Zalma On Insurance

A Resource for the Insurance Professional

Our Purpose

Without Insurance the economy of the world would collapse. No entrepreneur would dare invest money in a business if he could not spread the risk of loss of his property by insurance. No business would dare manufacture a product without the ability to spread the risk of suit from people injured by the product through insurance.

Zalma on Insurance exists to provide information on current developments in the law of insurance for people in the business of insurance and those who are insured. It will provide practical information for the use of insurers and insureds faced with claims. Insurance is not supposed to be an adversarial relationship. That it has become so is obvious from the volume of suits filed by and against insurers faced with claims.

It is the purpose of Zalma on Insurance to help reduce the amount of litigation and allow the amicable resolution of claim situations.

Because of the time required to keep up Zalma on Insurance  I ask that you pay small fees for the ability to download the articles. The fees range from $2.00 to $12.50 for my e-book, Heads I Win, Tails You Lose. Click on the "Pay Now" button and you will go to Paypal where you can enter your credit card number.

I will continue to add new material as time allows.

Barry Zalma blogs FREE at http://law.lexisnexis.com/practiceareas/Insurance-Law-Blog/Insurance/ and would appreciate seeing your comments on his postings. LexisNexis also publishes expert commentary written by Mr. Zalma at http://law.lexisnexis.com/practiceareas/Insights--Analysis/Insurance/. Your comments on the postings would be appreciated. 

 ARTICLES AND E-BOOKS 

AVAILABLE FOR PURCHASE

A Review of Diminution in Value Cases in the United States

Updated August 19, 2008

When property of any kind is damaged and repaired the resale value of the property can easily be diminished because of the stigma carried by the repair. An automobile is likely to suffer this type of diminution in value after it is damaged in an accident and repaired. The resale value most likely will be less than that for a comparable automobile that has not been damaged. In other words, the damage results in a reduction — or "diminution"— in the resale value of the automobile.

 

This article attempts to review the opinions of the various states on the issue and has been updated from earlier articles.

The Proper Burden of Proof  

Read the article to understand how Arizona, and the majority of jurisdictions, overcame the attempt to compel insurers to defend fraud cases by a measure greater than a preponderance.

The Examination Under Oath  

The examination under oath is an essential weapon in the insurer's arsenal of tools to defeat insurance fraud, these decisions are exceedingly important to every fraud investigator and insurance fraud counsel.

 

The examination under oath is taken under the authority provided by a condition of the insurance policy, usually statutorily imposed as part of the standard fire policy, that compels the insured to appear and give sworn testimony on the demand of the insurer. A certified shorthand reporter and notary are always present to give the oath to the witness and take down all of the words spoken during the interview.

The adjuster, or if it a complex case, the attorney retained to represent the insurer, question the witness in a manner similar to a deposition in a legal proceeding. Because of the formality of the proceeding, the oath, and the presence of the certified shorthand reporter the task of obtaining information and establishing rapport with the witness is more difficult. The examination under oath is an effective tool for learning as much information as is possible and is an effective weapon against insurance fraud. Often, however, the purpose of the examination under oath is not to stop fraud but rather to allow an insured the opportunity to prove his or her loss because evidence was destroyed by a casualty or is otherwise unavailable.

Rescission

Since California first enacted state statutes the equitable remedy of rescission has been available to contracting parties if the contract was entered into as a result of fraud, concealment of material fact or misrepresentation of material fact. The California Supreme Court and courts of appeal have consistently enforced the right of insurers to rescind policies of insurance even if the facts misrepresented or concealed were made innocently and without an intent to deceive.

 

The California courts of appeal continued the age-old practice in recent years.

 

The cases cited reveal that rescission, as an equitable remedy, is alive and well in California regardless of the attempts of the Plaintiffs’ bar to destroy it. To effectively rescind a policy of insurance it is important that the insurer conduct a thorough investigation and apply the facts and law fairly before a decision is made.

 

Insurers faced with an application that appears to contain false representations that would have been material to the decision to insure or not insure, must protect itself and, before deciding to rescind, complete a thorough investigation.

 

Genuine Dispute Defense to Bad Faith

Almost every lawsuit filed against an insurance company, especially when a claim is denied for fraud, alleges that the insurer acted in bad faith. In the first party context, bad faith claims typically allege that the insurer did not have a reasonable basis to deny coverage and that the insurer engaged in unfair or deceptive conduct in the process of handling the claim and reaching its conclusions regarding coverage. In the third party context, there is typically an allegation that the insurer failed to timely settle a claim in which liability had become reasonably clear. Insurers, with unfounded courage, deny claims based on the recommendations of a claims handler whose experience may be, and usually is, limited.

 

When an insurer is faced with a complex, difficult or fraudulent claim that it believes should be denied it should provide a complete copy of the file materials, those that support what that the insurer believes is a defense and those that support the claim of the insured, to a claims handling expert. The expert should be asked for his or her advice on how to resolve the claim. The expert should not be told the insurer’s position. The insurer should advise the expert only that the insurer desires his or her expert opinion with regard to the resolution of the claim.

 

Case law makes it clear that obtaining the advice of an independent expert and consultant will make it possible to defeat a bad faith claim. Every insurer should understand that expert witnesses and consultants can significantly strengthen an insurer's defenses against claims of bad faith.

Is the Fight Against Insurance Fraud Being Lost?  

Fraud is taking more money every year from the insurance buying public. Insurers complain that the local district attorneys and police agencies give a low priority to the crime. Police and prosecutors complain that the insurer does nothing to defeat the crime. It is time that insurers, police and prosecutors stop complaining and do the work necessary to defeat this metastasizing crime before its growth eats away any chance insurers – and their shareholders – have of making a profit. Insurers have good reason to complain. They are universally ignored by police agencies when they report the crime. When insurance criminals are caught in the act they are seldom arrested, even less often prosecuted and almost never punished. Police and prosecutors have good reason to complain because insurers are not equipped to perform an adequate criminal investigation. If prosecution is to be successful it is necessary that insurers, prosecutors and police agencies work together as a team dedicated to defeat insurance fraud.

Heads I Win, Tails You Lose 

"This book is an updated collection of columns I originally wrote and published in the magazines Insurance Journal, Insurance Week, and The John Cooke Insurance Fraud Report insurance trade publications serving the insurance community in the United States." Mr. Zalma explained that "The title, Heads I Win, Tails You Lose is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser even if the perpetrator is caught and prosecuted."

 

Heads I Win, Tails You Lose is available for only $12.50.

A New Federal Weapon Against Insurance Fraud

Fear of hard federal jail time should be rampant among fraud perpetrators in the United States who stage automobile accidents, fake trip-and-fall accidents, present or assist fraudulent workers' compensation claims, or abuse health insurance.

 

Staged accident perpetrators who, in the past, understood that if they are caught they faced no more than an order of restitution and a few weeks in the county jail, are now facing up to ten years in the federal penitentiary. The reason for the decision was stated in United States v. Lucien, 347 F.3d 45 (2d Cir. 10/14/2003) where the 2nd Circuit Court of Appeal, in a case of first impression, upheld the convictions of people involved in staging automobile accidents, for violation of Federal Health Care Fraud statutes.

  Attorneys Fees to Insured Who Sues Successfully to Recover Benefits

On June 12, 2003 the Florida Supreme Court in Pepper's Steel & Alloys, Inc. v. United States, 850 So.2d 462 (Fla. 06/12/2003) ruled that claimants involved in disputes with insurance companies are entitled to attorney fees when they are forced to return to court to enforce a settlement. Under Florida Statute 627.428, policyholders are entitled to attorney fees when they prevail in their claims against their insurance companies for coverage.

 

Every insured who sues its insurer for coverage under a policy of insurance in Florida or California, and wins, may recover attorneys fees paid to get the insurance benefits even though there is no term in the contract of insurance allowing for attorneys fees.

 

This will, as the state of Florida and California desires, keep insurers from filing complaints for declaratory relief when a coverage issue arises because the expense of losing can be severe.

 

The state should be happy because suits by insurers without merit will not be filed and suits by insured against insurers without merit will be encouraged because an insured who loses need not pay the insurer's attorney fees.

Can a Release Be Rescinded Without Returning Payment? 

To rescind a release to do all of the following as required by California statutory and common law: 

Establish that the rescission is due to a misrepresentation of facts material to the decision or the concealment of material facts or other ground for rescission. 

Comply with Civil Code § 1691 that requires:

 

[t]o effect a rescission a party to the contract must, promptly upon discovering the facts which entitle him to rescind if he is free from duress, menace, undue influence or disability and is aware of his right to rescind:

 

(a) Give notice of rescission to the party as to whom he rescinds; and

 

(b) Restore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise, unless the latter is unable or positively refuses to do so.

 

When notice of rescission has not otherwise been given or an offer to restore the benefits received under the contract has not otherwise been made, the service of a pleading in an action or proceeding that seeks relief based on rescission shall be deemed to be such notice or offer or both.

An insured person seeking to rescind the terms of the contract, even when it alleges fraud against the other party, must still comply with the requirements of the statute and California law.

   

Lawyer   Don't Lie To a Claimant

In John Norman Shafer v. Berger, Kahn, Shafton, Moss, et al, 107 Cal.App.4th 54, 131 Cal.Rptr.2d 777 (Cal.App. Dist.2 03/18/2003) http://www.metnews.com/sos.cgi?0303%2FB151730 the Court of Appeal of the State of California found it appropriate to sue a lawyer for fraud when he lied to a person who had a judgment against a person insured about the amount of coverage available to the insured.

 

Coverage counsel should advise the insurer of its duties and obligations under the policy and the law, not on how to avoid those duties. Further, coverage counsel and the insurers represented should always fairly, honestly and thoroughly report the coverages available.

 

Although a lawyer, negotiating on behalf of a client, might be tempted to misrepresent material facts, to do so is fraught with peril.

 

The Shafer case was decided on pleadings where the court was compelled to assume the facts pleaded were true. If true, the lawyer was wrong, if not true, the suit and appeal were a waste of the court’s time.

 

The Absolute Immunity To Report Fraud

The 1996 decision of the California Court of Appeal, Fremont Compensation Ins. Co. v. Superior Court (Gopinath), 44 Cal.App.4th 867, 52 Cal.Rptr.2d 211(Cal.App. 4 Dist. 1996) is important to every person involved in the fight against insurance fraud. It emphasizes the importance of the common-law right and obligation every citizen has to report a crime without fear of civil or criminal penalties.

 

In Fremont a lawsuit was filed by a doctor who alleged that two workers' compensation insurers acted in bad faith in reporting the doctor to the authorities for over billing. The Court of Appeal, found that the Insurance Frauds Prevention Act (IFPA) does not provide insurers with less protection to report insurance fraud to police and prosecutors than they had before the legislation was enacted, and that California Civil Code § 47 provides absolute immunity for a report to the police.

 

The U.S. Supreme Court stated the duty of all citizens as follows  "[G]ross indifference to the duty to report known criminal behavior remains a badge of irresponsible citizenship. [¶] This deeply rooted social obligation is not diminished when the witness to crime is involved in illicit activities himself." [Roberts v. United States (1980) 445 U.S. 552, 100 S.Ct. 1358, 63 L.Ed.2d 622].

 

The obligation of insurers to report insurance fraud and other crimes they become aware of while investigating a claim is a mark of good citizenship. Failure to report fraud or other crimes, for fear of bad faith litigation is not practical good-business but a mark of irresponsible citizenship.

 

In my opinion the covenant of good faith and fair dealing requires an insurer to follow the requirements of the U.S. Supreme Court and be a good citizen. Failing or consciously refusing to report a claimant or insured the insurer believes has committed a crime is a breach of the covenant of good faith and fair dealing and the insurers duty as a citizen.

California Wild Fire Statutes Enacted Since 2003 - MS Word Document 

No charge

The Concept of Litigation Management Destroys 

The Ability of Insurers to Provide the Service Promised by Its Policy

Managing lawyers is as easy as herding cats. If the lawyer is as intelligent, knowledgeable of the law and an effective advocate – the type of person an insurer wants representing its insureds – an adjuster trying to "control" this person is as effective as a team of cub scouts trying a frontal military attack on a Special Forces "A" team. It's no contest.

 

Lawyers are "managed" by experienced and intelligent claims people by establishing a team effort. The claims person and the lawyer are part of a team whose sole purpose is to provide the most effective defense to the insured or the insurer the lawyer is retained to represent. The adjuster does the work that he or she is best equipped to perform, investigation, witness interviews, records collection, etc. The lawyer does what lawyers do – files pleadings, deposes witnesses, appears in court, analyzes legal issues, evaluates the options available and makes recommendations based on the experience and training of the lawyer.

Pollution

Insurers in California need to change the way they investigate and adjust claims involving pollution. Where they had quickly and blithely denied claims where injuries to person or property was claimed as a result of exposure to toxic substances, they must now thoroughly investigate the claim of the insured and determine if the effect of pollutants was an "ordinary act of negligence" or a widespread pollution of the environment.

 

The California Supreme Court has, unanimously, in John R. MacKinnon v. Truck Insurance Exchange, 31 Cal.4th 635, 73 P.3d 1205, 3 Cal.Rptr.3d 228 (Cal. 08/14/2003), concluded that the "pollution exclusion" of the Commercial General Liability ("CGL") policy "does not plainly and clearly exclude ordinary acts of negligence involving toxic chemicals such as pesticides." Insurers doing business in California must, as a result, reevaluate denials of claims based upon the pollution exclusion and should withdraw those denials and provide coverage for defense and indemnity in those cases that fall within the Supreme Court’s definition.

Punitive Damages Decisions: A Boon for Insurers  

When a lawyer asks for punitive damages against an insurer for bad faith conduct he or she will always ask the jury to "teach the insurer a lesson" to stop it from doing the same to others. The argument has been successful in thousands of bad faith suits brought from California to Florida and from Texas to Wyoming.

 

 

The United States Supreme Court weakened, if not destroyed, that argument in Philip Morris USA, v. Williams, Personal Representative of Estate of Williams, Deceased, on Certiorari to the Supreme Court of Oregon, 127 S.Ct. 1057, 75 USLW 4101, 07 Cal. Daily Op. Serv. 1754, 2007.SCT.0000022 (2007).

 

 

After years of abusive punitive damages awards and thousands of settlements to avoid the lottery-like nature of punitive damages awards the US Supreme Court has finally set a line in the sand that will prevent trial courts from assessing excessive and unreasonable punitive damages awards. Punitive damages should, if Campbell is applied with good faith, never exceed three or four times the compensatory award and when the compensatory award is large, as was the $1 million awarded the Campbells for 18 months of emotional distress, should not exceed one time the compensatory award. Defense lawyers now have a guide to explain to juries that their punishment of a defendant is limited. Plaintiff's lawyers can take heart that if the punitive award is reasonable and a single digit modifier will be able to collect their judgment without unnecessary appeals.

 

How to Present a Fire Claim

 Help for Victims of Fire Catastrophes

If your house was damaged or destroyed by the Southern California Fire Storms of October/November 2003, the California fires of 2008, or just a single fire and you had a fire or homeowners policy you will be dealing with an insurance adjuster. It is your obligation under the homeowners policy to present your claim to the insurer and its adjuster.

 

Dealing with an insurance adjuster in a catastrophe is usually fairly easy because of the number of claims the adjuster is required to deal with in a short time. Insurers are in a very generous mood and seeking good publicity by taking care of victims of the catastrophe quickly and fairly.

 

To make the claims process go easily the insured person must understand that both the insured and the adjuster have duties when damage-caused by fire is discovered.

Contract Interpretation & The Reasonable Expectations of the Insured

The act of infamy at the World Trade Center ("WTC") in New York City on September 11, 2001 was responsible for a great deal of insurance litigation concerning, among other things, the meaning of the term "occurrence" in first party property policies and the methodology required of insurers when policies are interpreted. Because the WTC insurance issues are surrounded by the horrendous facts of the attack the decisions rendered in interpreting the policies have far-reaching impact.

 

 

The rulings in the WTC cases, combined with a recent decision of the California Supreme Court, are working a change in how insurance policies are interpreted. Since policy interpretation is essential to the presentation of any insurance claim the following detailed discussion is important to all insurance professionals.

Mold Isn't Gold -- Texas Supreme 

Court Concludes Mold Claims Not Covered  

The fear of mold claims was engendered in the insurance industry by the trial court decision in Ballard v. Fire Insurance Exchange, No. 99-05232 (Texas District Court, Travis County, June 1, 2001), cited in Jury Awards $32 Million to Texas Homeowner in Mold Coverage Action, 6, No. 12, Mealey’s Emerging Insurance Disputes 11 (June 20, 2001 and “What Coverage Attorneys Need to Know About Mold,” Tort and Insurance Practice Law Journal, Fall 2002 (38:1), at page 45). The trial court decision encouraged a flood of “toxic mold” cases in Texas and across the United States. This article explains why mold suits were based upon a misinterpretatiom of insurance policy language. The Texas Supreme Court said:

The question in this case is not whether insurers should provide mold coverage in Texas, a public policy question beyond our jurisdiction as a court. The question instead is whether the language in an insurance policy provides such coverage, no more and no less.

The policy here provides that it does not cover 'loss caused by mold.' While other parts of the policy sometimes make it difficult to decipher, we cannot hold that mold damage is covered when the policy expressly says it is not. Accordingly, we answer the Fifth Circuit's certified question 'No,'”

REPRESENTING INSUREDS IN A CATASTROPHE 

as published in the 

Spring 2006, Volume 41, Number 3, Tort Trial & Insurance Practice Law Journal  

Uncommon Wisdom About 

The Lawyer as an Insurance Claims Expert 

The common wisdom is that insurance is arcane, difficult to understand, and written using incomprehensible terms only a Supreme Court justice could understand.

Common wisdom is rarely wise. It is, at best, common and often wrong..

The common wisdom is that that lawyers make terrible witnesses. Again, although common, it is wrong. A lawyer, with knowledge of the law, insurance coverages and insurance claims handling can be the best possible expert witness a party can call in an insurance coverage or insurance bad faith suit. The lawyer expert with sufficient experience, education, training and practical knowledge is in a position to explain, in understandable language, what the public considers difficult, if not impossible to understand: insurance and insurance claims handling.

A lawyer expert witness who can testify will be more effective than an ex-claims person. If the lawyer expert has actual insurance experience and/or has worked with insurers in preparing insurer’s claims personnel to properly handle insurance claims, prepared insurance policies or worked with insurers in setting up manuals or texts used by the insurance industry, the lawyer expert should qualify and has the communications skills to be an effective and convincing expert.

The Right to Subrogation & Salvage  

Insurers, dealing with claims, seldom consult the policy wording and almost never, until after a claim is resolved, consider the subrogation and salvage provision. Those provisions provide an insurer with rights that effect the handling of a claim and can destroy any right the insured has to indemnity under the policy.

 

Thus, if a negligently driven automobile strikes an insured’s building the rights of the insured against the driver of the automobile is transferred to the insurer up to the amount paid by the insurer. This is an important right that can only be waived by the insured under certain limited circumstances authorized by the insurer.

 

This article explains how subrogation can effectively profit an insurer.

California Adds Training & Certification Requirement 

for All Workers' Compensation Adjusters 

If you write workers’ compensation insurance in California or adjust workers’ compensation claims in California a massive burden has been placed on you and your adjusters to qualify to adjust workers’ compensation claims. The California Department of Insurance, effective February 22, 2006, has added a serious expense to your cost of doing business with little fanfare and a brief press-release.

The press release issued February 21, 2006 advised the public and workers’ compensation insurers and adjusters that compliance is required no later than July 1, 2006. The Regulations require that all people who are to adjust workers compensation claims must attend fifteen eight-hour days of classroom training and an addition five eight-hour-days of other training on a massive list of subjects that, to my knowledge, no training organization has prepared.

ISO Changes Definition of Actual Cash Value

The Insurance Services Office (ISO) has issued form IL 01 02 05 05 entitled “CALIFORNIA CHANGES – ACTUAL CASH VALUE” that appears intended to resolve claims handling difficulties caused by recent California statutory changes in the meaning of the term “Actual Cash Value” (ACV).

 

The article explains that if true indemnity – the intent of first party property insurance – is to be reached it is necessary that the true value of the entire structure be determined. If only some parts of the structure are not subject to depreciation true indemnity will not be determined but, rather, a sum closer to replacement cost than actual cash value will result.

.

Claims in a Catastrophe -- Updated August 2008

If your house was damaged or destroyed by the fire, windstorm, or flood as a result of state declared catastrophes and you had a fire, homeowners, flood insurance, tenant’s homeowners or condominium policy you will be dealing with an insurance adjuster. You should recognize that dealing with an insurance adjuster in a catastrophe is usually fairly easy because of the number of claims the adjuster is required to deal within a short time.

Insurers will be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily the insured person must understand that both the insured and the adjuster have duties when damage-caused by fire, windstorm, flood or other insured perils are discovered.

DOI Restricts Right of Insurers to Underwrite Risks

Although an insurance company is entitled to determine for itself what risks it will accept, and therefore to know all the facts relative to the applicant's physical condition. It has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks the California Department of Insurance attempts to micro-manage the business and restrict the unquestioned rights of insurers. 

Collapse

On June 12, 2003 the California Supreme Court, in Rosen v. State Farm General Insurance Company, 98 Cal.App.4th 1322, 120 Cal.Rptr.2d 373 (Cal.App. Dist.2 06/03/2002) reversed the trial court and court of appeal's decision that an imminent collapse is sufficient to allow coverage. Upholding the plain language of the State Farm exclusion that limited coverage to a "collapse" where the structure has "actually fallen down or fallen into pieces" the Supreme Court rejected the Court of Appeal's application of "public policy" to allow it to rewrite the terms of the contract. The trial court, and the court of appeal declined to honor the policy's clear and unambiguous restriction of coverage because it would, in the court's view, "encourage property owners to place lives in danger in order to allow insurance carriers to delay payment of claims until the structure actually collapses..

 

California Supreme Court Rewrites an Insurance Policy -- 

Jewelers Block Insurers Beware -- 

Seventh Circuit & Majority Rejects California Supreme Court

The United States Court of Appeals for the Seventh Circuit in  Hanover Insurance Company v. A.M.I. Diamonds Company, 397 F.3d 528 (7th Cir. 02/08/2005) explained how the California Supreme Court’s conclusions in E.M.M.I. Inc. v. Zurich American Ins. Co., 84 P.3d 385, 388-89 (Cal. 2004) are preposterous and the reasons why the exclusion for losses occurring from a motor vehicle where the insured is neither in or upon the vehicle at the time of loss, is necessary.

 

E.M.M.I., the Seventh Circuit concluded "is an outlier." To read "upon" to mean "near" would open "a large loophole of uncertain limits, something the precedent refused to do. Since the "in or upon" language appears in two places, once with regard to the diamonds and once with regard to the salesman, the Seventh Circuit, intelligently concludes: "If "in or upon" is given the same meaning in both places, and "upon" means "near," then the exclusion is inapplicable if the diamonds are merely near the vehicle, and not in it -- which would be preposterous."