Steven Plitt, Expert Witness Steven Plitt, Expert Witness
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Insurance Law Archives

Two Wrongs Don't Make It Right

In an interesting case, the New York Appellate Court found that an insured could not sue the insurance broker for delaying in presenting a claim to the insurance company when the insured also delayed submission of the claim to the agent. In Rockland Exposition, Inc. v. Marshall & Sterling Enterprises, Inc., 138 A.D.3d 1085, 31 N.Y.S.3d 139 (N.Y.A.D. 2016), the New York Appellate Court held that the insured's delay of 52 days in notifying the insurance broker of the lawsuit that needed to be submitted to the insurance company precluded the insured from bringing a suit against the broker for liability for the broker's delay in providing notice to the insurer. The Court found that the insured's delay in providing notice to the broker was the precipitating breach of the insurance policy's requirement that the insured provide notice "as soon as practicable" and was the proximate cause of the insured's loss of coverage. In this case, the Court, in essence, held that two wrongs did not make it right.

The Fourth Circuit Court Of Appeals Finds That Late Notice Must Deprive The Insurance Company Of Its Ability To Exercise Its Meaningful Contractual Rights In Order To Establish Prejudice

The United States Fourth Circuit Court of Appeals, interpreting Maryland law, recently clarified the meaning and scope of "prejudice" under Maryland law. St. Paul Mercury Ins. Co. v. American Bank Holdings, Inc., 819 F.3d 728 (4th Cir. 2016). In this case, the corporate insured failed to notify the insurer of a lawsuit until a default judgment had been entered more than 18 months after the service of process. The corporate insured was required to notify the insurer of the claim "as soon as practicable." After being served with the summons and complaint, various corporate screw ups prevented the papers from being forwarded to the insured's legal department from its statutory agent. The insurance company alleged that it was prejudiced by the late notice. The Fourth Circuit found that while prejudice is an element of any late notice defense under Maryland law, prejudice is established when the insured's late notice precludes the insurer from exercising "meaningful contractual rights" under its policy which would be necessary in order to prove actual prejudice. Under the facts presented an 18-month delay after default had been entered denied the insurance company of the opportunity to participate in the selection of counsel, to speak with counsel, and to discuss credible defense strategies.

Can Speculation Fuel a Defense Obligation Under the Insurance Policy? The Montana Supreme Court Says That it Cannot.

Recently the Montana Supreme Court held that a duty to defend cannot be based on pure speculation regarding unpleaded claims. In Fire Ins. Exchange v. Weitzel, 2016 MT 113, 371 P.3d 457 (Mont. 2016), the elder abuse complaint framed 19 causes of action all of which sought economic damages only. The trial court found that while the complaint contained no cause of action for false imprisonment, facts within the complaint supported such a claim including an allegation that the insured had changed the locks on the plaintiff's house and told the plaintiff, an elderly individual, that he could not open the doors "for anyone." As a result, the trial court found that the Estate potentially sought damages for false imprisonment even though there was no specific cause of action alleging false imprisonment by name. The Montana Supreme Court reverse, however. The High Court found that although a complaint does not expressly have to allege a covered cause of action in order to trigger a defense obligation, the complaint must at least contain facts that would support a covered claim. While the complaint in question contained multiple causes of action, all of the causes of action sounded in economic loss. There were no factual allegations that the insured had restrained the elderly person against his will or in any type of unlawful manner. Even the allegation that the locks had been changed and the elder victim had been told not to open the door for anyone did not suggest, according to the Court, that the insured had prevented the elder person from voluntarily leaving his home. The High Court refused the elder victim's invitation to consider hypothetical facts in determining whether a duty to defend existed. In doing so, the Court found that an insurer's duty to defend could not be triggered by speculating about extrinsic facts and unpled claims regarding potential liability.

Robocalls Are Covered By CGL Policy According To Florida Court

The Florida Court of Appeals in Old Dominion Ins. Co. v. Stellar Concepts & Design, Inc., 189 So.3d 293 (Fla. App. 2016) held that a CGL policy covered liability for the insured's placing robocalls in violation of state law. The Court found that the policy's expected or intended injury exclusion did not apply where the evidence demonstrated that the insured did not intend to harm the recipients of the robocalls even though the insured understood that the calls would cause the recipients to lose the use of the phone lines for the duration of the call.

The California Supreme Court Finds That In Determining Whether A Punitive Damage Award Is Unconstitutionally Excessive, The Court Could Take Into Consideration As The Compensatory Damage Component In An Insurance Bad Faith Case The Award Of Attorney's Fee

In a well-reasoned decision, the California Supreme Court held in Nickerson v. Stonebridge Life Ins. Co., 63 Cal.4th 363, 203 Cal.Rptr.3d 23, 371 P.3d 242, (2016), that a trial court could give consideration to an award of attorney's fees in favor of the insured, in a bad faith action, in calculating the constitutionally permissible ratio of compensatory damages to punitive damages in insurance bad faith cases. In question was the award of attorney's fees in favor of the insured under Brandt v. Superior Court, 37 Cal.3d 813, 210 Cal.Rptr. 211, 693 P.2d 796 (1985).

When Things Change, Re-Evaluate

In a fact intensive decision, the United States Eighth Circuit Court of Appeals in Bamford, Inc. v. Regent Ins. Co., 822 F.3d 403 (8th Cir. 2016), held that a fact question existed as to the insurance company's failure to settle a claim notwithstanding that the insurance company relied upon multiple efforts to settle, continuously increased its reserves and offers in the settlement process, followed the advice and valuations of two outside counsel and two mediators, discussed the claim value in roundtable meetings with senior management, and reasonably relied upon the state of Nebraska's reputation as a conservative jury verdict jurisdiction. The trial court had entered a ruling eliminating a key defense which the Eighth Circuit observed required the insurance company to drastically re-evaluate its position which it did not do notwithstanding its previous efforts to evaluate the claim fairly. While interesting on its facts, the Bamford case is so fact-intensive that it provides no procedural value in terms of black letter law. However, it is an interesting case to read because of all the efforts engaged in by the insurance company to try and fairly evaluate the case value which were all for naught when the trial court entered a ruling on one of several defenses.

Limiting the Scope of Ambiguity

Recently the Colorado Supreme Court in American Family Mutual Ins. Co. v. Hansen, 2016 WL 3398507 (Colo., filed 6/20/16) considered whether an extrinsic document, separate and apart from the insurance policy, could be used to create a policy ambiguity. The Court held that the trial court and the Colorado Court of Appeals erred when it considered the extrinsic document to create a coverage ambiguity. The Colorado Supreme Court held that the discrepancy in an extrinsic document did not create an ambiguity in the policy because the ambiguity doctrine can only be used to determine whether an ambiguity exists within the four corners of the insurance policy itself and cannot be created by an extrinsic document that was not part of that policy.

Bad Faith Claim Accrual

The Delaware Supreme Court weighs in on when a bad faith claim accrues in a bad faith refusal to settle case. In Connelly v. State Farm Mut. Auto. Ins. Co., 2016 WL 836983 (Del. March 4, 2016), the Intermediate Appellate Court found that the bad faith claim accrued when the insurer refused plaintiff's offer to settle for 35% of the policy limits. The Supreme Court reversed holding that the cause of action accrued when the excess judgment became final. This approach reduced the possibility of a conflict of interest between the insurance company and its insured, protected insurers from bad faith claims for failing to settle even the most frivolous claims and would have the beneficial effect of saving the insured litigation costs that might turn out to be unnecessary if the trial court did not order an excess judgment.

Requirement for pro rata allocation of defense costs among successive insurers

The California Third District Court of Appeals recently required pro rata allocation of defense costs among successive insurers. In Certain Underwriters at Lloyds, London v. Arch Specialty Ins. Co., 246 Cal.App.4th 418, 200 Cal.Rptr.3d 786 2016 WL 1436362 (3rd Dist. 2016), the Court reaffirmed California public policy as prohibiting enforcement of "escape" other insurance clauses inequitable contribution actions between successive primary insurers seeking to allocate the cost of defending construction defect litigation. Under existing law, each insurer was responsible for a pro rata share of defense costs notwithstanding the fact that one insurer's policy contained language in both the insuring agreement and the conditions section both stating that the insurer had a duty to defend only if no other insurance afforded a defense. The Court found that the placement of the escape language in the insuring agreement was not sufficient to differentiate the case from prior California precedent prohibiting the enforcement of escape other insurance clauses which appeared elsewhere in the insurance policy.

Orphans in the Time on Risk Allocation

Who pays for the orphan? The Federal District Court in New York recently held that when an insurance company becomes insolvent the insured becomes responsible for the orphan's share created by the insolvency under a pro rata method of allocation involving successive insurers indemnity obligations for asbestos claims involving progressive injuries. See Liberty Mut. Ins. Co. v. The Fairbanks Company, 2016 WL 1169511 (S.D.N.Y. March 22, 2016).

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