Insurance Law Report: February 2020

February 20, 2020

Insurance Law Report focuses on developments in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

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Arkansas Supreme Court Holds Policy Covers Only Medical Payments Accepted By Medical Providers Regardless Of Amounts Billed

The Arkansas Supreme Court held that an auto insurer’s obligation to pay medical expense benefits is limited to the amounts the medical care providers accepted regardless of the amount billed. Crockett v. Shelter Mut. Ins. Co., 2019 Ark. 365 (Ark. Dec. 5, 2019).

The insured was involved in an automobile accident and incurred medical expenses. His auto policy provided that the insurer would pay “the reasonable charges for necessary goods and services” for medical treatment and defined the term “reasonable charges” as the lesser of:

(a) [t]he amount for which [the insurer] can discharge the insured’s entire obligation…, or

(b) [t]he charges incurred … within the range of charges for the same or similar goods or services, in the geographic area….

The insurer negotiated with the medical providers an amount to be paid that was less than the policy limits for medical expense coverage, and paid that amount. The insured, though, wanted the remaining limits paid to him. In the ensuing litigation, the insured argued that the quoted policy wording above is ambiguous, but the trial court granted summary judgment to the insurer.

The Arkansas Supreme Court affirmed, rejecting the argument that the phrase “the amount for which [the insurer] can discharge” is ambiguous. It accepted a dictionary definition of the term “discharge” that means, in the context of a debt, “to get rid of (as a debt or obligation) by performing an appropriate action (such as payment).”

Author: Bart Hall

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Fifth Circuit Asked to Certify to Texas Supreme Court Meaning of “Contaminants” in Pollution Exclusion

The U.S. Fifth Circuit Court of Appeals, applying Texas law, held that “contaminants” includes crushed rock deposited in a waterway and that coverage for enforcement proceedings by an environmental agency is excluded under a liability policy’s pollution exclusion. Eastern Concrete Materials, Inc., v. ACE American Insurance Co., 2020 U.S. App. LEXIS 1680 (5th Cir. Jan. 17, 2020).

A quarry operator accidentally pumped “rock fines” (crushed rock particles) into a stream in sufficient amounts to damage fish habitats. The New Jersey Department of Environmental Protection forced the operator to remove the rock fines, and the operator requested coverage from its insurers. One of the insurers sought a declaratory judgment in federal court in Texas, where the operator’s parent is based. The trial court, applying Texas law because the policyholder – the operator’s parent – is in Texas and purchased the policies in Texas, held that the rock fines are waste material that was found to have caused damage and held the policy’s pollution exclusion applied. The policyholder appealed.

The Fifth Circuit affirmed, finding that given the impact on fish habitats, the rock fines were “contaminants” within the scope of the pollution exclusion. The policyholder is seeking rehearing and, alternatively, certification to the Texas Supreme Court for guidance on the meaning of “contaminants.” The Petition for Panel Rehearing and Alternative Motion to Certify is pending in the Fifth Circuit, Case No. 18-11043.

Author: Peri Alkas

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Eleventh Circuit Holds E-mail From Scammer Directing Insured To Transfer Funds Is a Fraudulent Instruction

The U.S. Eleventh Circuit Court of Appeals held that an e-mail from a scammer instructing an insured’s employee to transfer money was a fraudulent instruction directing a financial institution to transfer funds and that the loss was covered under a policy covering fraudulent and criminal activity. Principle Sols. Grp., LLC v. Ironshore Indem., Inc., 944 F.3d 886 (11th Cir. 2019).

A scammer e-mailed the insured’s employee posing as an executive and directed the employee to wire money to a foreign bank account. The employee was told to be discreet about the instruction and to await instructions from an attorney. The employee then received an e-mail and a telephone call from the purported attorney, who reiterated the instructions. The employee created and approved the wire transfer, but a fraud protection service requested verification that the wire transfer was legitimate. The employee confirmed with the purported attorney that the executive had approved the transaction and relayed this information to the fraud protection service. The money was then transferred.

The insured sought coverage for the loss under a policy that covered loss resulting directly from a fraudulent instruction directing a financial institution to transfer money. The insurer denied coverage, asserting that the initial e-mail from the purported executive, while a fraudulent instruction,  did not itself direct a transfer of money and that the contact from the purported attorney and fraud protection service, were intervening events between the instruction and the loss such that there was no immediate link between the initial e-mail and the loss.

The insured sued its insurer, and the parties filed cross-motions for summary judgment. The trial court granted the insured’s motion, and the insurer appealed.

The Eleventh Circuit affirmed, holding that the initial e-mail was sufficiently detailed to be considered as one directing a transfer of money. It further found that even if the e-mail lacked details, the later e-mail from the purported attorney would have remedied any possible lack of detail and that nothing in the policy warranted an assumption that the two e-mails together could not be part of the same fraudulent instruction. The court held that the phrase “resulting directly from” required only proximate causation between a covered event and a loss, not an “immediate link.” The court held that involvement of the purported attorney and the fraud protection service did not sever the causal chain of events and that both were foreseeable consequences of the initial e-mail.

Author: Derek R. Lenzen

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Tenth Circuit Holds UM Insurer’s Obligation Under Oklahoma Law To Pay “First Dollar” Is Extinguished By Waiver Of Subrogation

The Tenth Circuit U.S. Court of Appeals, applying Oklahoma law, held that an insurer with a “first dollar” obligation to pay medical expenses is relieved of its obligation promptly to pay full value of a claim if it waives subrogation rights against a tortfeasor. Shotts v. GEICO Gen. Ins. Co., 943 F.3d 1304 (10th Cir. 2019).

An insured driver was injured in an automobile accident and was paid policy limits by the other driver’s insurer on the condition that the injured driver’s auto insurer waived subrogation rights, which it did. The insured’s auto insurer initially determined it owed nothing under its underinsured motorist coverage, but it later determined that it did owe medical benefits that exceeded the other driver’s policy limits and offered that amount to the insured.

The insured rejected the offer and demanded that his auto insurer promptly pay “first dollar” up to the value of the claim or the UM limits. The auto insurer sought additional information and proposed a peer review to determine whether the injuries were such that their value exceeded the amount offered. The insured sued for breach of contract and alleged bad faith. The trial court granted summary judgment to the auto insurer, and the insured appealed.

The Tenth Circuit affirmed, finding that there was legitimate dispute and that the investigation by the insurer was reasonable. As to the bad faith claim, the Tenth Circuit concluded that the waiver of subrogation extinguished the insurer’s obligation promptly to pay “first dollar” as that obligation is premised on an insurer’s ability to recoup its payments from a tortfeasor and its insurer, which ability it no longer had. It held that as the insurer had no obligation promptly to pay, it was not in bad faith for not doing so.

Author: Bart Hall

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Eleventh Circuit Upholds Decision Finding Absolute Liquor Liability Exclusion Does Not Render Coverage Illusory

The U.S. Eleventh Circuit Court of Appeals held that an absolute liquor liability exclusion does not include every claim for bodily injury and, therefore, is not so broad that it renders coverage illusory. AIX Specialty Ins. Co. v. Members Only Mgmt., LLC, 2019 U.S. App. LEXIS 36656 (11th Cir. Dec. 11, 2019).

A patron of a night club allegedly drank too much, and in driving home, lost control of her vehicle and crashed, resulting in the deaths of two passengers in her vehicle. The estate of one of the passengers sued the night club, alleging violation of Florida’s Dram Shop Act. It argued that the night club, which did not sell alcohol, allowed patrons to bring their own alcohol and provided staff to help serve the alcohol. The night club’s insurer agreed to defend under a reservation of rights and sought a declaratory judgment that coverage was barred under the policy’s absolute liquor liability exclusion. The trial court granted summary judgment to the insurer, and the night club appealed.

The night club argued that the exclusion was so broad that it rendered coverage illusory and that any claim for bodily injury could theoretically bear connection to alcohol and thus be barred under the exclusion. The Eleventh Circuit found that the exclusion did not bar every claim for bodily injury. It noted bodily injury claims that would bear no connection to alcohol (and coverage for which therefore would not be excluded by the exclusion), such as a claims by a sober patron who tripped in a dimly lit corridor or a light fixture falling from the ceiling and striking a sober patron. The Eleventh Circuit concluded that Florida courts have repeatedly upheld liquor liability exclusions with identical or substantially similar wording and found that the exclusion’s substance was the same.

Author: Amanda Keller

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Eleventh Circuit Affirms Holding That Insurer Did Not Act In Bad Faith As It Did Attempt to Secure Release Of Claims Of Others

The U.S. Eleventh Circuit Court of Appeals recently affirmed a district court’s judgment that an insurer did not act in bad faith when it provided the claimant with a proposed release that complied with the claimant’s instruction. Martin v. Allstate Prop. & Cas. Ins. Co., 2019 U.S. App. LEXIS 36515 (11th Cir. Dec. 10, 2019).

An injured claimant sued the auto insurer of the driver of the vehicle that struck him, alleging that it acted in bad faith by failing to settle his bodily injury claims. The claimant’s counsel sent a letter to the insurer requesting certain information including affidavits from the named insured about his insurance policies and assets, indicating that the claimant would agree to resolve his claims in exchange for all applicable policy limits being tendered. However, the letter expressly stated that the claimant would release only his bodily injury claim and that he would not agree to a release containing a hold harmless or indemnity provision or a release of any other person’s or entity’s claims.

The insurer provided the claimant’s counsel with the requested information along with a proposed release. The claimant rejected the proposed release arguing that the insurer attempted to settle claims of other persons or entities other than his. The claimant took issue with the release which stated that his release was “. . . for myself, my heirs, my personal representatives, successors and assigns . . . arising out of bodily injuries sustained by me.” The claimant argued that the proposed release included his wife’s potential claims and thus constituted a counteroffer. The trial court held the insurer did not act in bad faith.

On appeal, the Eleventh Circuit found that the insurer’s proposed release would have released only the claimant’s claims and did not cover his wife’s potential claims or any other claims. The Eleventh Circuit found that the fact that a release prevents an individual from transferring a claim to another person does not mean that it releases the claims of other people. More important, the Eleventh Circuit noted that even if the insurer’s proposed language did vary from the claimant’s instructions such that it was not an acceptance of his offer under Florida contract law, the totality of the evidence could not support a finding of bad faith given the insurer’s actions, which included an offer to change the release language immediately after the claimant objected.

Author: Amanda Keller

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Louisiana Court Of Appeal Holds Conclusive Presumption Afforded To Premium Finance Company When Cancelling A Policy Due To Default Only Goes So Far

A Louisiana Court of Appeal vacated summary judgment in favor of the Louisiana Insurance Guaranty Association (LIGA), concluding that there was a genuine issue of material fact whether a policy had not been cancelled pursuant to La. R.S. § 9:3350 because, among other reasons, the trial court could not rely on the conclusive presumption afforded by the statute to satisfy the notice requirements. Benitez v. Elsayed, 285 So.3d 572 (La. App. 2019).

A plaintiff sued the insured, his insurer and LIGA, which had acquired the insurer’s obligations after the insurer declared insolvency. LIGA moved for summary judgment that coverage was not afforded under the policy because the policy had been cancelled in accordance with La. R.S. § 9:3350, which allows a premium finance company to cancel an insurance policy when an insured defaults on premium payments. The plaintiff argued that the policy was not cancelled in accordance with the statute because LIGA failed to (i) present a power of attorney granting the premium finance company the authority to cancel the policy, (ii) present evidence that notice of intent to cancel was mailed to the insured and (iii) present evidence that LIGA received a copy of the notice of cancellation.

LIGA argued that the policy was properly cancelled even if it did not strictly comply with the statute’s requirements, because LIGA is entitled under the statute to a conclusive presumption that the documentation received from the premium finance company is accurate, and the documentation received stated that the statute’s requirements for cancellation had been satisfied. The trial court granted LIGA’s motion, and the plaintiff appealed.

On appeal, the Court of Appeal vacated and remanded because it concluded that LIGA must meet the notice requirements of the statute before it can take advantage of the conclusive presumption, and LIGA could not use the conclusive presumption afforded by the statute to establish that the statute’s notice requirements had been met.

Author: Gabe Crane

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South Carolina Appellate Court Holds Assignment of Insurance Benefits Agreement Ineffective

The Court of Appeals of South Carolina held that an assignment of insurance benefits by a corporation to its corporate successor was ineffective based on the policies’ anti-assignment clauses because the assignment predated the loss and the assignor did not obtain consent of its insurers. PCS Nitrogen, Inc. v. Continental Casualty Co., 2019 S.C. App. LEXIS 186 (S.C. Ct. App. Dec. 18, 2019).

The loss at issue was litigated in a separate federal action, where a corporate successor to the original policyholder was found liable for environmental remediation at a fertilizer plant formerly owned by the policyholder. The successor (through a series of mergers which included assignments of insurance benefits) then filed a complaint to enforce the assigned rights under the policyholder’s policies. The insurers moved for summary judgment on the grounds that the policyholder did not obtain the consent of its insurers before assigning its rights under the policies, which motion was granted. The successor appealed.

The Court of Appeals affirmed, recognizing that under South Carolina law, anti-assignment clauses apply to assignments of benefits that precede a given loss. Under the terms of the policy, the policyholder would not have been entitled to policy benefits “until the amount of the insured’s obligation to pay shall have been finally determined by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.” Because the federal action was filed after the assignment, the loss had not yet occurred at the time of assignment, making the insurers’ consent necessary.

Author: Jared Burtner

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Florida Appellate Court Holds Public Adjuster Entitled To a Portion Of An Insured’s Recovery Is Not a “Disinterested Appraiser”

A Florida appellate court held that a public adjuster who was entitled to a portion of any recovery from the insurer, who adjusted the loss and then appointed himself as the insured’s appraiser, was not “disinterested” as required under the policy. State Farm Fla. Ins. Co. v. Valenti, 44 Fla. L. Weekly D 2953 (Fla. 4th DCA December 11, 2019).

An insured owned a dwelling damaged by a water leak. The insured signed an agreement with a public adjuster assigning him twenty percent of any recovery from its insurer. The public adjuster submitted the claim to the insurer, which adjusted the loss, issued an undisputed payment to the insured and demanded appraisal to resolve any remaining dispute about valuation. The policy’s appraisal provision required that each party select a “qualified, disinterested appraiser.” The public adjuster appointed himself as the insured’s appraiser and the insurer objected. The insured sought a declaratory judgment to determine whether a public adjuster can be a “disinterested appraiser,” and the trial court entered summary judgment in favor of the insured, finding that an insured’s public adjuster can be. The insurer appealed.

The insurer argued that an insured’s public adjuster cannot later be appointed as the insured’s “disinterested appraiser” where the adjuster is paid based on a contingency fee. The appellate court focused also on the actions of the insured’s appraiser combined with his financial interest, and held that because of the public adjuster’s interest in the insured’s recovery, he was not disinterested.

Author: Kelly Hallisey

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South Carolina Court Of Appeals Holds The Leaving Of Unattended Child In a Vehicle Not Connected To Transportation Under Auto Policy

The South Carolina Court of Appeals recently affirmed a circuit court’s ruling that an insurer had no coverage obligation following the death of an unattended child in a vehicle because there was no causal connection between the use of the auto and the injury. State Farm Mut. Auto. Ins. Co. v. Goyeneche, 2019 S.C. App. LEXIS 188 (Ct. App. Dec. 18, 2019).

A child died as a result of being left unattended in a vehicle, and the auto insurer brought a declaratory judgment action to determine whether it had a duty to defend and provide liability and UM coverage under policies issued to the child’s parents and grandmother. The court applied South Carolina’s three-prong test to determine whether damages arise out of the “‘ownership, maintenance, or use’ of an uninsured vehicle’” (the Aytes test).

Under the Aytes test, (1) “the party seeking coverage must establish a causal connection between the vehicle and the injury[;]” (2) “there must exist no act of independent significance breaking the causal link[;]” and (3) “it must be shown the vehicle was being used for transportation at the time of the assault.” The court held that to establish that a “causal connection” exists between the vehicle and the injury, a party must demonstrate that the vehicle was an “active accessory” to the event and was more than mere situs of the injury and that the injury must be foreseeably identifiable with the normal use of the vehicle.

Recognizing South Carolina statutory authority providing that “the intentional or unintentional act of leaving a child inside a locked vehicle is foreseeably identifiable with the normal use [of] a vehicle,” the court held that the insureds established a necessary causal connection between the vehicle and the death. However, the court also recognized South Carolina precedent establishing that abandoning and/or exiting the vehicle prior to the injury constitutes an ‘act of independent significance breaking the causal chain[,]”and concluded that leaving a child unattended in a vehicle for several hours severs the causal chain between the vehicle’s use and the fatal injury. The court further held that even if the causal chain had not been broken, coverage was not available because the vehicle was not being used for transportation at the time of the injury.    

Author: Margaret Wolf

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Federal Court in Texas Finds New Appraisal Clause Void As Against Public Policy

A federal court in Texas ruled that an appraisal should go forward despite objection from the insurer that the loss was not caused by a covered peril based on an exception to the appraisal clause for when coverage is in dispute. Salas Realty LLC v. Transp. Ins. Co., 2019 WL 6497880, (N.D. Tex. Dec. 2, 2019).

The insured made a claim for property damage that would be covered, but the independent adjuster determined that the damage was from wear and tear and therefore not covered. The insured invoked appraisal. The insurer refused on the basis that the dispute was not related to the amount of the claim, but to coverage, and the policy’s appraisal clause read: “This APPRAISAL Condition is not available to the named Insured or the Insurer if there is a dispute as to whether the loss or damage was caused in whole or in part by the covered peril.” The insured sued to enforce appraisal.

The court held that appraisers necessarily determine questions of coverage when estimating damages. When there are damages that are both the result of covered versus non-covered perils, the analysis is then divided into those which could be segregated from those which cannot. The court reasoned that “wear and tear” is the sort of peril which could be segregated; otherwise, appraisal would only be possible for new construction. Because the damage from the non-covered peril could be segregated, the court held it was contrary to existing case law to have a clause stating that such damages could not be appraised, and is thus void as against public policy.

Author: Peri Alkas

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Texas Court Finds Insured Not Entitled to Attorneys’ Fees For §542A Claim After Prompt Payment of Appraisal Award

A federal magistrate judge in Texas granted summary judgment for an insurer on a claim for attorneys’ fees after prompt payment of an appraisal award. Pearson v. Allstate Fire & Casualty Ins. Co., 2020 LEXIS 8266 (N.D. Tex. Jan. 17, 2020).

The insured submitted a claim for damage, which the insurer initially assessed as being less than the policy deductible. The insured sued for breach of contract and violation of the Insurance Code under the new §542A Texas Insurance Code section for storm-caused damage after September 1, 2017. An appraisal awarded more money (and excess of the deductible), which the insurer timely paid along with the interest penalty. The insurer then moved for summary judgment on the insured’s claim for attorneys’ fees. The insurer argued that the way attorneys’ fees are calculated under §542A would result in a zero sum; thus, no fees were owed. The court agreed.

Section 542A.007 provides that the amount of attorneys’ fees that the court may award must amount to the lesser of:

  • the reasonable amount of attorneys’ fees supported at trial incurred by the claimant in bringing the action;
  • the amount of attorneys’ fees that might be awarded under another applicable law;
  • the amount calculated by dividing the amount awarded to the claimant in the judgment for damage to covered property by the amount alleged to be owing on that claim.

The court concluded that because the insurer promptly paid the appraisal award in litigation, then the judgment for damages must be “zero,” and the third option would be the least award of attorneys’ fees, namely, also zero.

Author: Peri Alkas

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Federal Court in Louisiana Confirms that Louisiana’s Valued Policy Law Does Not Expand Coverage To Non-Covered Perils

A federal district court in Louisiana granted an insurer’s motion for summary judgment that an insured was not entitled to recover a property’s valuation under Louisiana’s Valued Policy Law (VPL), La. R.S. § 22:1318, when the property was partially destroyed by flood and then later totally destroyed by fire because Louisiana’s VPL could not be construed to require an insurer to pay for flood damage not covered by its policy. Nelson v. Americas Insurance Company, 2019 U.S. Dist. LEXIS 189621 (M.D. La. Nov. 1, 2019).

The insureds’ home flooded, and before repairs could be made, it burned. The flood insurer paid for flood damage, and the homeowners’ insurer paid policy limits after subtracting the flood-related payments. The insured sued the homeowners’ insurer seeking policy limits under Louisiana’s VPL, which requires the insurer to pay the property’s value used to determine the premium charged if the property is a total loss due to a covered event.

The insureds argued that the VPL applied even if the home was partially destroyed by a non-covered peril, i.e., the flood, because their home was completely destroyed by a covered peril after the flood. The court granted summary judgment to the insurer, concluding that the purpose of the VPL is to prevent insurers from arguing after a total loss that the value of the property is lower than the value used by that same insurer to determine the premium. The court found that the argument ran contrary to the purpose of the VPL because the VPL tied the recovery to the premiums paid, and the insured’s argument would result in insurers paying for damage resulting from a non-covered peril for which the insured did not pay a premium.

Author: Gabe Crane

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Federal Court In South Carolina Court Holds Policy’s Notice Condition Is Satisfied Upon Actual Notice Of Claim, Regardless Of Whether Notice Is Provided By Insured

A federal court applying South Carolina law recently held that an insurer with actual notice of a complaint having been served on its insured is not relieved of its obligations on the sole basis that the insured failed to provide the insurer with notice of and a copy of the complaint. McElveen v. Cincinnati Ins. Co., 2019 U.S. Dist. LEXIS 187880 (D.S.C. Oct. 30, 2019).  

A driver of a vehicle recently repossessed was involved in an automobile collision, and the driver of the other vehicle asserted claims of negligence and gross negligence against the driver of the repossessed vehicle, who sought coverage under the repossessed vehicle’s policy. The insurer denied coverage, contending that neither the driver of the repossessed vehicle nor the repossessed vehicle were covered under the policy. The plaintiff obtained a judgment against, and an assignment from, the driver of the repossessed vehicle, and sued the insurer for breach of contract and bad faith based upon the insurer’s failure to defend the driver in the underlying lawsuit. The insurer filed a motion to dismiss for failure to state a claim based on lack of notice.

The insurer argued that it had no obligation under the policy because the driver of the repossessed vehicle never made a claim or provided notice under the policy and failed to meet the conditions under the policy. The court referenced S.C. Code 38-77-142(B) and interpreted the statute as providing that an insurer with actual notice of a complaint having been served on an insured is not relieved of the obligation to the insured by the mere failure of the insured to provide the insurer with a copy of the complaint. The court noted that the plaintiff sufficiently alleges in its pleadings and provided correspondence that the insurer had actual notice of the collision. The court found that the insurer had sufficient notice of the claim and rejected the argument that the policy notice requirements had not been satisfied.

Author: Margaret Wolf

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