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Phoenix Insurance Law Blog

Nevada Adopts Minority View That An Insurer's Failure To Deend Can Render The Insurer Liable For An Excess Judgment Without A Finding Of Bad Faith Misconduct

In Century Surety Co. v. Andrew, 432 P.3d 180 (Nev. 2018) the Nevada Supreme Court adopted the minority view holding that the insurer's failure to defend its insured made the insurer liable for the excess judgment that was entered, even though there was no finding of bad faith misconduct. According to the court, the excess judgment was foreseeable, and therefore the insurer's liability was not limited to defense costs and indemnity within limits.

Safeco Waives Anti-assignment Clause

Clear Vision was an automobile windshield repair company which operated inside individual auto dealership repair shops. Clear Vision's business practice was to repair a customer's windshield once the customer had signed an assignment of the right to payment to Clear Vision under the customer's insurance policy. After the windshield was repaired, Clear Vision would then submit the invoice directly to the customer's insurance company. With respect to Safeco, Clear Vision had submitted thousands of glass repair claims, even though there was no contractual relationship between Clear Vision and Safeco. Eighty-five percent of the direct invoices were paid in the full amount of the invoice while 15% of the invoices were not paid. Throughout this process, Safeco never raised the anti-assignment clause as the reason why it was not paying the Clear Vision invoice. Recently the Texas Appeals Court found that the relationship between Clear Vision and Safeco resulted in a waiver of Safeco's policy right to assert the anti-assignment clause in its policy.

Mississippi Rejects Blue Ridge Doctrine

In Colony Ins. Co. v. First Specialty Ins. Corp., 262 So. 3d 1128 (Miss. 2019) , the Mississippi Supreme Court, as a matter of first impression, found that a liability insurance company could not fund a settlement under a reservation of rights and then seek reimbursement of its payment from the insured. According to the Court, the insurance company must make a selection of either absorbing the settlement or rejecting the demand with the hopes that it would prevail on its declaratory judgment action. In so finding, the Court held that while a payment which is made under compulsion is not a voluntary payment, the mere threat of a lawsuit was not the type of compulsion that would render an insurance payment non-voluntary. Insurers should pursue a declaratory judgment action as a legal avenue for determining coverage obligations. Settling the case before receiving a ruling on the coverage obligations resulted in the insurer having no right to seek reimbursement of the settlement payment that it might not otherwise have been obligated to make.

Insurance Agents Not Held Accountable For Excess Judgments Under Utah Law

The Utah Supreme Court in Espenschied Transp. Corp. v. Fleetwood Servs., Inc., 2018 UT 32, 422 P.3d 829 (Utah 2018) held that the law allowing insureds to sue their insurance companies for bad faith conduct resulting in unpaid excess judgments did not apply to lawsuits brought against insurance agents who failed to procure requested coverage which, in turn, resulted in uncollectable judgment. In this case, the insured hired Fleetwood Services, an insurance agency, to procure a commercial lines insurance policy for their trucking company. As part of the procurement process, the insured provided Fleetwood with a list of vehicles to be insured. The policy was issued covering the vehicles that were on the list. Thereafter, one of the insured's vehicles was involved in an accident which resulted in a death. The survivors of the decedent sued the trucking company and its successor. The insurance company denied coverage because the vehicle involved in the accident was not on the list Fleetwood had provided to the insurer. A settlement was then reached between the decedent's family and the insured trucking company. At the time of the settlement the insured trucking company had formally dissolved its business and had no assets other than potential claims against third parties. As part of that settlement, the insured assigned to the decedent's family any claim it had against Fleetwood and the insurance company. As part of the settlement, the insured trucking company agreed to pursue claims against Fleetwood and the insurance company. Because the trucking company was a defunct corporation with no assets, the only way the family could recover from the trucking company was if the trucking company recovered from Fleetwood or the insurer.

Make Sure You Allege Mental Incomptency When Seeking a Defense in an Assault Case for There to Be a Defense Obligation

Recently, the Superior Court of Pennsylvania found that an insurer had properly denied a defense to its insured who had been sued for assault. See Kiely on Behalf of Feinstein v. Philadelphia Contributionship Ins. Co., 2019 PA Super 90 (Mar. 26, 2019). The facts before the court indicated that Christine Feinstein had hired Nydia Parkin as a domestic employee in her residence. Inexplicably, Feinstein physically attacked Parkin during her employment. Parkin sued for assault. Feinstein tendered the claim for a defense to her homeowner insurance company. The claim was denied on the ground that the assault was not an occurrence. In the ensuing coverage trial, Feinstein's attorney argued that Feinstein had suffered from a stroke and bipolar disorder and may even have had dementia at the time of the assault. The court nonsuited the case, finding that the attorney's testimony did not prove Feinstein's mental capacity was diminished to a point where she could not appreciate the nature of her conduct. The case was affirmed on appeal. The Superior Court held that Feinstein's reported mental incapacity, irrespective of whether it was real or imagined, was irrelevant because the underlying complaint did not mention mental incapacity. Instead, the complaint alleged that Feinstein had attacked Parkin, including choking and punching her, while uttering racial epithets, and that Parkin did not provoke the attack or fight back. Under those circumstances, the Superior Court found that Feinstein's mental health was not in question and that it was error for the trial court to even consider Feinstein's health in assessing the insurer's duty to defend.

Rhode Island Supreme Court Says That Insurance Companies Do Not Owe Third-party Claimants Any Duty To Attempt Settlement

In Summit Insurance Co. v. Stricklett, 199 A.3d 523 (R.I. 2019) the court found that the insurer did not owe a minor child pedestrian who was struck by the insured's vehicle or the child's parents any duty to attempt to settle the child's personal injury claim. The court resoundingly rejected the claimant's argument that the insurance company owed them a duty of good faith and fair dealing in settlement negotiations. In rejecting this assertion, the court discussed how the insurer's duty to settle arose from the contractual fiduciary duty that was owed between the insurer and its insured. In contrast, the relationship between the insurance company and a third party was adversarial, which did not give rise to a fiduciary obligation on the part of the insurance company to the claimant.

A Settlement Demand Is Required As A Prerequisite In A Liability Claim To The Insurer's Duty To Settle

The Georgia Supreme Court recently held in First Acceptance Ins. Co. of Georgia, Inc. v. Hughes, 826 S.E.2d 71 (Ga. 2019) that a liability insurance company's duty to settle arose when a valid settlement demand was presented by the injured party that fell within the insured's policy limits. Only under those circumstances did an insurer risk breaching that duty if it rejected a reasonable settlement demand. This case involved a multiple vehicle traffic accident which resulted in one fatality and the injury to five individuals. The insured's policy limits were $25,000 per person/$50,000 per accident and were insufficient to fully compensate all of the injured parties. Because of this, the insurance company sent the injured parties' attorneys a letter proposing a joint settlement conference/mediation to resolve all claims. The Georgia Supreme Court found that as a threshold matter the insurer's duty to settle arose only when the injured party presented a valid offer to settle within the insured's policy limits. As support for its conclusion that "sound" policy supported the making of a written settlement demand as a prerequisite to a liability insurer's duty to settle. The court noted that without an offer within the policy limits, the only evidence of an essential element of the insured's case - that the insurer could have settled the case within the policy limits - would be "after-the-fact testimony of the injured party that he would have settled within the policy limits. Such testimony was unreliable and often self-serving or the product of collusion between the insured and the injured party.

RHODE ISLAND SUPREME COURT SAYS THAT INSURANCE COMPANIES DO NOT OWE THIRD-PARTY CLAIMANTS ANY DUTY TO ATTEMPT SETTLEMENT

In Summit Insurance Co. v. Stricklett, 199 A.3d 523 (R.I. 2019) the court found that the insurer did not owe a minor child pedestrian who was struck by the insured's vehicle or the child's parents any duty to attempt to settle the child's personal injury claim. The court resoundingly rejected the claimant's argument that the insurance company owed them a duty of good faith and fair dealing in settlement negotiations. In rejecting this assertion, the court discussed how the insurer's duty to settle arose from the contractual fiduciary duty that was owed between the insurer and its insured. In contrast, the relationship between the insurance company and a third party was adversarial, which did not give rise to a fiduciary obligation on the part of the insurance company to the claimant.

BAD FAITH

The First Circuit U.S. Court of Appeals recently upheld a district court's ruling that an insurance company's claim administrator's handling of a medical malpractice lawsuit was in conformity with Massachusetts statute regarding reasonable settlement.

MAKE SURE YOU'RE ACCURATE WHEN YOU EXPLAIN WHY THE POLICY WAS CANCELLED

The Colorado Court of Appeals in Brown v. American Standard Ins. Co. of Wisconsin, 436 P.3d 597 (Colo. App. 2019) recently found that the insurance company's reason for cancelling the policy must be accurate for the cancellation to be effective. The Colorado Court of Appeals, as a matter of first impression, held that when the insurance company provides the reason for its policy cancellation (in this case an automobile policy), the reason given by the insurer must be accurate. If the reason is not accurate, the notice of cancellation is ineffective. In doing so the court rejected the insurance company's argument that the cancellation was effective, irrespective of whether the reason was actually accurate in situations where the insured did not contest the cancellation until after the accident had occurred. However, the Colorado appellate courts had previously held that insureds who received defective notification of cancellation were permitted to sue their insurance company without having previously challenged the cancellation.

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