The Second Circuit Requires Insureds To Be Truthful With Its Insurers

dry dock

In a twist on the old adage, “bad facts make bad law”, the Second Circuit’s recent decision in Fireman’s Fund Insurance Company v. Great American Insurance Company of New York, Civil Action No. 14-1346-cv, 2016 WL 2943139 (2d Cir., May 20, 2016), clearly demonstrates that bad facts withheld by an insured from its insurers can make for a very bad result for insureds.

This recent May 20, 2016, Second Circuit decision arose from a contribution action filed by Fireman’s Fund and the insured, Signal International, LLC, against the insured’s pollution carrier and excess property insurer, due to losses and environmental cleanup costs that resulted when the insured’s dry dock sank. Post-loss, and based on the $13.6 million value of the dry dock as represented by the insureds in the Statement of Values, the primary property insurer paid its total coverage amount of $10 million; and the excess property insurer paid $3.6 million. When the excess property and pollution insurers argued that their respective policies did not cover the costs of the dry dock removal and environmental cleanup, Fireman’s Fund, the marine general liability insurer, agreed to fund the removal and cleanup efforts, reserving its rights to seek reimbursement from the excess property and pollution carriers.

In response to the contribution action filed by Fireman’s Fund and the insured, both the excess property insurer and the pollution insurer sought the district court’s declaration that their policies were void due to the misrepresentations and nondisclosures of the dry dock’s deteriorated condition during the underwriting process. The lower district court agreed that each of the policies were void and Fireman’s Fund appealed to the Second Circuit.

In affirming the lower district court, the Second Circuit clarified the test to determine whether a policy is, in fact, a marine policy, and the importance of that determination upon the remaining rescission analysis, particularly when the policy is determined a marine policy and subject to the doctrine of uberrimae fidei (i.e., parties to a marine insurance policy must accord each other the highest degree of good faith). The Second Circuit’s analysis further demonstrates that, even with non-marine policies where the doctrine of uberrimae fidei does not apply, an insured must still provide information to an insurer in a way that is not misleading and half-truths by an insured will not always protect an insured from policy rescission.  Read more ›

Posted in Marine

An Injured Third Party’s Knowingly False Deposition Testimony Establishes the Materialty Component for Insurance Fraud

exercise equipment at fitness centerOn May 13, 2006, Edward Feierstein was driving home from his Philadelphia fitness club when his car was rear-ended. Two days later, Feierstein filed a claim with the tortfeasor’s liability insurer seeking reimbursement for his alleged bodily injuries.  Two years later he filed suit against the company’s insured.  The liability insurer, in its defense of the suit, hired a private investigator. Surveillance video footage was secured of Feierstein working out at a fitness center, and his club, while stretching, exercising on an elliptical machine, a weight-lifting machine, and playing tennis.

At his deposition, Feierstein was unware of the video surveillance.  He testified that he had not played tennis at all since the accident, nor worked out in any gyms since the accident. Feierstein withdrew his civil suit when he learned of the video footage.  On December 15, 2011, he was charged criminally with insurance fraud and perjury. He was convicted at a bench trial after his motion to suppress the video footage was rejected. On appeal, he claimed that the Commonwealth of Pennsylvania failed to prove the element of materiality with respect to his false deposition testimony. He claimed that his “mistaken deposition testimony” was material to nothing, that he was confused and, as such, incapable of forming the requisite intent, and claimed that his reasonable expectation of privacy was violated.  Relying in large part upon the opinion of the trial court, the Pennsylvania Superior Court in Commonwealth v. Edward Feierstein, 2016 WL 800615 (Pa. Superior Ct. 2016) affirmed the judgment of sentence.

The court held that even though the false deposition testimony occurred as a direct consequence of Feierstein’s civil lawsuit, rather than the initial submission of his insurance claim to the liability insurer, the distinction was meaningless since Feierstein’s litigation against the tortfeasor, in furtherance of his insurance claim, required that the insurer defend its insured against the suit. Thus, insurance fraud is not (and ought not to be) limited to the pre-litigation stages of a claim. Read more ›

Posted in Fraud

New Jersey Supreme Court Holds that a Person Violates the Insurance Fraud Statute Even if Insurer is Not Duped Into Paying a Fraudulent Claim

shutterstock_949171In the recent case of State of New Jersey v. Robert Goodwin, 224 N.J. 102, 129 A.3d 316 (N.J. 2016), the Supreme Court of New Jersey held that a person violates the insurance fraud statute, N.J.S.A. 2C:21-4.6(a), even if he or she does not succeed in duping an insurance carrier into paying a fraudulent claim. In doing so, the Supreme Court reinstated Robert Goodwin’s conviction for insurance fraud.

At trial, it was established that Goodwin and “Stacey” were involved in a romantic relationship since 2004 and living together in Newark, New Jersey. In April 2009, Stacey purchased an SUV for over $6,000, financed by Goodwin co-signing the loan. Insurance was procured from Progressive Insurance Company. Goodwin was the primary operator of the SUV.

While still in a relationship with Stacey, Goodwin secretly dated “Linda” who lived in an apartment located a few blocks away from Goodwin and Stacey’s apartment. On September 13, 2009, following an argument with Stacey, Goodwin drove the SUV to Linda’s apartment and parked it nearby. Linda’s trial testimony established that between 6:30 a.m. and 7:00 a.m. she and Goodwin walked to the SUV so that he could drive her to work. They found the vehicle severely damaged by fire. Goodwin then went to Stacey’s apartment and told Stacey that the SUV had been stolen and “burnt up.” Read more ›

Posted in Fraud

Recent Washington Decisions Illustrate Need to Handle Property Claims in Timely Manner

calendar-graphicAn issue that often arises in the context of property insurance is whether a carrier’s delay in adjusting a claim can create a basis for a viable bad faith claim.  The law in each state is different and the prudent practice is to consult a practitioner specializing in the law of the state in question.  This article focuses on Washington law and discusses two recent cases which illustrate the need to adjust property claims promptly. Failure to do so may expose a carrier to viable bad faith allegations sufficient to survive summary judgment and permit the policyholder to get its case before a jury.

First, in Hays v. State Farm Ins. Co., No. 46679–1–II, 191 Wn. App. 1053, 2015 WL 9435153 (Dec. 23, 2015), Division Two of the Washington Court of Appeals held that a roughly seven-month delay in responding to the insureds’ communications could amount to bad faith under Washington law. The court held this determination was an issue of fact for the jury.

In Hays, a February 2010 accidental fire totally destroyed the insureds’ home. The insurer acknowledged that this was a covered loss, and eventually paid the claim. However, the insurer and insureds had divergent accounts of the facts surrounding claims handling. According to the insureds, they received a check—without further explanation—in May 2010, and between June 2010 and October 2010 made repeated attempts to contact the insurer regarding the status of their claim, but received no response. In late October 2010, the insurer sent a more detailed response—including an updated appraisal of the insureds’ home requested by the insureds—but sent it to the insureds’ old address. It was not until December 2010 that the insureds alleged they actually received the correspondence to their correct address. Read more ›

Posted in Uncategorized

Virginia Federal Court Underscores Distinction Between a Loss and an Occurrence for Purposes of Notice Conditions

shutterstock_295330793 (2)In Clarabelle Wheeler v. The Standard Fire Insurance Company, 2016 WL 1164651 (W.D. Va. Mar. 23, 2016), the insurer argued that the insured failed to give “prompt notice” of the loss as required by the policy’s notice condition because she waited six-months to report five large trees had fallen on her barn. In support of this argument, the insurer offered evidence that the insured’s delay in providing notice prejudiced it by depriving it of an opportunity to investigate the claim and mitigate the resulting damage to the barn. Summary judgment in favor of the insurer as to whether there is coverage for the insured’s claim under the policy would often be granted on these facts.

But, the United States District Court for the Western District of Virginia denied summary judgment in this case based on the distinction between a “loss” and an “occurrence.” Read more ›

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Posted in Notice

Do Fidelity Policies Issued to Individual Partners Provide Coverage for Theft of Partnership Earnings?

shutterstock_198307964The Eighth Circuit is set to decide this question in 3M Company, et al. v. National Union Fire Insurance Company of Pittsburgh, Pa., et al., Appeal No. 15-3495. The answer will likely determine whether a blanket crime policy and multiple excess policies cover $176 million in partnership earnings 3M lost because of its partners’ massive Ponzi scheme.

Between 1999 and 2009, 3M invested over $100 million of its Employee Retirement Income Security Act (“ERISA”) plan assets and the earnings on those investments with an entity named WG Trading Company, L.P. Stephen Walsh and Paul Greenwood controlled WG Trading and were its general partners. 3M and two of its ERISA plans were limited partners in WG Trading. Unbeknownst to 3M, Walsh and Greenwood were fraudsters. They diverted hundreds of millions of dollars from WG Trading and another partnership for their personal use and to conceal the fraud. Read more ›

Posted in Theft or Dishonesty

Colorado Court Finds Legal Marijuana Insurable Under Commercial Property Policy and Orders Trial on Claim for Damaged Buds

shutterstock_75267472ArcView Group, which tracks the legal marijuana markets, recently estimated that legal U.S. pot sales could reach $6.7 billion in 2016. As the legal marijuana economy has grown, insurance coverage for this emerging industry has become a hot topic. The U.S. District Court for the District of Colorado in The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company, No. 13-cv-03452-MSK-NYW, 2016 WL 632357 (D. Colorado Feb. 17, 2016) was recently faced with determining the extent of coverage under a commercial property policy for damage sustained to marijuana plants at a growing facility and addressing whether legal marijuana was even insurable.

Green Earth operates a retail medical marijuana business and an adjacent growing facility in Colorado Springs, Colorado. Green Earth contended that smoke and ash from a wildfire overwhelmed its ventilation system and intruded into its growing operation, causing damage to Green Earth’s marijuana plants. Green Earth made a claim for the damage under a commercial property and general liability insurance policy issued by Atain, seeking more than $200,000 for damage to its grow operation, specifically its “mother plants” and “clones,” and approximately $40,000 in damage to buds and flowers that had been harvested and were being prepared for sale. Atain denied the claim and Green Earth filed suit. Read more ›

Posted in Uncategorized

Common Sense Prevails: State of Collapse Nonexistent Thirteen Years before Discovery of Decay

shutterstock_309231059For years, property insurance policies that exclude rot damage have been called upon to cover rot because the policies extend coverage to “collapse”—an undefined term—caused by hidden decay, even if the structure remains standing and in use.

The Homeowners Association of the Queen Anne Park Condominium in Seattle discovered decay within the walls of its buildings in 2011. State Farm insured the Association with policies effective between 1992 and 1998. The policies excluded coverage for rot, but covered “collapse” caused by hidden decay. The Association argued that its buildings were in a state of collapse in or before 1998 and that State Farm covered the decay damage. State Farm denied the claim and the Association sued in federal court in Washington. The trial court granted summary judgment to State Farm and the Association appealed to the Ninth Circuit Court of Appeals.

Finding the meaning of “collapse” undefined in the policies and in Washington law, the Ninth Circuit certified the question of its meaning to the Washington Supreme Court. In Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., 183 Wn.2d 485, 352 P.3d 790 (2015), the Washington court held that “collapse” means a “substantial impairment of the structural integrity of a building or part of a building that renders such building or part of a building unfit for its function or unsafe.” The collapse must be “more than mere settling, cracking, shrinkage, bulging, or expansion.” 352 P.3d at 794. (See our Observer blog entry of June 23, 2015.) Read more ›

Posted in Uncategorized

“Insanity Defense” Fails To Preserve Coverage For Insured’s Arson

Missouri resident James Roller set fire to his garage in an attempt to commit suicide.  When smoke and fumes surrounded him he changed his mind, fled the garage, and alerted his wife of the fire.  Mrs. Roller called 911.  A sheriff’s deputy escorted Mr. Roller to “protective custody” and obtained a 96-hour mental health detention order from the court.  Mr. Roller was treated at a hospital.

The garage sustained severe fire damage.  Mrs. Roller notified the Rollers’ homeowners’ insurer, American Modern Home Insurance Company (AMHIC).  An independent adjuster inspected the damage, took photographs, obtained a statement from Mrs. Roller, and estimated the replacement cost of the garage to be $21,240.  AMHIC’s adjuster reserved the company’s rights and continued to investigate.  Over the course of eight months, AMHIC repeatedly requested that the Rollers submit to an examination under oath and provide certain documents.  The Rollers demanded that AMHIC produce documents to them.  The Rollers refused to appear at an examination under oath, and when AMHIC failed to provide the documents they requested, they commenced a declaratory judgment action in Missouri state court.

After a bench trial, the court entered judgment for the insurer, finding that the Rollers’ claim was not covered by their policy.  On appeal, the Rollers sought reversal and argued these reasons: Read more ›

Posted in Uncategorized

Texas Rule Change: Supreme Court Holds Loss of Use Damages Are Recoverable Where Property Total Loss

In J & D Towing, LLC v. American Alternative Insurance Corporation, No. 14-0574, 2016 WL 91201 (Tex. Jan. 8, 2016), the Texas Supreme Court considered J & D Towing, LLC’s (“J & D”) claim for loss of use damages under its underinsured motorist insurance policy, after J & D’s only towing vehicle was totally destroyed in an accident.  After discussing decades of Texas case law limiting loss of use damages to cases involving partial destruction, the Court held that the owner of totally destroyed personal property may recover loss of use damages, in addition to the property’s fair market value immediately before the injury.  The Court’s holding reverses over 60 years of prior case law prohibiting recovery of loss of use damages in total destruction cases, and brings Texas in line with the majority of jurisdictions.

J & D is a vehicle towing company located in Huntsville, Texas. On December 29, 2011, an accident with a third party rendered J & D’s only truck a total loss.  J & D claimed the value of the truck exceeded $19,000, and also sought its loss of use damages based on its inability to conduct business.  Although the third party’s insurer offered to pay the truck’s value, the third party insurer refused to pay for any loss of use damages.  After nearly two months, J & D settled its claim for the third party’s policy limits of $25,000. Read more ›

Posted in Uncategorized
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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