulent transfer proceeding. Huntington correctly asserted that there was no showing of intentional malice by the transferee that is required under the fraudulent transfer provisions of the bankruptcy code, meaning that an order to return funds is not a punishment in any sense. Liability under the fraudulent conveyance statutes is not tantamount to the type of culpable conduct that Ohio courts have held precludes insurance recovery. Fraudulent transfer laws are remedial not punitive
The Sixth Circuit concluded that Huntington had no ill will or malice when it made the loan or sought its repayment, obviating any deterrent effect of denying coverage.
AIG's arguments to the contrary were unavailing. On appeal, AIG cites several authorities in support of its argument that there is a "well-established principle in insurance law that when an insured returns property that it was never legally entitled to acquire, the insured has not sustained a 'loss' within the meaning of an insurance policy."
AIG and the district court made a form-over-substance argument for exclusion. AIG's interpretation is not unreasonable. However, that its position is one of multiple reasonable interpretations of the text and because the application of the contra proferentem rule in this context conclusively resolves the interpretation of "unrepaid, unrecoverable, or outstanding credit.
The Sixth Circuit reversed the district court's grant of summary judgment for AIG on the insurability of Huntington's claim under Ohio law and the exclusion of Huntington's claim under Endorsement 7.
ZALMA OPINION
Bankruptcy litigation, banking, and fraud upon a bank by a Ponzi schemer who, when caught by the FBI committed suicide, was sued by creditors of the Ponzi scheme because the bank had its loan repaid and they did not. After lengthy litigation the bank settled the bankruptcy suits only to have its insurer refuse to pay based upon an exclusion that was not sufficiently clear to be enforced. AIG will need to pay its limits to its insured and the excess - that followed form with AIG - will probably find it must pay its limits as well. The Sixth Circuit read the full policy and interpreted it in line with Ohio law as should AIG before it rejected coverage.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Do the Crime, Serve the Time
Chutzpah: After Pleading Guilty Fraudster Tried to Reduce his Sentence by an Appeal
Post 4730
After pleading guilty, Armando Valdes appealed his 60-month sentence for health care fraud, in violation of 18 U.S.C. § 1347. Valdes's conviction and sentence arose out of his scheme to submit millions of dollars in fraudulent medical claims to United Healthcare and Blue Cross Blue Shield for intravenous infusions of Infliximab, an expensive immunosuppressive drug. These infusions, purportedly given to patients at Valdes's medical clinic, Gasiel Medical Services ("Gasiel"), were either not provided or were medically unnecessary.
In United States Of America v. Armando Valdes, No. 22-12837, United States Court of Appeals, Eleventh Circuit (December 19, 2023) was not convinced of his many arguments against the sentence imposed by the District Court.
LOSS AMOUNT
Under sentencing guidelines, U.S.S.G. § 2B1.1(b)(1), a defendant's offense level increases with the amount of "loss" caused by the offense. In Valdes's case, his base offense level was increased by 22 levels because the district court found that the loss amount was $38 million.
Section 2B1.1(b)(1)(L) provides that a defendant's base offense level is increased by 22 levels if the loss from the fraud offense was more than $25 million but less than $65 million. Guidelines do not require a precise determination of loss. Instead, the district court need make only a reasonable estimate based on the available information.
While the government has the burden to prove the loss amount with specific, reliable evidence, the district court may make its factual findings as to the loss amount based on, among other things, evidence presented at trial or sentencing or on the undisputed statements in the presentence investigation report ("PSI").
ANALYSIS
Valdes was unable to show the district court's determination that the loss amount of $38 million was clear error. In his factual proffer and at his plea hearing, Valdes admitted that through his medical clinic, Gasiel, he submitted approximately $33 million in fraudulent claims to United Healthcare and approximately $5 million in fraudulent claims to Blue Cross Blue Shield. Because there is a strong presumption that those statements are true the district court could rely on them in determining the loss amount.
Valdes's arguments failed because: First, for purposes of the loss amount under the intended loss includes unlikely amounts of pecuniary harm, such as claims that exceed the insured value; Second, at the sentencing hearing, Valdes's own fraud analyst testified that, even accounting for duplicate claims, the total loss amount was above $25 million.
The Eleventh Circuit concluded that Valdes did not show clear error in the district court's determination.
SOPHISTICATED MEANS ENHANCEMENT
Valdes also challenged the district court's application of a sophisticated means enhancement. Valdes argues that his offense involved the largely repetitive act of billing for a service that was not provided and was easily detectable.
If a defendant's fraud offense involved sophisticated means, his offense level is increased by two levels. Whether conduct is sophisticated is based on the conduct as a whole, not on the individual steps. Repetitive and coordinated conduct can be a sophisticated scheme even when no one step is particularly complicated. Addressing a sophisticated means enhancement, the Eleventh Circuit reviews a district court's factual findings for clear error.
The Eleventh Circuit found no error in the district court's application of the two-level sophisticated means enhancement. Based on his factual proffer and undisputed facts in the PSI, Valdes operated an elaborate, years-long scheme to defraud insurance companies for expensive Infliximab infusions, obtaining over $7 million as a result. The large amount of money defrauded and the six-year period the scheme went undetected support a finding of sophisticated means. The fact that Gasiel was a real medical clinic that provided other, legitimate medical services to real patients, including primary care services and other intravenous infusions, made the fraud scheme involving Infliximab infusions more difficult to detect and was, thus, sophisticated.
ABUSE-OF-TRUST ENHANCEMENT
If a defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the fraud offense, the sentencing court increases his offense level by two levels. Being a doctor is a type of special skill.
The undisputed facts show Valdes used his skills as a trained doctor, whether licensed or not, to facilitate his fraud by submitting false medical claims. Given that Valdes used a special skill in the commission of his offense, the district court properly applied § 3B1.3's two-level enhancement.
FORFEITURE OF VALDES' RESIDENCE
Valdes argues the district court erred by ordering the forfeiture of his home as substitute property. Valdes admits that as part of his plea agreement, he agreed to forfeit his primary residence as substitute property.
The record showed that the forfeiture allegations in Valdes's indictment and the plea agreement he signed both expressly identified Valdes's primary residence by address as being substitute property potentially subject to forfeiture. The district court explained, among other things, that Valdes "not only agree[d] to give up property that was directly derived from this crime," but also "to give up what is known as substitute assets." Valdes responded that he understood the forfeiture provision.
The record as a whole reflects that Valdes understood that his primary residence was the substitute property that could be subject to forfeiture. Because Valdes showed no plain error in the district court's accepting his guilty plea as to the forfeiture allegations, he failed to show the district court erred in ordering the forfeiture of his primary residence as substitute property.
ZALMA OPINION
Insurance fraud perpetrators have unmitigated gall and refuse to admit that they were actually caught committing the crime of insurance fraud and must serve the time and pay the restitution or fines required. Valdes tried, after entering into a plea agreement to avoid trial and a more lengthy sentence, included the forfeiture of his home, only to file a spurious appeal to save it. The Eleventh Circuit saw through his scheme and made him serve the time in prison for 60 months and pay for the crime with the assets he gained as a result of his years of fraud.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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Serious Injury Does Not Change Policy Wording
UIM Policy Reduced Limit Reduced by Amount Paid by Other Insurers
Post 4729
In an interpleader action involving the insurance coverage for survivors of a tragic auto accident. De Smet Insurance Company of South Dakota (De Smet) proposed distribution of the available insurance funds that had been paid into the Court.
In Hallmark Insurance Company, De Smet Insurance Company; and National Casualty Company v. Gail Hoefert and Aaron Hoefert, as personal representatives of The Estate Of Andrew Joseph Hoefert; Gail Hoefert and Kerry Hoefert, as Legal Guardians of B.E.H. minor and C.T.H. minor; et al, No. 4:22-cv-4069, United States District Court, D. South Dakota, Southern Division (January 29, 2024) the court resolved the dispute.
BACKGROUND
The Hoefert Family-Jennifer, Andrew, Jennifer's daughter, and the two young children of Jennifer and Andrew- were traveling on Interstate-90 in rural Montana. The driver of a Chevrolet Suburban crossed the center line, striking the Hoeferts' rental car, and killing himself and all occupants of the Hoefert car except the two young children. The latter were seriously injured and are currently under the guardianship of Gail Hoefert and Kerry Hoefert.
Plaintiff Hallmark insured the tortfeasor and filed this interpleader action to determine the liability of the insurance companies toward the survivors. Hallmark tendered $50,000, the amount of coverage in its policy. Two other insurance companies are involved. National Casualty insured the rental car occupied by the Hoefert Family, which carried coverage of $50,000 that has been tendered to the Court. De Smet was the insurance company of the Hoeferts, who had an underinsured motorist (UIM) policy of $500,000. De Smet has tendered $400,000 to the Court in satisfaction of the Hoefert Estates' claims.
Insurance Contract Provisions Governing Hoefert Estates Claims
The insurance policy De Smet provided to the Hoeferts lists “C. Underinsured Motorist Bodily Injury - $250,000 ea person, $500,000 ea accident.” The De Smet policy provided that “The limit of liability shown in the Declarations for each person for Underinsured Motorists Coverage is our maximum limit of liability for all damages, including damages for care, loss of services, or death, arising out of 'bodily injury' sustained by any one person in any one accident. Subject to this limit for each person, the limit of liability shown in the Declarations for each accident for Underinsured Motorists Coverage is our maximum limit of liability for all damages for 'bodily injury' resulting from any one accident. “
ANALYSIS
In addition to their serious physical injuries, the surviving children of the Hoeferts have experienced the tragic loss of their parents and older sister. Apart from the emotional impact, the economic loss has been and will continue to be significant. The court realized that payment of the insurance proceeds at issue in this case will only compensate a part of the total losses.
The disagreement presented was how to calculate the proper payment of the insurance coverage. The Hoeferts' insurance policy with De Smet provided for $500,000 in underinsured motorist coverage. The policy also provides in Section D OTHER INSURANCE that the maximum amount that will be paid is the “highest limits of underinsured motor vehicle coverage that the ‘insured' specifically requested under any one policy.”
This means that if a person with a De Smet policy of this type purchased, for example, an umbrella policy from another insurer which included underinsured motorist coverage of $500,000 and thought this was increasing the UIM coverage to one million dollars under both policies, the person would in fact receive no additional UIM coverage because of the language of the De Smet policy.
Because the Estates were compensated $100,000, De Smet claimed, based on the policy wording, that it owes only the amount of what is said to be “uncompensated damages” remaining, amounting to $400,000. The damages for which no compensation will be received clearly exceeds $500,000.
CONCLUSION
De Smet has moved for summary judgment, arguing the issue presented is legal, not factual. De Smet deposited with the court $400,000 that it believed was all it owed. The total amount Hoefert Estates would receive is $500,000. Hoefert Estates argued the calculated its rights differently. The total for the Estates under that argument would be $550,000 taking into account the fact that there are two UIM coverages involved in the case.
South Dakota's statute authorizing payment of underinsured motorist damages that are uncompensated and the provisions of the insureds' De Smet policy. Because Hallmark and National together compensated the Estates in the amount of $100,000, De Smet is responsible for only $400,000 under the statute and its policy with the Hoeferts.
ZALMA OPINION
There was no question that the various insurers owed money to the estates. They deposited into court the amounts they believed was owed under the terms of the policy and the statutes of the state of South Dakota. The court read all the policies applied their terms and South Dakota statutory law and concluded that the policies must be enforced as they were written and the estates were only entitled to the highest limit of Underinsured Motorist Coverage available, $500,000.00.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Appraisal Pointless if Coverage Not Provided
If Policy Says Building Coverage is "Not Provided" There Can be no Claim
Post 4728
Plaintiff Kota Me Patates LLC (“KMP”) filed a motion to compel appraisal to abate this insurance coverage dispute. Defendant Nationwide Mutual Fire Insurance Company responded with a separate motion for summary judgment asserting that the policy does not cover KMP's claimed losses.
In Kota Me Patates LLC v. Nationwide Mutual Fire Insurance Company, No. 4:23-cv-01573, United States District Court, S.D. Texas, Houston Division (December 21, 2023) the USDC's magistrate judge recommended a resolution of the disputes.
BACKGROUND
KMP had a business insurance policy with Nationwide (the “Policy”), effective from January 1, 2020 to January 1, 2021. The Policy states that it “includes Buildings ..., Business Personal Property ..., or both, depending on whether a Limit of Insurance is shown in the Declarations for that type of property.” (emphasis added). The referenced Declarations page explicitly states that coverage for KMP's building is “NOT PROVIDED[.]”
On January 24, 2022, a year after expiration of the policy a representative from the office of KMP's attorney contacted Nationwide to report a claim for structural damage to KMP's property. The damage allegedly resulted from a plant explosion two years earlier, on January 24, 2020.
KMP sued Nationwide in Texas state court. Nationwide removed the suit to the USDC. In the meantime, Nationwide contacted KMP's counsel to obtain more information about KMP's claim. Eventually, KMP's attorney sent a formal notice of claim, stating that KMP intended to invoke the Policy's appraisal provision. Nationwide requested more information, including an opportunity to inspect the asserted damage and a sworn proof of loss. KMP failed to provide the information that Nationwide requested. Nationwide therefore denied coverage for the loss, noting that KMP failed to provide a description of how, when and where the loss or damage occurred, did not provide prompt notice of the loss or damage, and failed to submit a signed, sworn proof of loss as requested.
Despite filing the suit months earlier, KMP's attorney finally sent Nationwide a demand letter on October 2, 2022. The letter included an estimate of $92,508.92 to repair KMP's structure. KMP then filed a motion to compel appraisal and abate the suit. Nationwide instead filed a motion for summary judgment.
ANALYSIS
Nationwide sought summary judgment on KMP's breach of contract claim on multiple grounds, including that the Policy does not cover KMP's claim for damages to its building. Given the clear Policy language, the Court had no need to address Nationwide's alternative contentions.
The Policy provides zero coverage for any damage to the building. Because Nationwide did not breach the Policy by denying coverage, it is entitled to summary judgment on KMP's breach-of-contract claim.
Nationwide also argued that KMP cannot recover on its extracontractual claims for breach of the common law duty of good faith and fair dealing, violations of the Deceptive Trade Practices Act (“DTPA”) and Chapters 541 and 542 of the Texas Insurance Code, common law fraud, and civil conspiracy. The USDC noted that the lack of coverage, coupled with the lack of any injury independent of Policy benefits, forecloses any extracontractual basis for relief.
Mere allegations do not constitute competent summary judgment evidence. Bare allegations that an insurer “misrepresented the scope of” coverage are not sufficient to show that the misrepresentation induced the purchase.
KMP's Request For Appraisal Was Denied.
The disposition of KMP's breach of contract claim defeats its request to compel appraisal. The purpose of appraisal is to resolve disputes concerning a property's value or the amount of a covered loss. Appraisal is pointless when, as here, the Policy explicitly states that the loss is not covered.
ZALMA OPINION
The KMP claim was incompetent on many bases, not the least of which was a claim for damage to a building that the policy explicitly said in bold print that building coverage was "NOT PROVIDED." Add to that a two year late report, no compliance with policy conditions, and a spurious argument for tort damages and the Magistrate apparently had no choice but to recommend granting Nationwide's motion and sending KMP and its counsel home with a total loss. Counsel for KMP apparently failed to read the Declarations page of the policy. A total waste of time for the litigants and the court.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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A Incomplete Aircraft is Still an Aircraft
Injured by an Aircraft Fuselage Arose Out of Ownership of Aircraft
Post 4727
A woman was severely injured while moving an inoperable airplane. She now seeks to recover from her husband's homeowner's insurance policy. The insurance policy excludes injuries "arising out of" the ownership, maintenance, use, loading or unloading of an aircraft. The policy further defines "aircraft" as "any conveyance used or designed for flight."
In Lisa Thompson v. United Services Automobile Association and Matthew Mrzena, No. S-18462, Supreme Court of Alaska (January 26, 2024) the Supreme Court resolved the dispute over interpretation of the policy wording.
FACTS
Claiming that the policy should cover her injury because in her view the aircraft became mere "parts" after her husband removed the wings, elevators, and tail rudder. The superior court disagreed, concluding that the fuselage was still an "airplane" and that, in any event, her injuries arose from her husband's ownership of the aircraft. The court determined that her injuries were therefore not covered by the policy.
Around 2011 Matthew Mrzena purchased a 1946 Piper PA-12 airplane (Piper). Mrzena stopped using the Piper in 2014 when it failed an annual inspection and was deemed no longer airworthy. Mrzena removed the wings, tail rudder, and elevators from the fuselage, leaving the remainder of the fuselage and many other parts intact, including the wheeled landing gear, propeller, seats, windows, and engine. Mrzena kept the Piper in a plastic temporary garage at his home in Palmer, Alaska.
In 2019, Mrzena purchased a new residence where he planned to live with his now-wife Lisa Thompson. During the summer Thompson and Mrzena were in the process of moving their belongings, including the Piper, to the new home. As part of the move the Piper needed to be pushed out of the garage and onto a trailer. Mrzena was pushing from the back of the Piper, with Thompson at the front, when Thompson became pinned under the Piper's nose. Thompson's resulting injuries were severe.
At the time of the injury Mrzena had the Piper registered as an aircraft with the Federal Aviation Administration (FAA). He also held an aircraft owner-specific liability policy on the Piper with Avemco Insurance Company (Avemco). Throughout his ownership of the Piper, Mrzena continued to renew both the Piper's FAA registration and the Avemco aircraft policy.
DISCUSSION
Interpreting USAA's aircraft exclusion pursuant to the reasonable expectations of the lay insured, the Supreme Court concluded that the policy's exclusion of coverage for injuries arising out of the ownership or maintenance of an aircraft applies to exclude coverage for Thompson's injuries. Regardless of whether the Piper was an airplane or a collection of airplane "parts" when it injured Thompson, the injury arose out of Mrzena's ownership.
The Policy Excludes Coverage For Thompson's Bodily Injuries Because They Arose Out Of Mrzena's Ownership And Maintenance Of The Piper.
Generally, courts determine the liability of an insurer by the terms of the policy the insurer issued. Policy language is construed in accordance with ordinary and customary usage. A restriction on coverage is enforceable if an insurer, by plain language, limits the coverage of its policy.
The USAA policy broadly excludes coverage for bodily injury "arising out of" ownership and maintenance of an aircraft. This language supports the reasonable expectation that Thompson's injuries would not be covered because Mrzena and Thompson's movement of the fuselage, and her resulting injuries, "ar[ose] out of" Mrzena's ownership and maintenance of the Piper.
Reasonable plane owners would not expect that their planes cease to be aircraft solely because the aircraft had been partially disassembled to perform maintenance.
Mrzena testified that he removed the wings, tail rudder, and elevator to repair damage to the plane's exterior fabric, and to begin the process of re-covering the components. The Supreme Court noted that clear and unambiguous policy language excluding injuries arising out of ownership or maintenance of an aircraft forecloses Thompson's argument that her injuries were covered by the policy.
The Supreme Court concluded that a reasonable person interpreting the USAA policy language's broad exclusions for ownership, maintenance, and use would understand that the aircraft exclusion was intended to create "broad exclusions" for incidents involving a homeowner's airplane.
Thompson asserted that the Piper was not an "actual aircraft" and became mere "aircraft parts" at some point before her injury. The Supreme Court concluded that it need not determine whether the Piper was an aircraft or mere "parts" at the time of Thompson's injuries because it concluded that Thompson's injuries "arose out of" Mrzena's ownership of the Piper.
ZALMA OPINION
Common sense exists in the Alaska Supreme Court. An aircraft under repair is still an aircraft even if it cannot fly. The Plaintiff was injured while she an her husband were moving the aircraft to a new home where the intended repairs could continue. Therefore, the Plaintiff and her husband were involved in the ownership, maintenance use of an aircraft and the exclusion applies.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Zalma's Insurance Fraud Letter February 1, 2024
ZIFL Volume 28 Issue 3
Post 4726
See the full video at and at https://youtu.be/cOhwnmCvuxY
Subscribe here:
Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/
The current issue can be read in full at http://zalma.com/blog/wp-content/uploads/2024/01/ZIFL-02-01-2024.pdf and includes the following articles:
Fraudulently Submitting Fake Applications Violates Licensing Statutes
Insurance Producer Fraudulently Submits Applications to Insurer
Paul B. Kumar appealed a final agency decision of Commissioner of the Department of Banking and Insurance (Commissioner or Department) revoking his insurance producer license and imposing $60,774.25 in civil penalties, surcharge, attorney's fees and costs of investigation, for violations of the New Jersey Insurance Producer Licensing Act of 2001 and the New Jersey Insurance Fraud Prevention Act (Fraud Act).
Read this full article and the entire issue of ZIFL here.
More McClenny Moseley & Associates Issues
This is ZIFL’s twenty third installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.
12/19/2023
$10,170,665.53 Default Judgment Against MMA (Including Interest)
Read this full article and the entire issue of ZIFL here.
Now Available The Compact Book of Adjusting Property Claims – Fourth Edition
On January 2, 2024, in Kindle, paperback and hardback formats, The Compact Book of Adjusting Property Claims, Fourth Edition is now available for purchase here.and here. The Fourth Edition contains updates and clarifications from the first three editions plus additional material for the working adjuster and the insurance coverage lawyer.
Read this full article and the entire issue of ZIFL here.
Convictions From the Coalition Against Insurance Fraud
Dr. Michael Villarroel, working as a doctor in the US Navy, was sentenced in federal court to one year and one day in custody. Villarroel admitted that from 2012 to at least December 2015, he conspired with other members of the Navy to obtain money from the United States by making claims for life insurance payments based on exaggerated or fake injuries and disabilities. Villarroel certified that he reviewed the records and determined the injuries were legitimate when in fact he knew they were fake or exaggerated. At times, Villarroel falsely stated that he interviewed the claimant and provided other service members with actual medical records to be used in fabricating claims. Villarroel knew the claims were false, but he signed off on them to receive kickbacks once the fake injuries resulted in insurance payouts. In addition to prison time, Villarroel will have to pay $180K as criminal forfeiture.
Read this full article and the entire issue of ZIFL here.
Health Insurance Fraud Convictions
Four Plead Guilty to Healthcare Offenses, Including Doctors and Lab Owners
Mark Rubin, 58, Renee Field, 44, Kelly Nelson, 52, and Carlos Hornedo, 61, were all charged via felony informations in December 2023. Mr. Rubin, on January 17th, and Mr. Hornedo, on January 10th, both pleaded guilty to one count of conspiracy to solicit and receive illegal kickbacks. On December 13th, Ms. Field and Ms. Nelson both pleaded guilty to one count of conspiracy to pay and receive health care kickbacks. The defendants each face a maximum penalty of not more than five years in federal prison, a $250,000 fine, and may be ordered to pay restitution.
Read this full article and the entire issue of ZIFL here.
Lawyer With Unfortunate Name & Advertising Asking that People Should ‘Hire A Dick’ Faces Six Figure Sanctions
Eric B. Dick, Esq, for the second time in three months has been ordered to reimburse an insurer more than $100,000 for filing a “frivolous, groundless” lawsuit made “solely for the purpose of harassment.”
Read this full article and the entire issue of ZIFL here.
New Book Now Available from Barry Zalma
Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition
Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims. The book also examines recent developments in areas such as arson investigation procedures, bad faith, extracontractual damages, The fake burglary, and Lawyers Deceiving Insurers, Courts & Their Clients During, Catastrophes—A New Type Of Fraud and the appendices includes the NAIC Insurance Information and Privacy Protection Model Act and usable forms for everyone involved in claims and will provide necessary information to the claims adjuster, SIU fraud investigator, claims manager, or coverage lawyer.
Read this full article and the entire issue of ZIFL here.
Other Insurance Fraud Convictions
Life Insurance Fraud in South Africa
Onthatile Sebati and her co-accused and cousin Tumelo Mokone with Mokone's brother Kagiso, were found guilty of killing her parents, sister and brother in 2016.
Sebati, 23, and her two cousins were found guilty in the Pretoria high court of murdering her father, mother, eight months pregnant sister and young brother. Sebati paid her cousins Tumelo and Kagiso Mokone R100,000 from life insurance payouts she received after the murders. She was 15 years old when she came up with the plot to kill her father, police constable Solomon Lucky Sebati, mother Mmatshepo, a nurse at an old-age home, her 19-year-old pregnant sister Tshegofatso and her young brother Quinton at their home at Mmakau near Brits in the North West in December 2016.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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Punitive Damages
How to Put Fear of Insolvency Into a Defendant
Post 4725
For more than fifty six years I have personally seen the fear in the faces of corporate executives faced with a suit claiming wrongful conduct and punitive damages. Even those who knew that they had acted properly and fairly and that the allegations of the suit were totally spurious, the fear and trembling engendered by a suit seeking punitive damages is patent.
The defendant who should be leading a charge like General Patton acts more like Prime Minister Neville Chamberlain. Defendants seem to prefer to appease a plaintiff rather than litigate good and viable defenses. Unless counsel advises a 100% chance of total victory – a statement no trial lawyer will ever make – the defendant does not want to go to trial and is willing to pay more than it owes to avoid the potential of a serious punitive damage judgment.
Contrary to common belief the chances of a suit seeking punitive damages actually obtaining an award of punitive damages is very small.
Defendants often, incorrectly, concentrate on trial verdicts and overlook that almost all civil litigation matters result in out-of-court settlements. Verdicts are important but punitive damage verdicts are more like the tip of the proverbial iceberg than evidence of a trend. Practical evidence indicates that the small number of trials affect decisions in the vast majority of lawsuits that do not proceed to trial.
Verdicts are taken as important signals to the litigants. It is important to first understand the basic dynamics of a lawsuit. Most of the work in pre-trial litigation is designed to provide the litigants with enough information to allow them to reach an amicable settlement. A large punitive damages verdict skews the evidence available to the litigants and causes plaintiffs to demand more than their cases are truly worth and defendants to pay more than they should to resolve a suit seeking punitive damages.
Under basic American litigation practice the plaintiff has the opening strategic advantage. A plaintiff with a weak case places the defendant in the position of having to defend himself (and therefore incurring legal costs), or else the defendant will be liable for the full claim on a default judgment. Even a defendant facing a suit that has no merit and no chance of success before a court will often be willing to pay an amount that is less than his prospective defense costs to settle the case and “make it go away.” Appeasement of the plaintiff is, to a corporate defendant, seen to be economically the best solution.
According to various studies, the cost of defense in an average tort lawsuit ranges from $6000 to $10,000, depending on the kind of suit. A litigant with even a mildly plausible basis for an average suit can often expect a nuisance settlement value within this range.
Most often a defendant is willing to pay a settlement up to the amount of his defense costs in order to avoid having to respond to the plaintiff's complaint.
The main determining factor of whether a filed lawsuit will yield a settlement to the plaintiff is the credibility of the threat made by the suit. The defendant and counsel determines the probability of a verdict favorable to the plaintiff if the case goes to trial. If the probability is that the plaintiff will succeed the defendant then analyzes the likely amount of damages that the plaintiff could obtain from a trier of fact in the jurisdiction where the suit is filed.
In frivolous or marginal lawsuits, or lawsuits with a doubtful chance of success at a trial, settlements often occur because the defendant rarely knows the merits of the claim with any level of certainty. Since refusing to take a valid claim seriously can be quite costly, a frivolous plaintiff may be able to take advantage of the defendant's uncertainty regarding the claim's validity to extract a substantial settlement.
The Supreme Court's rulings inState Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513, 155 L.Ed.2d 585 (U.S. 2003) limits, by due process, the multipliers that can be applied when setting punitive damages.
In addition, the uncertainty posed by the prospect of unlimited punitive damages, combined with the relative probability of a punitive damage award if a case goes to jury trial, provide litigants who demand punitive damages with potent leverage against risk-averse defendants, like insurance companies or candidates for the presidency, and tip the balance in settlement bargains in favor of litigants with weak or even frivolous cases.
The California Supreme Court, in a concurring and dissenting opinion by Justice Clark, stated the reality of punitive damages:
Punitive damages are an anomaly in our civil jurisprudence. The civil law is concerned with vindicating rights and compensating persons for harm suffered as a result of infringement upon those rights. A plaintiff is customarily made whole for infringement by compensatory damages; punitive damages awarded to him rather than to the government constitute a windfall or unjust enrichment for plaintiff. (See, e.g., Carsey, The Case Against Punitive Damages (1975) 11 The Forum 57, 60; Note, Insurance Coverage of Punitive Damages (1974) 10 Idaho L.Rev. 263, 268.) [Egan v. Mutual of Omaha Insurance Co., 24 Cal. 3d 809, 620 P.2d 141, 169 Cal. Rptr. 691 (Cal. 08/14/1979)]
The windfall about which Justice Clark spoke is impossible to resist the temptation to sue for punitive damages and why, California has been subject to thousands of insurance bad faith cases claiming punitive damages. The principal criticism to the concept of punitive damage, recognized by Justice Clark, is that standards are so vague that the determination whether to award is left to absolute and unguided jury discretion.
Punitive damage demands, especially if other litigants had obtained a successful punitive damage judgment, will provide the plaintiff with strong bargaining power even with a weak or frivolous case. It does so in two ways:
By increasing the size of a prospective jury award (by an unpredictable and potentially enormous amount) if the case is taken to trial, and
By increasing the legal costs that a defendant will have to incur to fight the suit at trial.
The presence of a punitive damage demand provides leverage for the plaintiff to force a higher settlement value from a suit. The presence of a punitive damage demand often requires a more extensive, costlier, and more time-consuming defense by the defendants. Defending against such extraordinary claims usually requires a more expensive discovery process than ordinary damage claims.
Lawyers representing clients faced with a suit seeking punitive damages must do a serious analysis of the facts and the law and advise the client in accordance with the potential for the plaintiff obtaining an award of punitive damages. If there is a potential equal or better than 50% settlement negotiations should be entered with advice to the plaintiff that punitive damages are taxable to the plaintiff. If, on the other hand, the case seeking punitive damages is spurious the client should tell its counsel to defend through trial and any possible appeals and refuse to pay tribute to the plaintiff.
For further detail see my book Insurance Bad Faith and Punitive Damages Deskbook availble from Full Court Press at the Fastcase bookstore at http://fastcase.com/
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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Liability Insurance & the Need for Fortuity
Liability Insurance & the Need for Fortuity
Liability insurance requires that the loss or damage that needs defense or indemnity from an insurer, must be contingent or unknown at the time the policy was acquired. For insurance to apply, on a third party policy, the risk of loss insured against must be fortuitous. Simply stated fortuitous means the loss happened by chance. The doctrine of fortuity (accidental or unintended acts causing injury) requires it be established that the event was a chance event beyond the control of the insured. [Martin/Elias Props., 544 S.W.3d at 643 & Blakeley v. Consol. Ins. Co. (Ky. Ct. App. 2021)]
A "fortuitous event" is defined as: "[A]ny occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party."
Thus, the requirement of a fortuitous loss is a necessary element of insurance policies based on either an "accident" or "occurrence." The insured has the initial burden of proving that the damage was the result of an "accident" or "occurrence" to establish coverage where it would not otherwise exist [Northville Indus., 89 N.Y.2d at 634).] Once coverage is established, the insurer bears the burden of proving that an exclusion applies. [Consolidated Edison Co. v. Allstate Ins., 774 N.E.2d 687, 746 N.Y.S.2d 623, 98 N.Y.2d 208 (N.Y. 2002)]
Insurance is designed to protect against unknown, fortuitous risks, and fortuity is a requirement of all policies of insurance. [Burlington Ins. Co. v. Tex. Krishnas, Inc., 143 S.W.3d 226, 230 (Tex. App.-Eastland 2004, no pet.); Scottsdale Ins. Co. v. Travis, 68 S.W.3d 72, 75 (Tex. App.-Dallas 2001, pet. denied); Two Pesos, Inc. v. Gulf Ins. Co., 901 S.W.2d 495, 502 (Tex.App.-Houston [14th Dist.] 1995, no writ) (op. on reh'g).]
An insured cannot insure against something that has already begun and which is known to have begun. [Summers v. Harris, 573 F.2d 869, 872 (5th Cir.1978).]
The fortuity doctrine precludes coverage for two categories of losses: known losses and losses in progress. A "known loss" is one that the insured knew had occurred before the insured entered into the contract for insurance. [Burch v. Commonwealth County Mut. Ins. Co., 450 S.W.2d 838, 840-41 (Tex.1970)] A "loss in progress" involves those situations in which the insured knows, or should know, of a loss that is ongoing at the time the policy is issued. [Warrantech Corp. v. Steadfast Ins. Co., 210 S.W.3d 760 (Tex. App. 2006)]
When a trial court determined that the plaintiffs’ complaint did not allege any bodily injury or property damage caused by an "occurrence." In reaching this conclusion, it relied on Cincinnati Insurance Company v. Motorists Mutual Insurance Company, 306 S.W.3d 69, 73-74 (Ky. 2010), as corrected July 19, 2011. In Cincinnati Insurance Company, the Kentucky Supreme Court held that "accident" and "occurrence" are unambiguous, and that they embody the principle of "fortuity" inherent in all liability insurance policies.
In determining whether an event constitutes an accident courts must analyze this issue according to the doctrine of fortuity:
whether the insured intended the event to occur; and
whether the event was a chance event beyond the control of the insured.
Policy language insuring against accidents applies only if the insured did not intend the event or result to occur. [Blakeley v. Consol. Ins. Co. (Ky. Ct. App. 2021)]
Wisconsin caselaw provides several alternative definitions, all of which attempt to capture the fortuity principle central to liability insurance. [Lucterhand v. Granite Microsystems, Inc., 564 F.3d 809, 812-13 (7th Cir.2009).] An "accident" for purposes of liability insurance coverage is "[a]n unexpected, undesirable event or an unforeseen incident which is characterized by a lack of intention." [Everson v. Lorenz, 2005 WI 51, ¶ 15, 280 Wis.2d 1, 15, 695 N.W.2d 298, 15 (2005) (internal quotation marks omitted).] The word "accident," in accident policies, means an event which takes place without one's foresight or expectation. A result, though unexpected, is not an accident; the means or cause must be accidental. [Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶ 37, 268 Wis.2d 16, ¶ 37, 673 N.W.2d 65, ¶ 37 (2004) (quoting BLACK'S LAW DICTIONARY 15 (7th ed.1999); and Eberts v. Goderstad, 569 F.3d 757 (7th Cir. 2009)]
Faulty workmanship is not included in the standard definition of “property damage” because “a failure of workmanship does not involve the fortuity required to constitute an accident.” [9A Couch on Insurance 3d § 129:4.] Liability insurance is not intended to act as a performance bond. [W. World Ins. Co. v. Carrington, 90 N.C.App. 520, 523, 369 S.E.2d 128, 130 (1988)] Since the quality of the insured's work is a “business risk” which is solely within his own control, liability insurance generally does not provide coverage for claims arising out of the failure of the insured's product or work to meet the quality or specifications for which the insured may be liable as a matter of contract. [Builders Mut. Ins. Co. v. Mitchell, 709 S.E.2d 528 (N.C. App. 2011)]
Insurance policies generally require "fortuity" and thus implicitly exclude coverage for intended or expected harms. New York Insurance Law § 1101(a)(1) itself defines "insurance contract" as: "any agreement * * * whereby one party, the `insurer', is obligated to confer benefit of pecuniary value upon another party, the Insured', * * * dependent upon the happening of a fortuitous event * * *."
A "fortuitous event" is defined as: "[A]ny occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party." (§ 1101[a][2].) Thus, the requirement of a fortuitous loss is a necessary element of insurance policies based on either an "accident" or "occurrence." [Consolidated Edison Co. of Ny v. Allstate, 774 N.E.2d 687, 98 N.Y.2d 208, 746 N.Y.S.2d 622 (N.Y. 2002)]
Fortuity must be judged using a subjective standard, because requiring this knowledge element best serves the overall principle of insurance law. [Aetna Cas. & Sur. Co. v. Dow Chemical Co., 10 F.Supp.2d 771, 789 (E.D.Mich.1998)] The crucial issue is whether the insured was aware of an immediate threat of the injury for which it was ultimately held responsible and for which it now seeks coverage, not the insured's awareness of its legal liability for that injury. [Aetna Cas. & Sur. Co. v. Com., 179 S.W.3d 830 (Ky. 2005)]
The term "probability" indicates the presence of contingency and fortuity, the lack of which is the very essence of the known loss doctrine. Even if there is a probability of loss, there is some insurable risk, and the known loss doctrine should not apply. [Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawai'i, Ltd. (1994), 76 Hawai'i 277, 875 P.2d 894, 920.]
"Certainty," on the other hand, refers not to the likelihood of an occurrence, but rather to the inevitability of an occurrence. Therefore, a "substantially certain" loss is one that is not only likely to occur, but is virtually inevitable. [General Housewares Corp. v. National Surety Corp., 741 N.E.2d 408 (Ind. App. 2000)]
The "fortuity" and "accident" concepts require that first party insurance does not protect against losses which are certain to occur and third party liability insurance does not protect against nonaccidental harm inflicted by the insured. [Commercial Union Ins. Co. v. Superior Court (1987) 196 Cal.App.3d 1205, 1207-1209, 242 Cal.Rptr. 454.); Chu v. Canadian Indemnity Co., 274 Cal.Rptr. 20, 224 Cal.App.3d 86 (Cal. App. 1990)]
Faulty workmanship is not included in the standard definition of 'property damage' because 'a failure of workmanship does not involve the fortuity required to constitute an accident. [Builders Mut. Ins. Co. v. Mitchell (N.C. App. 2011)]
The principle of fortuity is central to the notion of what constitutes insurance. [Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 74 (Ky.2010), quoting 46 Corpus Juris Secundum, Insurance, Section 1235 (2009).] The parties to an insurance agreement in effect, wager against the occurrence or non-occurrence of a specified event; the carrier insures against a risk, not a certainty. [Bartholomew v. Appalachian Ins. Co., 655 F.2d 27, 29 (1st Cir.1981).] Given this, courts have recognized that the principle of fortuity can be both an inherent requirement of every insurance contract and a specified requirement reflected in particular terms agreed to by the parties. [ 3 Peritz, Law and Practice of Insurance Coverage Litigation, Section 35:3 (July 2021), quoting Robert Keeton, Insurance Law, Section 5.4(a), at 288 (1971)] A requirement that loss be accidental in some sense in order to qualify as the occasion for liability of an insurer is implicit, when not express, because of the very nature of insurance. [Motorists Mut. Ins. Co. v. Ironics, Inc., 2022 Ohio 841 (Ohio 2022)]
Adapted from my book Insurance Fraudsters Deserve No QuarterAvailable as a paperback here. Available as a hardcover here.Available as a Kindle Book here.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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First Party Property Losses
What is Required of a Claims Department After a Claim is Presented When Faced With Loss Report
Every claim begins with receipt of the Notice Of Loss
A Notice of Loss is a written or oral report to the insurer that the insured has incurred a loss. It advises the insurer that it has incurred a loss due, with respect to the insured, a wildfire to one or more properties the risk of loss of which was insured. The loss notice will advise the insurer:
The name, address and telephone number and/or email address of the person most knowledgeable.
The date and time of the loss.
The location(s) of the loss
The cause of the loss e.g., wildfire, flood, earthquake, vandalism, or major theft.
After the insurer receives a Notice of Loss the insurer is required by the custom and practice of professional claims handling and the requirements of the California Fair Claims Settlement Practices statute and Regulations to enforce the statute, the insurer must acknowledge receipt of the Notice of Loss in writing immediately but in no event more than 15 calendar days.
The acknowledgement letter must also include advice to the insured on the coverage available. To properly acknowledge the notice of loss the claims person must obtain a complete copy of the policy, read and analyze the policy and create a summary of the coverages available.
California Fair Claims Settlement Practice Regulations Section 2695.4, for example, provides “Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant. When additional benefits might reasonably be payable under an insured's policy upon receipt of additional proofs of claim, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer's additional liability.”
The letter should include, as a bare minimum, information like:
the limits of liability of the policy,
any deductibles or self-insured retentions,
advice concerning any specific exclusions or conditions that apply to the facts established by the notice of loss,
a written notice that a proof of loss is required within 60-days of the letter with an attached proof of loss form,
a requirement for the production of necessary documents,
a reservation of rights (if called for), and
any other information the insured needs to fulfill the conditions of the policy.
The letter should include, because a wildfire’s damages are almost always serious, and realize that to an individual any claim is serious, and should include confirmation by the claims person of an appointment to meet with the insured to view the damaged property(ies).
The inspection should be as soon as possible but no later than 15 calendar days after the notice of loss. The inspection should include the creation of a scope of loss. The scope of loss the claims person prepares should be written in the same form as a professional contractor that the claims person has determined is acceptable to a professional contractor. The adjuster should contact several reconstruction contractors who are willing to do reconstruction work for detail on the claims person’s scope. The adjuster must understand that standard prices in software like Xactimate will change in a catastrophe situation because of the shortage of people and materials available to repair structures. The agreed scope of loss should include all damages incurred by the insured to real and personal property, equipment, stock, merchandise, inventory, appurtenant property, plants, trees, shrubs, etc.
The Scope of Loss
The scope of a major loss will often be recorded and later transcribed especially when there is major damage and multiple properties and types of property. The scope of a major loss can be multiple pages and supplemented with photos and videos of the loss location(s). The scope is not an estimate nor is it an adjustment, it is an outline of the damages that the insured and the adjuster agree the items that need to reach a later agreement after a thorough investigation the full amount of loss can be determined. The Scope of Loss is the beginning of the thorough investigation of the claim that is required to be commenced immediately but in no event more than 15 calendar days after the receipt of a notice of loss.
The Thorough Investigation
A thorough investigation is a thorough investigation is conducted for each claim sufficient to allow a determination of coverage, the liability of the insured, the nature and extent of damages, or the obligations of the insurer or surety. An investigation is not sufficient if the work of the claims handler is limited to a mere reading the policy and comparing it to a loss notice. Once a scope of loss is agreed it is the obligation of the insurer to obtain estimates from:
contractors
construction experts to put a dollar amount on the structure losses.
If personal property is involved the scope details the property damaged or destroyed and once agreed obtain estimates from:
personal property or equipment experts
personal property values.
If there are time element losses once the scope of the loss is agreed the insured and insurer will work together with:
CPA or forensic accountants to establish the extent to which time element losses have occurred.
Depending on the extent of the loss it is essential that the claims department work, preferably in person, in establishing a scope of loss.
The Proof of Claim
The claims person must then work closely with the insured to reach agreement as to the amount of loss and damage.
Once the insured presents a “proof of claim” as defined in the California Fair Claims Practices Regulations: “’Proof of claim’ means any evidence or documentation in the possession of the insurer, whether as a result of its having been submitted by the claimant or obtained by the insurer in the course of its investigation, that provides any evidence of the claim and that reasonably supports the magnitude or the amount of the claimed loss.” [Regulations, Section 2695.2 (s)]
A “proof of claim” is not a sworn statement in proof of loss required by almost all first-party property insurance policies as a condition precedent to indemnity.
Rather, it is something less than a proof of loss and, if the insurer wants a proof of loss, it must demand it in writing in accordance with the policy wording.
The insurer must still respond promptly (within the time limits set by the Regulations) to the proof of claim. Failure to do so would be an obvious and clear violation of the Regulations.
The claims person is not required to accept or reject the claim within 40 calendar days but must respond to the presentation of the proof of claim either accepting, rejecting or advising the insured/claimant that the insurer needs further investigation and time to respond to the proof of claim.
If investigation is needed to respond to the proof of claim it is necessary to repeat, every 30 days, an explanation why the insurer is unable to respond to the proof of claim and when it expects to be able to properly respond.
If the insurer agrees to the “proof of claim” the amount stated becomes undisputed and payment is required immediately but in no event more than 40 calendar days from the date the “proof of claim” becomes undisputed.
It is the obligation of the claims personnel to work to resolve the claim promptly and as soon as reasonably practicable.
The “proof of claim” is a starting point from which the insurer and the insured can get a total resolution.
If they cannot agree the insured and the insurer have options to assist:
The insurer must advise the insured what additional information it needs to conclude the claim.
The Regulations require that the insurer advise the insured what is needed and how much time it will take them to resolve the claim(s).
The insurer is obligated to do so every 30 calendar days.
The Poof of Loss
Unlike the “proof of claim” the policy requires a proof of loss to resolve a claim. A “proof of loss” is usually a means of reciting the agreement between the insured and the insurer as to the amount of loss. If an agreement cannot be reached, once demanded, the insured must submit its proof of loss.
After the insured’s proof of loss is received the insurer must, immediately but no later than 30 calendar days after receipt, its agreement, disagreement, acceptance, or refusal of the proof of loss explaining in detail the reason why the proof of loss is not acceptable, what is needed to be acceptable, and how much time the insurer needs to resolve the claim(s). The insurer can require, as part of the proof of loss that the insured or its employees submit to an examination under oath. Once the transcripts are signed and delivered to the insurer it must respond to the full proof of loss immediately but in no event more than 30 calendar days.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Property Investigation Checklists - 14th Edition
Uncovering Insurance Fraud
by Barry Zalma
Available here
Publisher:Clark Boardman Callaghan, Copyright: 2024
Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims:
1Recognizing suspicious claims
2Proper investigation procedures
3Analysis of laws concerning fraudulent personal and real property claims
4Evaluating and settling claims
The book also examines recent developments in areas such as arson investigation procedures, bad faith, extracontractual damages, The fake burglary, and Lawyers Deceiving Insurers, Courts & Their Clients During, Catastrophes—A New Type Of Fraud and the appendices includes the NAIC Insurance Information and Privacy Protection Model Act and usuable forms for everyone involved in claims. .
Table of Contents
CHAPTER 1. INSURANCE AND THE INDICATORS AND ELEMENTS OF FRAUD
CHAPTER 2. INVESTIGATION
CHAPTER 3. THE “ARSON DEFENSE”
CHAPTER 4. CIVIL REMEDIES: RESCISSION AND AVOIDANCE
CHAPTER 5. CONDITIONS PRECEDENT
CHAPTER 6. AUTOMOBILE MATERIAL DAMAGE FRAUD
CHAPTER 7. GOOD FAITH; BAD FAITH
CHAPTER 8. ADJUSTING AND PAYING THE SUSPICIOUS CLAIM
CHAPTER 9. DISPUTE RESOLUTION—SETTLEMENT AND APPRAISAL
CHAPTER 10. CASE HISTORIES
CHAPTER 11. RESCISSION AS A TOOL TO DEFEAT INSURANCE FRAUD
FRAUD IN THE ACQUISITION OF INSURANCE
CHAPTER 12. LAWYERS DECEIVING INSURERSCOURTS & THEIR CLIENTS DURING CATASTROPHES—A NEW TYPE OF FRAUD -- McClenny Moseley & Associates & Louisiana
The newest book joins other insurance, insurance claims, insurance fraud, and insurance law books by Barry Zalma all available at the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/
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FAKE APPLICATIONS COSTS AGENT HIS LICENSE
Fraudulently Submitting Fake Application Violates Licensing Statutes
Post 4721
Paul B. Kumar appealed a final agency decision of Commissioner of the Department of Banking and Insurance (Commissioner or Department) revoking his insurance producer license and imposing $60,774.25 in civil penalties, surcharge, attorney's fees and costs of investigation, for violations of the New Jersey Insurance Producer Licensing Act of 2001 and the New Jersey Insurance Fraud Prevention Act (Fraud Act).
In Marlene Caride, Commissioner, New Jersey Department Of Banking And Insurance v. Paul B. Kumar, No. A-2627-21, Superior Court of New Jersey, Appellate Division (December 29, 2023) the Appellate Division spent dozens of pages to resolve appeal.
FACTS
On August 3, 2015, Kumar entered into an employment contract with Combined Insurance Company (Combined) as an insurance agent. For any insurance policy to be written, Combined required: the producer to meet, face to face, with the insurance applicant; the applicant to sign the application; and the producer to witness the applicant's signature on the application.
Kumar submitted multiple insurance applications to Combined where the proposed insureds never met Kumar, never applied for insurance with Combined and never signed the applications in Kumar's presence.
ORDER TO SHOW CAUSE
The Department issued a two-count Order to Show Cause (OSC) to Kumar concerning the insurance applications. In the first count, the Department alleged violations of the Producer's Act and violations of the Fraud Act because Kumar "submitted . . . insurance policy applications to Combined . . . for the purpose of obtaining an insurance policy, knowing that each of these applications contained a forged signature of the prospective insured, and other false or misleading information concerning any fact or thing material to the application or contract .... "
The OSC was tried before an Administrative Law Judge (ALJ) who found the testimony of Kumar was not credible. The ALJ concluded Kumar demonstrated throughout the proceedings that his inconsistent, evasive and confusing testimony, could not be believed.
The ALJ concluded, the Department met its burden by demonstrating that Kumar submitted eight fraudulent applications for insurance and concluded that Kumar's actions warranted revocation of his producer license; the imposition of statutory monetary penalties; reimbursement of investigation costs; and attorney's fees.
The Commissioner adopted the ALJ's finding that the Department established Kumar violated the Fraud Act, because he knowingly failed to disclose that the proposed insureds did not sign their applications and because he submitted insurance applications that he knew contained false or misleading information regarding material facts.
ANALYSIS
The language of the regulation empowers the insurer to control the requirements for insurance applications. The Commissioner determined that Kumar submitted six applications for three separate individuals without the applicants' knowledge or consent.
The Commissioner adopted the ALJ's determination that the Department proved the violations.
The Commissioner determined that Kumar violated the Fraud Act. After detailing her duty to protect the public welfare and to instill public confidence in both insurance producers and the industry as a whole, the Commissioner found the record was more than sufficient to support license revocation.
The statute specifically authorizes the Commissioner to revoke the insurance producer's license. The appellate court concluded that Commissioner's decision is entitled to deference and will not be disturbed.
ZALMA OPINION
Insurance companies rely on the honesty of those who represent them to the public and expect the state to protect them from representatives who fail to fulfill the obligations imposed on the insurance agent's license. Mr. Kumar, for several years, attempted to profit from submitting multiple fraudulent applications for insurance never ordered by the persons who allegedly signed the applications. It took seven years from the first fraud to the OSC, the proceedings before an ALJ and an appeal to take away the license and obtain a monetary judgment against the fraudulent agent. It is time to improve the process.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Infestation of Vultures Excluded
Reasonable Basis for Denying Coverage Defeats Bad Faith Claim
Post 4720
Mitchellville Plaza Bar LP ("Mitchellville") appealed the district court's granting summary judgment to Hanover American Insurance Company on Mitchellville's breach of contract and bad faith claims arising from an insurance dispute over the infestation of its property by vultures. Mitchellville's complaint alleged that Hanover wrongfully denied coverage under its insurance policy for commercial property damage caused by turkey vultures to the roof of one of Mitchellville's properties. Hanover denied coverage under an exclusion for damage caused by an "infestation" of birds.
In Mitchellville Plaza Bar LP v. The Hanover American Insurance Company, No. 22-2089, United States Court of Appeals, Fourth Circuit (January 19, 2024) the Fourth Circuit resolved the policy interpretation.
FACTS
Mitchellville concedes that the only disputed issue in its breach of contract claim is whether the "infestation" policy exception applies to bar its claim. A contract is not rendered ambiguous by the mere fact that the parties do not agree upon the proper construction.
ANALYSIS
Mitchellville argued the exclusion was ambiguous. The court must consider a written contract and can not find it is ambiguous only when a policy provision is reasonably susceptible of more than one meaning. The Fourth Circuit noted that the district court did not err in determining that the vulture presence on Mitchellville's property constituted an "infestation" under a plain and ordinary understanding of this term.
Indeed, as the district court found, the various definitions of the term "infestation" commonly characterize an infestation as the persistent, invasive presence of unwanted creatures. The evidence of the vulture activity at the property, including the eyewitness testimony detailing the substantial bird activity at the property over the course of many months, meets this definition. Accordingly, the district court properly granted summary judgment to Hanover on Mitchellville's breach of contract claim.
Bad Faith
While an insurer's motive of self-interest or ill-will is potentially probative it is not a mandatory prerequisite to bad faith recovery. Proof of the insurer's knowledge or reckless disregard for its lack of reasonable basis in denying the claim is sufficient.
Hanover based its denial of policy benefits on several reports that, taken together, gave Hanover a reasonable basis for denying coverage. The reports indicated that substantial, persistent, and troublesome bird activity had caused the relevant damage to the roof of the property. Accordingly, the Fourth Circuit concluded that the district court did not err in granting summary judgment to Hanover on this claim and affirmed the judgment of the district court.
ZALMA OPINION
When a flock of vultures lands on a roof over a period of months and damages or destroys the roof, that is an infestation of birds and was excluded by clear and unambiguous language of the policy. Courts are required to apply the facts and the law to the clear and unambiguous language of the policy. No insurance policy covers every possible cause of loss. This policy told the insured when it acquired the policy that it would not cover losses caused by an infestation of birds.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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False Statement on Application Requires Rescission
Never Sign an Application Without Reading It
Post 4719
Betty Baldwin appealed from a summary judgment in favor of Kentucky National Insurance Agency (KNIC) and Holton, Melugin, and Haverstock Insurance Agency, Inc., d/b/a Haverstock Insurance Agency, Inc. (Haverstock) because of false statements on an application for insurance.
In Betty Baldwin v. Kentucky National Insurance Company; and Holton, Melugin And Haverstock Insurance Agency, Inc., D/B/A Haverstock Insurance Agency, Inc., No. 2022-CA-0840-MR, Court of Appeals of Kentucky (January 19, 2024) the Court of Appeals applied state law to resolve the issues.
FACTS
According to Baldwin two of the answers provided on the application were incorrect at the time of signing. Baldwin indicated in Question 28 that she did not specifically have a German Sheperd. Further, Baldwin in Question 32 indicated that she had never had a prior fire loss.
Sometime after signing the Kentucky Homeowner Application, Baldwin purchased a homeowner insurance policy through Kentucky National Insurance Company.
On October 13, 2019, a fire occurred and resulted in the total loss of the above-described home.
On March 5, 2020, after denying Baldwin's coverage, Kentucky National Insurance Company (hereinafter "KNI") filed a Complaint for Declaration of Rights and Monetary Damages arising from the house fire on October 13, 2019.
KNIC filed a motion for summary judgment. Because of the admitted misrepresentations in the application, KNIC maintained that it was permitted to rescind the homeowner's insurance policy and the Circuit Court agreed.
Baldwin argued that she did not make the misrepresentations in the application. Rather, Baldwin asserted that Van Haverstock or an employee under his direction completed the application, and she merely signed same without reading it. The circuit court rendered summary judgment in favor of KNIC and Haverstock. In so doing, the circuit court reasoned that it was undisputed that Baldwin did not read the application before signing it; that above Baldwin's Signature was the language that avered: ‘I have read the entire application and I warrant that to the best of my knowledge and belief all of the statements made herein are true."
In this case, it is undisputed that Baldwin suffered a major fire loss to her previous home in 1994 and was paid $90,000 by her homeowner's insurance company. It is also uncontroverted that in the insurance application with KNIC, Baldwin was asked if she "ever had a fire loss," and the answer was no. Baldwin signed the insurance application without reading it. Because Baldwin was solely responsible for the answers in the application, the misrepresentations were only her responsibility and KNIC was entitled to rely on the statements and could rescind the policy when it was established that the application contained false representations.
The Court of Appeals concluded that the circuit court properly rendered summary judgment dismissing Baldwin's claims against KNIC.
ZALMA OPINION
Baldwin tried to avoid the rescission by claiming she relied on the broker and did not read the application because she trusted the broker. The trust was misplaced because she signed the application without reading and finding the misrepresentations to which she admitted at deposition. She was responsible for the statements in the application and as a result had no insurance at the time of the fire.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Who's on First - Defense and/or Indemnity
Insurer v. Insurer Disputes Should be Resolved by Mediation Rather Than Litigation
Post 4717
In an insurance coverage dispute that arose out of the tragic death of an employee on a construction site the Fifth Circuit was called upon to determine which insurer was obligated to deal with the claims of the family of the deceased employee because the insurers could not agree.
In Gemini Insurance Company v. Indemnity Insurance Company of North America, No. 23-20026, United States Court of Appeals, Fifth Circuit (January 12, 2024) the court dealt with the coverage disputes over which insurer is obligated to defend and or indemnify which person or entity.
BACKGROUND FACTS
ExxonMobil Corporation ("Exxon Mobil") retained Bechtel Oil, Gas, and Chemicals, Inc. ("Bechtel") as a general contractor to build a new hydrocarbon processing facility in Beaumont, Texas (the "Project"). As part of its contract with Bechtel, Exxon Mobil implemented an Owner Controlled Insurance Program ("OCIP"), which provided workers' compensation and employers' liability coverage to Bechtel and all of its subcontractors. Bechtel retained Echo Maintenance, L.L.C. ("Echo") as a subcontractor to perform mechanical, structural, and piping work on the Project. Bechtel and Echo subsequently entered into a contract that incorporated the OCIP and required Echo to enroll in the program (the "Subcontract"). Both Bechtel and Echo were enrolled in the OCIP.
Indemnity's Workers' Compensation and Employers' Liability Policies Issued Under The OCIP
Under the OCIP, Indemnity Insurance Company of North America ("Indemnity") issued a workers' compensation and employers' liability insurance policy to Bechtel ("OCIP Policy"). Separately, Gemini Insurance Company ("Gemini") issued a general commercial liability policy to Echo under which Bechtel was an additional insured.
Part Two the OCIP Policy sets forth the type of covered claim that Indemnity agreed to defend and indemnify Bechtel. The OCIP contained a VCEL Endorsement whose first provision explains that the endorsement "adds Voluntary Compensation Insurance to the policy," and that the insurance applies to bodily injury by accident so long as it is "sustained by an employee included in the group of employees described in the Schedule" and "arise[s] out of and in the course of employment necessary or incidental to work in a state listed in the Schedule."
Employers' Liability Insurance
It defines "State of Employment" in relevant part as "Texas but only at the site indicated in the designated premises endorsement."
Underlying Incident and Lawsuit
In December 2017, Ms. Espinoza was working as a pipefitter helper on the Project when she was struck by a piece of pipe and sustained fatal injuries. In response to the suit brought by her heirs, Bechtel sought coverage as an additional insured on the commercial general liability policy issued by Gemini to Echo and received a defense from Gemini under a reservation of rights.
Bechtel moved for summary judgment on the heirs suit because Exxon Mobil's OCIP provided blanket workers' compensation insurance and coverage to Bechtel and Echo, Intervenors' sole remedy in accordance with Texas Labor Code was workers' compensation benefits. The state court granted Bechtel's motion for summary judgment.
DISCUSSION
The main issue was whether Ms. Espinoza was an "employee" of Bechtel within the terms of the OCIP policy. Reading the VCEL Endorsement together with Part Two, the Fifth Circuit concluded that the only reasonable interpretation was that the VCEL Endorsement expanded the definition of a Bechtel "employee." The ordinary meaning of "employee" is someone who works in the service of another person (the employer) under an express or implied contract of hire, under which the employer has the right to control the details of work performance. The Fifth Circuit concluded that the VCEL Endorsement expanded the OCIP Policy's definition of "employee" to include employees of Bechtel's subcontractors, such as Ms. Espinoza.
THE DUTIES TO DEFEND AND INDEMNIFY
Duty to Defend
Ms. Espinoza was an employee of Echo, but also simultaneously working for Bechtel at the designated premises, thus satisfying the VCEL Endorsement. Ms. Espinoza was killed while working in the scope of her employment. The allegations, construed liberally, constitute a claim potentially within the OCIP policy. As a result Indemnity had a duty to defend Bechtel in the Underlying Litigation.
Duty to Indemnify
There is no dispute that Ms. Espinoza was an Echo employee, that Echo was a subcontractor of Bechtel, that Bechtel and Echo had a written contract, and that the work they performed was on a "designated premises" within the meaning of the OCIP Policy the workers' compensation OCIP coverage applies. Bechtel "provided" workers' compensation insurance to Echo when they executed the Subcontract. Accordingly, Indemnity has a duty to indemnify Bechtel as well.
Contractual and Equitable Subrogation
Because the district court concluded that Indemnity did not have a duty to defend or indemnify Gemini, it never addressed the substance of Gemini's subrogation arguments. The Fifth Circuit reversed the district court's grant of Indemnity's motion for summary judgment and remanded the case back to the district court with instructions to:
grant Gemini's motion for summary judgment on Indemnity's duties to defend and indemnify under the Policy, and
consider the subrogation issues in the first instance.
ZALMA OPINION
Insurance policies must be dealt with as an entirety, no matter how extensive or complex. Once the court determined that Ms. Espinoza was an employee it resolved the dispute and found that Indemnity owed defense and indemnity to the defendants. The insurer's should not have engaged in this litigation but worked out a resolution to the benefit of the insureds with the assistance of a mediator knowledgeable about insurance issues. Failing to do so, after the expenditure of a discovery, a summary judgment and an appeal the obvious resulted a case where only one party was happy and there existed a possibility that much would be saved by an agreement between equals.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Court May Not Rewrite Policy
Insured Must Fulfill Policy Conditions
Post 4718
Pharmacia Corporation appealed the District Court's order granting summary judgment declaring that one of its excess insurers, Twin City Fire Insurance Company, did not owe a duty to pay Pharmacia's settlement and defense costs from a shareholder class action.
In Pharmacia Corporation n/k/a Pfizer, Inc. v. Arch Specialty Insurance Company; Twin City Fire Insurance Company; Liberty Mutual Insurance Company, No. 22-2586, United States Court of Appeals, Third Circuit (January 19, 2024) the conditions were applied.
FACTS
Pharmacia, a pharmaceutical drug manufacturer, purchased a $200 million directors and officers insurance tower from thirteen companies through an insurance broker. The first layer of the tower consisted of a $25 million primary policy issued by National Union Fire Insurance Company of Pittsburgh, Pa (the "Primary Policy"). The next twelve policies provided excess insurance totaling $175 million. Twin City sold Pharmacia the eighth-layer excess policy (the "Policy"), which provided $10 million in coverage and specified that "liability for any loss shall attach to [Twin City] only after the Primary and Underlying Excess Insurers shall have [(1)] duly admitted liability and [(2)] . . . paid the full amount of their respective liability."
Pharmacia shareholders sued seeking class action qualification against the company, alleging that it artificially inflated its stock by misrepresenting the results of a clinical drug study. After ten years of litigation, the case settled, and Pharmacia incurred approximately $207 million in defense and indemnity costs. Pharmacia then provided Twin City proof that the excess carriers ahead of it in the insurance tower paid their policy limits and asked Twin City to provide coverage. Twin City declined.
Pharmacia sued Twin City. The District Court granted Twin City's motion for summary judgment and dismissed the case with prejudice. The Court found that: (1) the plain language of the Policy required the other excess insurers to admit liability as a condition precedent for coverage to attach; (2) six of them had disclaimed liability, and (3) as a result, a condition for coverage was not satisfied. Pharmacia appealed.
POLICY INTERPRETATION
The Third Circuit concluded that no conflict exists here. Specifically, courts:
Give effect to the intent of the parties as expressed in the clear language of the contract, and the plain language of the contract is the cornerstone of the interpretive inquiry.
May not make a different or better contract than the parties themselves saw fit to enter into.
Courts should refrain from rewriting the agreement to accomplish their notions of abstract justice or moral obligation.
May avoid a literal construction of the words of a contract only if that interpretation defies all bounds of common sense.
ANALYSIS
When the intent of the parties is plain and the language is clear and unambiguous, a court must enforce the agreement as written, unless doing so would lead to an absurd result.
Applying these principles, the Policy unambiguously imposed two distinct conditions precedent for coverage to attach. Specifically, Pharmacia must show both that the insurers ahead of Twin City in the tower have:
duly admitted liability and
paid the full amount of their respective liability.
Pharmacia failed to show that both conditions to trigger Twin City's coverage were met since six insurers refused to admit liability.
Regardless of whether the other insurers in the tower paid their policy limits, the record does not demonstrate that all of those insurers admitted liability and the court is not required to accept the error of the six insurers refusing to admit liability who still paid. Because Pharmacia failed to establish at least one condition precedent, the District Court correctly declined to declare that Twin City owes Pharmacia coverage. The trial court was affirmed.
ZALMA OPINION
Conditions precedent in an insurance policy must be met or the insurer has no obligation to provide defense or indemnity under the policy. Twin City established that six insurers in Pharmacia's tower below Twin City did not admit liability and that, therefore, it failed to prove compliance with the condition precedent. Pharmacia luckily received contributions from insurers accepting coverage and insurers who did not but decided not to litigate. After reading this case, if the six had the same condition, they have explanations to make to their shareholders.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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https://youtu.be/SRufrkZIa90
Public Policy Argument Fails for Lack of Evidence of Statute or Judicial Statement
Post 4716
Following a car accident, Kenan Watkins ("Watkins") filed a diminished value claim with his insurer, Allstate Property and Casualty Insurance Company ("Allstate"). Allstate denied his claim. The district court held that Allstate's policy did not violate Mississippi law and that Watkins failed to state a plausible claim. Consequently, the district court granted Allstate's motion to dismiss and Watkins appealed.
In Kenan Watkins, individually and on behalf of all others similarly situated v. Allstate Property & Casualty Insurance Company, No. 23-60141, United States Court of Appeals, Fifth Circuit (January 12, 2024) the Fifth Circuit resolved the dispute.
BACKGROUND
Kimberly Jones ("Jones") crashed her vehicle into Watkins' 2021 Chevrolet Tahoe in Baldwyn, Mississippi. Watkins' vehicle sustained substantial damage. Watkins had an insurance policy with Allstate that provided coverage for his 2021 Chevrolet Tahoe. Jones' insurer, Safeway Insurance Company, paid $24,314.25 to Watkins for his damage claim. Watkins alleged that his car sustained an additional $13,545.00 in diminished value. Safeway Insurance Company offered the remaining $685.75 of Jones' policy limit to Watkins. Because Jones' policy limit did not cover the diminished value of Watkins' vehicle, Watkins filed an uninsured motorist claim with his insurer, Allstate.
Allstate denied Watkins' diminished value claim, relying upon a provision in its policy that excludes "any decrease in the property's value, however measured, resulting from the loss and/or repair or replacement." Watkins sued.
Specifically, Watkins alleged that Allstate's automobile insurance policies impermissibly deny insurance coverage that is required by law without establishing which law required Allstate to pay for the diminished value of his truck.
The district court concluded that Watkins failed to plausibly allege that Jones' vehicle was an "uninsured motor vehicle." The district court also concluded that Allstate's diminished value exclusion is valid under Mississippi law.
Because Watkins failed to state a claim upon which relief could be granted the district court granted Allstate's motion to dismiss with prejudice. An appeal followed.
DISCUSSION
In his Complaint, Watkins alleged that "[p]ursuant to Miss. Code. Ann. § 83-11-101(2), Kimberly Jones was underinsured, and [that he] is entitled to recover from the uninsured motorist coverage provided by the Policy."
Watkins' mere assertions, however, re insufficient to establish that Jones' vehicle qualified as an "uninsured motor vehicle." The Complaint only alleges that Jones was underinsured, which is a legal conclusion. No court will accept legal conclusions as true. Thus, the district court correctly concluded that Watkins failed to make a plausible claim for relief because a reasonable inference that Allstate was liable for misconduct could not be drawn from the factual content in the Complaint and legal conclusions alone are never accepted as true.
The Fifth Circuit concluded that Allstate's diminished value exclusion was valid under Mississippi law.
Watkins claim that the diminished value exclusion violates public policy failed because Watkins did not point to a pronouncement, either legislative or judicial, requiring that diminished value be a part of all automobile insurance policies.
Only an affirmative expression of an overriding public policy by the legislature or judiciary prompts a Court to rule that an insurance policy's plain meaning does not control. Since neither the legislature nor the judiciary have pronounced that insurers must provide for payment of diminished value in all issued automobile policies the plain meaning of Allstate's policy controls and Allstate's diminished value exclusion is valid under Mississippi law.
ZALMA OPINION
Claims for diminished value of a vehicle after an accident were popular ten years ago because auto material damage policies did not deal with the issue. Insurers, like Allstate, recognized it had no intent to cover diminished value of a vehicle after an accident, did not charge a premium for the claim, and eventually wrote a clear and unambiguous exclusion to avoid paying for a loss for which it had not charged a premium. Absent some showing of a public policy requiring that coverage, the exclusion is enforceable.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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You Only Get What You Pay For
To Obtain Coverage Insured Must Pay a Premium
Erie Insurance Exchange (Erie Insurance) claims that the trial court erred in granting partial summary judgment in favor of Icon, d/b/a Allure on the Lake (Icon), on Icon's complaint for breach of contract. Erie Insurance contends that the trial court improperly determined as a matter of law that the commercial insurance policy (the Policy) it issued to Icon was ambiguous and entitled Icon to additional income protection coverage after a fire had destroyed Icon's building.
In Erie Insurance Exchange v. Icon, Inc., d/b/a Allure on the Lake, et al., No. 23A-PL-664, Court of Appeals of Indiana (January 12, 2024) the Court of Appeals interpreted the entire policy.
FACTS
On June 3, 2019, a fire in Chesterton, Indiana destroyed a banquet hall (the Hall) that Icon owned. At the time of the fire, the Hall was insured by Erie Insurance. The Policy stated that "in return for your timely premium payment, your compliance with all of the provisions of this policy . . . [Erie Insurance agrees] to provide the coverages you have purchased." [emphasis added]
The Declarations page specifically directed the insured to refer to the Supplemental Declarations to find additional information about included coverages under the Policy. Income protection coverage-as identified in "Coverage 3" of the Declarations-is defined as loss of "income" and/or "rental income" you sustain due to partial or total "interruption of business" resulting directly from "loss" or damage to property on the premises described in the "Declarations" from a peril insured against. "Loss" or damage also includes property in the open, or in a vehicle, on the premises described in the "Declarations" or within 1,500 feet thereof.
The Supplemental Declarations specifically indicate what "amount of insurance" the Policy provides for by displaying a dollar amount under the "amount of insurance" column.
The Policy further provided that when additional income coverage is not purchased by the insured, a minimal, i.e., "standard" protection coverage is provided as part of the basic package.
CLAIM PAYMENTS
After the Hall was destroyed, Icon submitted a timely claim to Erie Insurance under the Policy. Although Erie Insurance paid both the property damage and building contents portion of Icon's claim, it maintained that the maximum income protection afforded under the Policy was $25,000 and not $1 million because Icon did not pay a premium for additional income protection coverage.
REFUSAL TO PAY INCOME LOSSES
When Erie Insurance refused to pay for those additional losses, Icon filed an amended complaint against Erie Insurance on March 10, 2020, for breach of contract and bad faith. Thereafter, Erie Insurance filed a motion for partial summary judgment, claiming that it was entitled to judgment as a matter of law because Icon did not pay a premium for additional income protection and, therefore, the $1 million maximum coverage was not available to Icon for its income losses.
The trial court granted Icon's cross-motion for partial summary judgment, concluding that the Policy was ambiguous as to the available amount of income protection coverage to which Icon was entitled.
DISCUSSION AND DECISION
Insurance policies are contracts subject to the same rules of judicial construction as other contracts. Insurance policies must be read as a whole. That is, specific words and phrases cannot be construed exclusive of other policy provisions. Furthermore, the language of an insurance policy should be construed so as not to render any words, phrases or terms ineffective or meaningless.
In this case, the first page of the Declarations in the Policy denotes the coverages for which Icon paid a premium. The Policy's plain language was clear that the "Each Occurrence Limit" is specifically limited to include the total amount of insurance that will be paid for bodily injury or property damage liability and for medical expenses under the liability portion of the Policy. Hence, the unambiguous language of the Policy demonstrates that the "Each Occurrence Limit" on page l of the Declarations, which Icon relies upon, is a limit for general liability coverage, not a limit for property coverage. As a result, the $1 million "Each Occurrence Limit" shown there is irrelevant to the amount of income protection coverage afforded under the Policy.
The lack of a dollar amount for Coverage 3 is a clear and unambiguous statement that additional income protection coverage was not included for the subject property.
The Declarations show that Icon paid no premium for Coverage 3-income protection-and, in accordance with the plain language of the Policy, Erie Insurance did not provide such coverage to Icon. Thus, Icon is limited to income protection coverage up to $25,000 in accordance with the standard protection section of the Policy.
The trial court’s conclusion was reversed and the trial court was instructed to enter partial summary judgment for Erie Insurance and to conduct further proceedings consistent with this opinion.
ZALMA OPINION
Insurance contracts must be read before accepting the offer from an insurer to insure. In this case the insured, Icon, either failed to read the coverages provided or decided to not purchase income coverages. The Court of Appeals found that since Icon did not pay a premium for the income coverage it had no coverage. Regardless of why it did not pay the premium by not doing so Icon recovered the minimal coverage for Income but not the coverages they wanted after a real loss.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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The Baseball Card Scam
Insurance Fraud Costs Everyone
Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story that follows are designed to help everyone Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
The insurance industry, unintentionally, instructs its insureds how to successfully perpetrate insurance fraud. Insurers encourage fraud by:
decimating its professional claim staff by short-sighted cost cutting.
by selling insurance to persons unknown to the company or the broker.
by accepting the word of new applicants without a pre-risk survey.
by allowing threats of bad faith lawsuits to intimidate the company into a quick settlement.
Commercial property insurance has proven to be an excellent training ground for novice frauds. Baseball cards are collectibles with widely varying values depending on rarity and condition. The value of a collectible card is totally subjective and, as a result, difficult to insure.
Why A Retail Baseball Card Store Was an Invitation to Fraud
The husband and wife had failed in several tries to conduct a profitable retail business. They simultaneously closed their comic book store and opened a new business called Out In Left Field where they sold baseball cards in the 1980’s at the apex of the baseball card fad. They located in a new, strip shopping center, in a residential area of Fresno, California.
The store lease required Out In Left Field to maintain liability insurance for the landlord. Out In Left Field first tried to buy insurance from the captive agent of a major mutual insurance company. Because of their lack of experience in the baseball card business the agent’s mutual insurer would not accept the risk.
The agent then investigated the surplus lines market seeking insurance for the business. In that market he found an insurer willing to take the risk without a signed application. The husband and wife, at first, had only requested the liability policy required by their lease. The agent advised them that it would be in their best interest to have a business owners’ policy (BOP). The premium was relatively low and they, therefore, bought an all risk coverage with $50,000 limits of liability on their business personal property.
At no time, before the inception of the policy or after, did anyone ask the insureds for substantiation that Out In Left Field had an inventory of $50,000 in business personal property. No one asked for any documentation to show that Out In Left Field had ever performed a physical inventory. No one asked for any documentation that they had any business records that the insurer could rely upon at the time of loss. Only the local agent even visited their shop.
The insureds went to several baseball card shows and began purchasing an inventory of low value cards for between one and three dollars a card. They offered these for sale at retail price in their local Fresno showroom.
The earnings of Out In Left Field were no better than its predecessor, the comic book store. The insureds were considering closing their store down and walking away from their lease. They had no assets which their landlord could attach, even if he got a judgment against them.
Fortuitously, for the insureds, a burglar entered the premises, removed a portable radio, an adding machine, $50.00 in change from their cash register and a few baseball cards. The insureds reported the loss to their insurer.
A young adjuster, who had never been in a retail business in his life except as a customer, made first contact by telephone. He had no knowledge of the marketplace for baseball cards and no personal experience operating a business. In fact, he had just graduated from the insurer’s two week claims training class. The adjuster spoke briefly with the insureds and took a three minute recorded statement limited to the discovery of the burglary.
The adjuster mailed the insureds blank sheets to fill out listing all of the property claimed taken. He also asked for purchase invoices to support the ownership of the items in question.
The insureds, at the time of the burglary, were basically honest people. Their business was failing and the temptation provided to them by the young adjuster was too much to resist.
The insureds stayed up for three nights and prepared a list. It included not only the theft of the radio, the cash from the cash register, and the adding machine but also of fifty (50) prime, excellent condition, baseball cards and two hundred fifty (250) modern cards valued at $2.00 each. The descriptions and values came directly from a catalogue.
The list included a card of the year Henry Aaron broke the home run record and Mickey Mantle’s rookie year. It also included Roger Maris’ 61 home run year and Willie Mays’ rookie year.
Each card was valued by the insureds at more than $1500 each. They then changed the purchase invoices and added to the purchase price three numbers to the left of each invoice amount. The invoices thus appeared to verify the purchases of the cards they claimed stolen. The total amount of claimed loss exceeded their policy limits. They made Xerox copies of each of the invoices to give to the adjuster. The adjuster did not even bother looking at the originals. The adjuster did not, therefore, see that some of the invoices were written in different color ink. If the adjuster saw the original invoices, he would have seen the changes.
The adjuster was surprised when he received the claims forms. He did not expect such a large loss. He telephoned another retail baseball card store and learned that fifty baseball cards like those claimed stolen could easily be worth more than $50,000.
He did not know what to do. He spoke with his supervisor. The supervisor suggested an audit of the books and records of Out In Left Field by an accountant. The accountant, receiving the same forged documents, the adjuster had received found that the insureds’ calculations were correct. The accountant hired to audit the records of the insureds never looked at original documentation.
The supervisor, still wary of the claim, suggested an attorney conduct an examination under oath of the insureds. However, before the lawyer started the insured’s wife telephoned the adjuster to advise that, as the adjuster knew, her disabled husband’s only interest was Out In Left Field.
She explained that because of the delays in the payment of their claim and the time they had to spend with the accountant the insureds were unable to buy inventory. The insureds had sold nothing and could not pay their rent.
Her husband had become so depressed as a result of the delays of the adjuster that he had tried suicide. He was well, at the moment, she said and begged him to make the claim payment. The adjuster and the supervisor, with a minuscule investigation, and no facts to go on, decided to pay the policy limits as soon as possible.
The adjuster delivered a draft for the amount claimed the next day. A notice of nonrenewal of the policy followed.
The insureds took the money and paid their back rent. They bought some new clothes and a new car. With what was left they tried to buy additional inventory for the store. Business was still poor since they were inept at running a retail business.
They decided, since the claim was so easy the first time that they would get a new insurance policy. They called every insurance agency in Fresno until they found one who was willing to present their risk to an insurer. Out In Left Field’s owners knew, because they had first tried honesty that they could not reveal the prior loss. When they reported, the prior loss to a different broker insurance was refused. When they did not reveal the prior loss, they got a policy with $150,000 in limits. The insurer’s only office was in Nebraska.
The new insurer relied totally on the representations of the insureds in the application. They conducted no pre-risk survey. The broker filled in the application over the phone. The broker did not even bother visiting the store.
Out In Left Field was in business again. Two months into the policy, after it had sufficiently ripened and before the second payment on the premium finance agreement was due, the insureds reported a burglary. This time, the loss more than $150,000 in baseball cards.
Fortunately, for the insurer, it retained an experienced independent adjuster to investigate its loss. Checking the ISO All Claims Data Base, the adjuster for the new insurer learned of the first loss. With the authorization of the insureds he saw a complete copy of the first insurer’s claim file. The new insurer demanded examination under oath before an attorney.
As soon as the demand letter arrived at the insureds’ home, the wife called the lawyer and begged an immediate settlement since her husband, depressed by the delays of the insurer, tried suicide. She told counsel she was afraid that if the insurer did not pay quickly, he would be successful in his next try.
The attorney, having read the first insurer’s claim file and seen the same threat of suicide, had been forewarned. He advised his client to strengthen their resolve. He advised them not to succumb to the fear as had the first insurer. Counsel then informed the insured that to conclude the claim she and her husband must first appear for, and testify at, an examination under oath. The insurer also required they bring to the examination all original documents.
The insureds retained counsel on a contingency fee who had no knowledge of their fraud. The insureds produced what they said were all original documents supporting their claim.
Although the insurer’s counsel was not an expert, the documents appeared to be forgeries to counsel. He repeatedly questioned the insureds about the documents until he got clear answers. The insureds testified that they received each of the original documents from sellers. They testified that they had never modified or changed the documents in any way. They further testified that the records were the business records of Out In Left Field and had been prepared the normal course of its business. All of their testimony was false.
To establish his suspicion counsel forwarded the original documents to a questioned document expert. The expert advised that every document had been changed or modified in date, amount and description from the original. Further, each of the invoices was written by two separate people in two difference handwritings, using two different writing instruments. The insurer, faced with such damming evidence, and on the advice of its counsel, rescinded the policy. The grounds stated were the material misrepresentation of fact concerning prior losses in the application for insurance. The insurer, as an alternative reason, also denied the claim for fraud. Counsel for the insurers also provided counsel for the insureds a copy of the questioned documents expert’s report.
Counsel for the insured immediately withdrew representation. The insureds agreed to rescission of the policy to get the return of their premium.
The insureds appeared satisfied with the resolution. At the time of their examination under oath they appeared in the offices of counsel for the insurer wearing a cervical collar and back brace respectively. At the examination under oath, they informed the insurer’s counsel that they had just had a rear-end auto accident where their best friend and neighbor had accidentally rear-ended them.
Although one insurer escaped making payment to these frauds, two did not. The first, who provided the training paid $50,000 for a loss that was probably no more than $800.00. An auto insurer also found itself making payments for an automobile accident that seemed to be fictitious.
This type of loss will continue to occur as long as insurers fail to maintain adequately trained claims and underwriting staff. If insurers continue to accept insureds at face value without any pre-risk inspections or investigation this type of loss will multiply. Insurance agents and brokers will have their loss ratios increase logarithmically. Profits will fall because they did not inspect and control the risks they insure.
Adapted from my book, Insurance Fraud Costs EveryoneAvailable as a Kindle Book and Available as a Paperback from Amazon.com.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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Zalma's Insurance Fraud Letter - January 15, 2024
ZIFL Volume 28, Issue 2
See the full video here and here https://youtu.be/xs4PPJ3NPDg
Subscribe here: https://visitor.r20.constantcontact.com/manage/optin?v=001Gb86hroKqEYVdo-PWnMUkcitKvwMc3HNWiyrn6jw8ERzpnmgU_oNjTrm1U1YGZ7_ay4AZ7_mCLQBKsXokYWFyD_Xo_zMFYUMovVTCgTAs7liC1eR4LsDBrk2zBNDMBPp7Bq0VeAA-SNvk6xgrgl8dNR0BjCMTm_gE7bAycDEHwRXFAoyVjSABkXPPaG2Jb3SEvkeZXRXPDs%3D
Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/
The current issue includes the following articles:
GEICO Takes a Bite Out of Fraud
NO FAULT INSURANCE IS A FORMULA FOR INSURANCE FRAUD
GEICO, as a pro-active victim of insurance fraud, sued Jean-Pierre Barakat, M.D., et al, alleging that Defendants defrauded GEICO in violation of the Racketeering Influenced and Corrupt Organizations Act (“RICO,” 18 U.S.C. § 1962(c), (d)), by submitting hundreds of fraudulent bills for no-fault insurance charges. Plaintiffs also allege common law fraud and unjust enrichment and seek a declaratory judgment as to all pending bills.
In Government Employees Insurance Company, et al v. Jean-Pierre Barakat, M.D.et al No. 22-CV-07532 (NGG) (RML), United States District Court, E.D. New York (January 2, 2024) the USDC provided an injunction.
Read the full January 15, 2024 issue of ZIFL here.
More McClenny Moseley & Associates Issues
This is ZIFL’s twenty first installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.
Read the full January 15, 2024 issue of ZIFL here.
Florida Residential Property Claims and Litigation Report
Closed Claims Data for Calendar Year 2022 as of 11/1/2023
The full report is available at https://www.floir.com/docs-sf/default-source/property-and-casualty/other-property-casualty-reports/january-2024-pclr.pdf?sfvrsn=d8c92a4f_4 The report was prepared Pursuant to Section 624.424(11), Florida Statutes, each authorized insurer or insurer group issuing personal lines or commercial lines residential property insurance policies in Florida is required to annually file a supplemental report on an individual and group basis for closed claims with the Florida Office of Insurance Regulation (OIR). The first year of data collected was for 2022 and the information below compiles aggregated information stemming from that data. Various elements of this data have been released by the Office in other reports and presentations throughout the 2023 calendar year.
Read the full January 15, 2024 issue of ZIFL here.
Now Available The Compact Book of Adjusting Property Claims – Fourth Edition
On January 2, 2024, in Kindle, paperback and hardback formats, The Compact Book of Adjusting Property Claims, Fourth Edition is now available for purchase here.and here. The Fourth Edition contains updates and clarifications from the first three editions plus additional material for the working adjuster and the insurance coverage lawyer.
Read the full January 15, 2023 issue of ZIFL here.
ALLSTATE TAKES A BITE OUT OF CRIME
Another Proactive Insurer Works to Take the Profit Out of Insurance Fraud
In Allstate Insurance Company, Allstate Indemnity Company, Allstate Fire & Casualty Insurance Company, and Allstate Property & Casualty Insurance Company v. Bradley Pierre, Medical Reimbursement Consultants Inc., Marvin Moy, M.D., Rutland Medical P.C. D/B/A Medicalnow, William A. Weiner, D.O., and Nexray Medical Imaging, P.C. d/b/a Soul Radiology Medical Imaging, No. 23-CV-06572 (NGG) (LB), United States District Court, E.D. New York (January 8, 2024) Allstate joins GEICO and other insurers taking a proactive effort against no-fault insurance fraud perpetrators.
Insurance Fraud
Next to tax fraud, insurance fraud is the most practiced crime in the world. It is perpetrated by members of every race, religion, and nationality. It is found in every profession. The possibility of a tax-free profit when coupled with the commonly held belief that criminal prosecution will probably not occur, is sometimes too difficult for normally honest people to resist.
Read the full January 15, 2024 issue of ZIFL here.
Health Insurance Fraud Convictions
New Jersey Laboratory and Its Owner and CEO Agree to Pay Over $13 Million to Settle Allegations of Kickbacks
Clinical laboratory RDx Bioscience Inc. (RDx), of Kenilworth, New Jersey, and its owner and Chief Executive Officer Eric Leykin, of Brooklyn, New York, agreed to pay to the United States $10,315,023 to resolve False Claims Act allegations involving illegal kickbacks and medically unnecessary laboratory testing. RDx and Leykin will pay an additional $2,934,977 to the State of New Jersey, which jointly funded claims paid by the New Jersey Medicaid program. RDx and Leykin have agreed to cooperate with the Justice Department’s investigations of, and litigation against, other participants in the alleged schemes.
Read the full January 15, 2024 issue of ZIFL here.
It’s Time to Subscribe to Substack or Locals
For Subscribers Only I Have Published Special Insurance Articles and Videos
I published on Locals.com more than 25 videos and two webinars of the Excellence in Claims Handling program. I also published on Substack.com videos and webinars of the Excellence in Claims Handling Program available only to Subscribers. The subscribers have access to all the videos and a webinar on “The Examination Under Oath A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud” among others.
The videos start with the history of insurance and work their way through various types of insurance and how to obtain and deal with insurance claims. Subscribe and receive videos and articles available only to subscribers to the Excellence in Claims Handling at locals.com and to articles and videos also available to subscribers at Substack.com for a small fee of only $50 a year. You can Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and to “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.
Read the full January 15, 2024 issue of ZIFL here.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
Subscribe to my substack at https://barryzalma.substack.com/publish/post/107007808
Go to Newsbreak.com https://www.newsbreak.com/@c/1653419?s=01
Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library.
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Loss of Inventory by Bankruptcy
Bankruptcy of Storage Facility Created a Compensable Loss
Plaintiffs insurers sought a declaration that there is no coverage for the insurance claim made under the policy for the loss of soybeans. The Defendants moved for partial summary judgment on its first and second counterclaim. In Endurance American Insurance Company, Zurich American Insurance Company, and, Atain Insurance Company v. Stonex Commodity Solutions, LLC F/K/A FC Stone Merchant Services, LLC, 2024 NY Slip Op 30076(U), Index No. 653234/2022, Motion Seq. No. 004, NYSCEF Doc. No. 108, Supreme Court, New York County (January 8, 2024) the Supreme Court (trial court) resolved the dispute.
BACKGROUND
From 2017 to 2021, defendant stored millions of bushels of soybeans at warehouses owned by non-party, Express Grain Terminals, LLC ("EGT"). In September 2021, upon the discovery by EGT's lender that EGT had less inventory than it was reporting, EGT was forced into bankruptcy, resulting in the dispossession from StoneX of 2,780,000 bushels of soybeans subject to a determination by the bankruptcy court of various competing interests in the disposition of EGT's assets.
Ultimately, in the bankruptcy proceedings, defendant recovered all but 502,315 bushels of soybeans. Defendant seeks coverage for the loss of these 502,315 bushels of soybeans.
SUMMARY JUDGMENT STANDARD
The proponent of a motion for summary judgment must tender sufficient evidence to show the absence of any material issue of fact and the right to entitlement to judgment as a matter of law. Courts have also recognized that summary judgment is a drastic remedy that deprives a litigant of his or her day in court. Therefore, the party opposing a motion for summary judgment is entitled to all favorable inferences that can be drawn from the evidence submitted.
DISCUSSION
In support of its motion defendant cites to the language of the insurance policy that provides that warehouse receipts, together with third-party inspection reports showing that the warehouse has sufficient goods to meet the insureds requirements, demonstrates the existence of an insurable interest.
Defendant contends that the warehouse receipts establish that EGT was in possession of the requisite number of soybeans to cover the amount of defendant's soybeans. Further, inspection reports, prepared by independent inspectors, confirm that EGT maintained the appropriate number of soybeans to satisfy defendant's stored amount. With respect to the date of the loss, defendant contends that September 2021 is the date when it became actually dispossessed based on the bankruptcy filing by EGT.
Specifically, plaintiffs contend that inspector indicating that "obligations to other depositors cannot be adequately verified [...] therefore I am unable to make any certifications on these actual obligations and their effect regarding these inventories" creates an issue of fact as to whether the soybeans for which defendant seeks coverage were in existence.
CONCLUSION
The New York Court found that defendant established an actual loss as well as an ascertainable date of the loss, September 29, 2021. The Court declined to read terms into the policy that are not there, specifically that defendant was required to ascertain whether EGT had sufficient soybeans to satisfy all receipt-holders. The parties could have contracted to include those terms in the policy but did not.
The unrefuted evidence was that there were in fact a sufficient number of bushels of soybeans to satisfy defendants claim at the time EGT filed for bankruptcy, it follows that once EGT filed for bankruptcy defendant no longer had access to the soybeans, thus triggering the date of the loss.
Defendant's motion for partial summary judgment on its first counterclaim is granted; and it is further Adjudged and Declared there is insurance coverage to cover the loss of 502,315 bushels of soybeans; and it is further Ordered that defendant's motion for summary judgment on its second counterclaim is granted; and it is further adjudged and declared that plaintiffs have breached the underlying contract between the parties for refusing to provide coverage.
ZALMA OPINION
Since the evidence showed that there were enough soybeans to cover that deposited by the defendants when EGT was forced into bankruptcy the division of the assets by the court resulted in a loss to the defendants that was not excluded from the coverages provided by the Plaintiffs.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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ALLSTATE TAKES A BITE OUT OF CRIME
Another Proactive Insurer Works to Take the Profit Out of Insurance Fraud
Post 4709
In Allstate Insurance Company, Allstate Indemnity Company, Allstate Fire & Casualty Insurance Company, and Allstate Property & Casualty Insurance Company v. Bradley Pierre, Medical Reimbursement Consultants Inc., Marvin Moy, M.D., Rutland Medical P.C. D/B/A Medicalnow, William A. Weiner, D.O., and Nexray Medical Imaging, P.C. d/b/a Soul Radiology Medical Imaging, No. 23-CV-06572 (NGG) (LB), United States District Court, E.D. New York (January 8, 2024) Allstate joins GEICO and other insurers taking a proactive effort against no-fault insurance fraud perpetrators.
Plaintiffs Allstate Insurance Company sued Bradley Pierre, et al, alleging that Defendants defrauded Allstate in violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO," 18 U.S.C. § 1962(c), (d)), by submitting hundreds of fraudulent bills for no-fault insurance payments. (See Compl. (Dkt. 1) ¶¶ 459-542.) Plaintiffs also allege common law fraud and unjust enrichment and seek a declaratory judgment as to all past, present, or future bills.
Allstate moved for a preliminary injunction to stay all pending no-fault insurance collection arbitrations commenced against Allstate by Defendants and Plaintiffs requested waive their obligation to post security for the injunction.
BACKGROUND
Operation of the Alleged Scheme
The USDC concluded that the "allegations reviewing the fraudulent scheme in Allstate's Complaint are overwhelming." Defendant Marvin Moy, M.D., a licensed physician, purported to be the sole officer, director, and shareholder of Rutland but was merely a nominal owner. In reality, Moy ceded actual control over Rutland to Defendant Bradley Pierre, a layperson who does not hold a medical license and therefore is not authorized to own, control, or manage a medical professional corporation.
As a result of this extensive scheme, Allstate has paid in excess of $2,749,000.00 for no-fault claims submitted by the PC Defendants. Moreover, Defendants Pierre, Moy, and Weiner are currently facing criminal charges related to the scheme and the very allegations at issue in this case. See United States v. Pierre, No. 1:22-CR-00019 (PGG) (S.D.N.Y.) (hereinafter, the "Criminal Action").
Evidence of the Alleged Scheme
In support of its fraud claims, Allstate has submitted an abundance of evidence. Accordingly, Allstate seeks reimbursement of the more than $2,749,000.00 it has paid Defendants and in addition to a declaration that it is under no obligation to pay any pending or future no-fault insurance claims.
DISCUSSION
When seeking an injunction a party must establish that without the injunction the plaintiff will suffer irreparable harm. To establish irreparable harm, a party seeking preliminary injunctive relief must show that there is a continuing harm which cannot be adequately redressed by final relief on the merits and for which money damages cannot provide adequate compensation. The harm must be shown to be actual and imminent, not remote or speculative.
Allstate argued that it will suffer irreparable harm because (1) there is significant risk of inconsistent results in the arbitration proceedings, (2) the time, effort, and money spent litigating these proceedings cannot be cured by money damages, and (3) arbitrations continue to be filed and adjudicated despite Defendant Moy, the sole official shareholder of Rutland, disappearing in October 2022.
The risk of inconsistent judgments is in addition to the expenditure of time, effort, and money that Allstate will exhaust dealing with a morass of litigation in the absence of relief that will not be cured by money damages.
Here, Allstate has sufficiently alleged that there is a serious question going to the merits of its declaratory judgment claim against Defendant Rutland and others. In its 102-page Complaint supported by numerous exhibits totaling thousands of pages, Allstate details an extensive and complex scheme centered around the fraudulent operation and control of Rutland, among other PCs, by non-physician Pierre for his own personal financial gain; unlawful patient referrals to the PC Defendants pursuant to improper agreements and kickback schemes; and fraudulent billing for unnecessary and excessive services yielding hundreds of false claims submitted to Allstate in violation of various New York state licensing laws.
CONCLUSION
Allstate's motion for preliminary injunctive relief was GRANTED. Consequently:
all pending no-fault collection arbitrations by Rutland (or its agents) against Plaintiffs are stayed.
Rutland is enjoined from filing any further no-fault collection arbitrations or lawsuits against Allstate pending resolution of the instant federal action.
Allstate's request that the court waive their obligation to post security was also GRANTED.
ZALMA OPINION
Allstate, like many other insurers writing no-fault auto insurance in New York state find that they are victims of fraudulent schemes like the one described by Allstate in its lengthy and well documented law suit. The court faced with overwhelming evidence, including the fact that one of the defendants is under indictment by the federal Department of Justice. This lawsuit indicates a complete failure of the no-fault insurance system and the inability of the state of New York to police the crime. Allstate, like GEICO, should be honored and emulated for their action in an attempt to take the profit out of insurance fraud.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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Murder Pays
LIFE INSURANCE FRAUD FOR FUN & PROFIT
"This following is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of many designed to help the public Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
George and Adam were partners. Their business, consulting with aerospace manufacturers on preparing the reports required by the Department of Defense, had been immensely successful. For the first five years of business their billings exceeded $3,000,000 a year.
They lived well. Like the average Americans they were, they spent every dollar they made and about 10% more than they made. They had no savings. They did have large credit card balances.
Because they knew how important each was to the success of the partnership, they purchased Key man life insurance policies with limits of $3,000,000 each from Trustme Life Insurance Company.
In 2008 the bottom fell out of the aerospace industry with the election of President Obama who cancelled space programs. Their customers stopped hiring consultants. The billings of the partnership shrank like Alice after she bit the mushroom.
Adam and George could not make their mortgage or credit card payments. Their business was failing. They were facing both business and personal bankruptcy. Adam, the adventurous partner, had an idea.
“George,” Adam said, “The only way we can get out of this financial mess is our life insurance policies.”
“I don’t want to die to collect,” George said.
“Neither do I,” Adam replied. “But I still want to collect.”
“Do you propose to murder me.”
“No, George, I propose that we find a homeless person who physically resembles one of us and kill him. We can plant identification on the corpse and then share in the $6,000,000 double indemnity payment.”
“My,” replied George, “that’s a brilliant, although evil and criminal, plan.”
“I see no other way out. It’s either the death of a useless human being or total financial catastrophe for us.”
“Adam, they have a death penalty in this state.”
“So, what, the plan is perfect. No one will know. We’ll retire in luxury.”
“Okay, I’ll go along with it, but I don’t like it. This is dangerous.”
The partners began to travel skid row. They needed a homeless person who physically resembled one of them in height, weight and coloring. It took them a week to find the right person. They befriended him with a bottle of wine and a free meal. They told him that they had just completed a twelve-step program and part of that program was to help a person in need. Together, they took the homeless person to Adam’s house. The partners washed off the grime in Adam’s massive master bath, dressed him in Adam’s clothes, and outfitted him with accessories until he looked like a Century City lawyer about to meet an important client.
The homeless man was only known to them as “Fuzzy.” He was suspicious and refused to give them his full name.
Fuzzy was grateful. He thanked his benefactors profusely and offered to work to earn what they had given him.
Adam and George agreed and offered him the job operating the photocopy machine at their office at the rate of $18.00 an hour. While he was getting on his feet, Fuzzy could sleep in the guest room at Adam’s house. He could ride to work every morning with Adam.
The normal skepticism of the homeless floated from Fuzzy like seeds from a Dandelion in a gale. He slept soundly between clean sheets for the first time in five years. He was up at 6:00 a.m., made coffee and fried bacon and eggs that he and Adam shared. They then drove to the office together in Adam’s emerald green Jaguar XJ-8 convertible.
Fuzzy worked hard. He was on his best behavior all day, photocopying extra copies of old consultation reports. At noon George and Adam took Fuzzy out to lunch at their favorite restaurant and then stopped at Adam’s barber. Fuzzy was provided a free haircut exactly like that the barber had given to Adam.
After the day ended and all of the employees left, Fuzzy waited for Adam to finish his work sitting in the lobby reading Sports Illustrated.
Adam called Fuzzy into Adam’s office at 8:00 that night. He asked Fuzzy to sit in his desk chair and shot him in the face with a 12-gauge shotgun at close range. Adam discharged one barrel on each hand to eliminated all of Fuzzy’s fingerprints.
Adam then placed his wallet with all its money, credit cards and other identification in the inside coat pocket of his old suit, removed anything that might identify Fuzzy as being someone other than Adam and then drove to the airport in George’s 750 IL BMW leaving the Jaguar in the garage. At the airport, Adam, using cash, purchased a ticket in the name of Adam Smith to New Orleans, Louisiana. He had already purchased, from street vendors on Hoover Street in Downtown Los Angeles a driver’s license in the name of Adam Smith with a birth date five years earlier than Adam’s true date of birth, a social security card, a MasterCard and Visa all issued in the name of Adam Smith.
George spent that evening with a client eating dinner and then attending a performance of “Wicked” at the Pantages theater. After leaving his client at midnight George took a cab to the airport and picked up his car at long term parking. He paid in cash. His alibi was perfect.
On arrival in Louisiana Adam spent two days at the Sheraton and then rented an apartment. He obtained a Louisiana driver’s license and found a job as an engineer in an electronics factory outside New Orleans.
He started a scrap book with articles from the Los Angeles Times that he had obtained from the local library, dealing with his untimely and vicious murder. George, the distraught and devastated partner, filed a claim with the insurer. He informed the insurer that he left his partner in the office at 7:00 the night before his death. Adam was working on finishing a report for one of their clients. His secretary, who usually arrived at 8:00 in the morning, one hour before George, found the body when she opened the office. She telephoned George first and then the police. When George arrived, he was able, from the suit of clothes, to identify the body as that of his partner, Adam. There simply wasn’t enough of the face to identify.
The insurance company did as much investigation as it could, including interviews of the night staff at the office building, all of Adam’s friends and neighbors and the police. Although they recognized that the business was failing, George’s alibi for the time of death was airtight. Since George was the only person who could gain by the murder, since the shotgun was left at the scene and had no fingerprints, since the police traced the shotgun and found that it had been stolen a year before from someone in Wyoming, there were no leads.
The insurer issued a check in the amount of $6,000,000 to George who accepted it gratefully. George then deposited the money in his account, obtained a $3,000,000 cashier’s check and delivered it to Adam Smith in New Orleans. The plan was that Adam would stay in Louisiana, enjoy his newfound wealth and their perfect crime would be consummated.
Adam abided by the plan for a year and a half. He assumed nothing could go wrong and decided to come back to Los Angeles to renew an acquaintance with a young lady with whom he had been seriously in lust. When he arrived on her doorstep, unannounced, the young lady, who had attended his funeral in tears, was pleasantly surprised. She entertained him as he expected and dropped him at the Four Seasons where he was staying.
Although she considered Adam to be a prodigious lover, the young lady was more interested in cash than love. From the hotel, she drove directly to the West Los Angeles station of the Los Angeles Police Department and introduced herself to a detective. She knew that a life insurance claim had been made and wanted the police to know that the person whose murder they were investigating was presently sound asleep in his hotel room at the Four Seasons Hotel in Beverly Hills.
She explained to them how Adam, after twenty minutes of horizontal Rhumba, explained to her how he had defrauded an insurance company out of $6,000,000. She explained to the police that she would never be a party to such a crime and wanted it noted in their report that she was the source of the information and the person to whom any rewards posted by the insurance company should be paid.
Adam and George were arrested and tried for the murder of Fuzzy as well as several counts of insurance fraud. The testimony of the young lady, the presence of Adam and the Los Angeles Airport recording of George’s license plate on entry and exit from the airport parking lot made their defense impossible. They were convicted.
Adam and George are now spending the remainder of their lives in the State Penitentiary.
The insurer recovered $4,000,000 of the $6,000,000 (George and Adam had lived well for that year and a half) and paid the lustful young woman a $400,000 reward. She lived happily ever after.
Adapted from my book, Insurance Fraud Costs Everyone
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
Subscribe to my substack at https://barryzalma.substack.com/publish/post/107007808
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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library.
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