Deduction of Collateral Benefits at Trial

Brown v. Campbell, (2012) 109 O.R. (3rd) 306 (S.C.J.)

After a jury trial where the plaintiff was awarded damages for past income loss, the defendant asked the judge to reduce the amount by long term disability benefits received the plaintiff. The plaintiff was self-employed and had purchased a long term disability policy for himself. The request for the deduction had not been made at trial, and had first arisen when the final judgment was being taken out. Both parties had addressed the issue in their evidence. The jury award for past income loss did not match either the amount suggested by the plaintiff or the defendant. Justice Nolan refused to make a deduction post trial. She held the defendant should have made be request at trial so she could have charged the jury on it. In addition, since the jury's verdict was less than the amounts submitted by both parties, it appeared the jury had in fact made the deduction in their assessment of the damages.

One issue left open by the Court is whether the disability benefits would have been deductible in any event, given that the plaintiff was self-employed and Justice Nolan noted the law is not settled with respect to whether LTD benefits purchased privately are captured by s. 267.8 of the Insurance Act.

Welcome back to the Cavalcade of Risk!

I am once again honored to be hosting the Cavalcade of Risk, a gathering of blog posts about various types of risk from around the web.

Life insurance

Russell Hutchinson at Chatswood Consulting has asked insurance companies to come up with old stock brochures and advertisements. In this post, check out the print ad “Could father be mother too?” as an insurer of yesterday tried to plug into the fears of at-home mums. While the mother's schedule speaks to a mythical past devoid of personal ambition or Valium, an updated version of the ad could work today. An occupational hazard for me as an attorney is that I am often confronted with the worst happening to others. As a result I make sure I have enough life insurance that if the worst happens in my family there will be enough money not just to make up for lost income, but for babysitters, housekeepers, and all the other sundry employees that would be necessary to make up for the things we do for our kids other than provide income to our family.

Personal risk

My Wealth Builder posts about a choice to treat high cholesterol with diet and exercise rather than drugs.

Perhaps he should try a coffee diet? Hank Stern at InsureBlog discusses a study showing that coffee drinkers live longer.

Free Money Finance offers advice on insurance and related topics. While much of the post is solid, I disagree with the advice about wills. If you care what will happen to your estate or if you want to prevent a big hassle for your closest relatives you should have a will, and you should have an attorney draft it.

Modest Money issues a reminder not to post personal information in blogs, as such posts can put you at risk for identity theft.

Investing

Here's a post for those of you who are already saving for retirement on a level that shows you’ll reach a comfortable amount of income-producing savings by the time you retire and do a good job of saving for holiday gifts, a vacation or two, and a new car every five years, and are saving for college for your kids, and have adequate insurance. For those of you who are still with us who are somehow nevertheless confused about how to save money, PT Money writes about strategies for long-term non-retirements savings.

At Risk Management Monitor, Emily Holbrook writes about The Good, The Bad, and The Ugly of the Facebook IPO.

The Financial Industry

Van Mayhall, at Insurance Regulatory Law, discusses arguments that credit default swaps are insurance transactions that should be regulated as such, and that “deregulation” of credit default swaps was a major cause of the financial crisis in the late 2000s.

Health Insurance

Jason Shifrin at Healthcare Economist writes in his post, "Heroes without Health Insurance" about about the sad phenomenon of U.S. veterans without health insurance.

Jay Norris at Colorado Health Insurance Insider writes about How Individual Health Insurance Measures Up. He writes that in Colorado the average premium for group coverage for a family in Colorado in 2010 was almost three times the national average for family coverage purchased in the individual market. He points out that the significant chunk of the premiums usually paid by the employer is not free money. If health insurance were less expensive, employee wages would likely be higher – the money has to come from somewhere, whether it’s paid directly from the employee in the form of payroll deduction, or by the employer. But people paying for their own insurance often gravitate towards lower-cost policies with higher out-of-pocket exposure in an effort to keep the premiums as low as possible.

While Jay points out the danger of low premium, high deductible plans, in my experience those plans can be excellent for someone who is aware of the risk. I had one of those plans for my family for a while. It cost a quarter of my current plan -- the cheapest legal plan now available in Massachusetts, which costs more than my mortgage -- and covered basically nothing under the first $10,000 of health care costs in a year. It worked for us because in Massachusetts we have had a law since the 1980's that people can switch health plans at will, regardless of preexisting conditions. That meant that we could accept the risk of a tragic sudden event -- a car accident requiring emergency room treatment, for example -- because we could switch to a regular plan with just a few days notice. We switched when my daughter needed to get her tonsils out, and then couldn't go back to our high deductible plan because the plan is no longer legal here.

Jaan Sidorov at Disease Management Care Blog describes some problematic similarities between Facebook and Accountable Care Organizations and asks if either entity has a business model that is built to last.

That's our carnival. The next one will be hosted by My Wealth Builder.

New report: What repeal of the Affordable Care Act would mean in WA

We've just posted a new report detailing the effects in Washington state of the federal health care reform law. Among them:

Numerous consumer protections built into the law have already taken effect. Among these: drug discounts for more than 1 million Washington seniors, tax breaks for small businesses, and parents can now keep their adult children on the parents' health policy until age 26.

We also estimate that more than 800,000 Washingtonians who today have no health coverage at all would qualify for free or subsidized coverage in 2014.

Jessco, Inc. v. Builders Mutual Insurance Co.: Part II - Appellate Attorney’s Fees and Costs

Here is Part II of our blog series regarding Jessco, Inc. v. Builders Mutual Insurance Co. 

Post by Logan Wells

You can read Part I here, which details a recent opinion of the United States Court of Appeals for the Fourth Circuit that addresses a multitude of issues presented in litigation involving commercial general liability policies – the “your work” exclusion, late notice, and the duty to indemnify.

On May 3, 2012, in Jessco, Inc. v. Builders Mutual Insurance Co., upon remand by the Fourth Circuit, the United States District Court for the District of South Carolina amended its previous Judgment and deducted $10,000.00 from the total amount previously awarded, $78,695.20, finding Jessco, Inc. (“Jessco”) was entitled to a judgment in the amount of $68,695.20 plus post-judgment interest. In the same order, upon Jessco’s Amended Motion for Award of Fees and Costs After Remand, addressing an issue of first impression, the court held that Builders Mutual Insurance Co. (“BMIC”) was obligated to pay Jessco’s attorney’s fees and costs incurred on appeal.

Citing Hegler v. Gulf Insurance Co., 270 S.C. 548, 550-51, 243 S.E.2d 443, 443 (1978), the court noted South Carolina courts have found an insured may be entitled to reasonable attorney fees and costs incurred in successfully defending a declaratory judgment action brought by the insurer in an effort to relieve itself of coverage under an insurance policy, reasoning that:

[A]n insured must employ counsel to defend — in the first instance in the damage action and in the second in the declaratory judgment action to force the insurer to provide the defense. In both, the counsel fees are incurred because of the insurer's disclaimer of any obligation to defend.

If the insurer can force [the insured] into a declaratory judgment proceeding and, even though it loses in such action, compel him to bear the expense of such litigation, the insured is actually no better off financially than if he had never had the contract right mentioned above.

(Alteration and emphasis in original). However, whether an insured is also entitled to recover attorney fees and costs incurred on appeal when (1) the insurer appeals the trial court’s ruling for the insured in a declaratory judgment action, and (2) the appellate court affirms the lower court’s judgment with regard to the insurer’s duty to defend, had never been addressed by the South Carolina courts.

In support of its motion for attorney fees and costs, Jessco argued that whether the fees and costs arose in the context of a declaratory judgment action or in its appeal makes no difference; because in either case, the insured is doing nothing more than attempting to protect its contractual right to a defense. Thus, Jessco argued, the rationale in Hegler for providing relief to an insured that is “forced” into a declaratory judgment action and wins should apply equally when the insured is forced to defend its rights in the appeal of that action and wins. In opposition, BMIC argued the reversal by the Fourth Circuit as to BMIC’s duty to indemnify Jessco for the re-grading allowance necessitated a finding in favor of BMIC on Jessco’s motion. The court rejected BMIC’s argument, noting that South Carolina courts have established the duty to defend is separate and distinct from the duty to indemnify, and Jessco’s motion sought payment for fees and costs as damages suffered by Jessco for BMIC’s breach of its duty to defend, not its duty to indemnify. See USAA Prop. & Cas. Ins. Co. v. Clegg, 377 S.C. 643, 654, 661 S.E.2d 791 (2008) (quoting Sloan Constr. Co. v. Cent. Nat’l Ins. Co. of Omaha, 269 S.C. 183, 186-87, 236 S.E.2d 818 (1977)).

BMIC also argued there was “simply no legal authority” supporting an award of appellate fees and costs. However, BMIC failed to produce any authority demonstrating that Hegler did not apply to support such an award. In response, Jessco acknowledged that the motion presented a novel legal issue, but argued there was no logical reason why Hegler did not apply to fees and costs incurred on appeal. The court agreed with Jessco’s reasoning, finding as follows:

When BMIC appealed the declaratory judgment action, it was still seeking to avoid its obligation to defend, just as it sought to avoid its' duty to defend at the trial level. Thus, after prevailing at the trial level, Jessco was forced into the appellate process by BMIC, thereby bearing the expense, just as it was forced to bring the initial declaratory action to protect and enforce its rights. Jessco prevailed at the trial level, and on appeal, the Fourth Circuit found BMIC had a duty to defend and affirmed this Court's judgment and damages award on that issue. Hegler held that an insured is entitled to recover attorney's fees and costs following a successful defense of a declaratory judgment action. See Hegler, 270 S.C. at 548 (emphasis added). The holding in Hegler necessarily encompasses fees and costs incurred at the appellate level of that action. The appellate expenses, like the trial level expenses, are damages arising directly out of the insurer's breach of its duty to defend. Therefore, the Court finds that Jessco is entitled to recover reasonable attorney fees and costs of defending this action on appeal from BMIC, just as it was at the trial level. See Hegler, 270 S.C. at 551 ("After all, the insurer had contracted to defend the insured, and it failed to do so. It guessed wrong as to its duty, and should be compelled to bear the consequences thereof.").

The court also found that Rule 222, SCACR did not prohibit an award pursuant to Hegler, and further, did not divest the court of authority to make such an award:

Sections (a) and (b) of Rule 222 state: "When an appeal is affirmed or reversed in part or is vacated, costs shall be allowed only as ordered by the appellate court." "In addition, the party shall be entitled to recover an attorney's fee in an amount which shall be set by order of the Supreme Court." Rule 222(b). However, the Rule "`does not preempt an award of attorney's fees to which one is otherwise entitled.'" Muller v. Myrtle Beach Golf & Yacht Club, 313 S.C. 412, 416, 438 S.E.2d 248 (1993) (citing McDowell v. S.C.D.S.S., 304 S.C. 539, 543, 405 S.E.2d 830 (1991)). Thus, the Court may grant an award pursuant to Hegler because the authority pursuant to Hegler and the authority vested in the court of appeals pursuant to Rule 222 are not mutually exclusive.

Noting that, upon remand, the district court had jurisdiction to enforce the judgment and take any actions consistent with the Fourth Circuit’s ruling, and the Hegler rule did not limit the collection of attorney fees to a specific court or level of courts, the court found it could properly award appellate attorney fees and costs to an insured as damages flowing from an insurer’s breach of its duty to defend. Accordingly, the court granted Jessco’s Motion for Award of Fees and Costs After Remand.

The Feds Stop-Loss Insurance Fishing Expedition

While the push to restrict the ability of smaller employers to obtain  stop-loss insurance continues to play out in California (see two previous blog posts), the feds are taking a closer look at how the availability of stop-loss insurance facilitates the growth of the self-insurance marketplace, and what that means for health care reform implementation.

This focus was confirmed last month when the HHS/DOL/Treasury Department, known collectively as the “Tri-Agencies,” issued a formal Request for Information (RFI) about stop-loss insurance.  The specific questions are largely objective but the preamble clearly states that the RFI has been prompted by concerns that employers may dodge health care reform requirements by self-insuring and obtaining stop-loss insurance with low attachment points.  They also cite the ubiquitous adverse selection criticism.

Nothing new here in terms of the policy debate, but it’s probably useful to put this RFI into some sort of meaningful context and preview potential outcomes.

Flashing back to 2009 as health care reform legislation was being developed in Congress, early drafts included restrictions on the ability of employers to self-insure based on size.   There were enough moderate Democrats, principally in the Senate, however, to block such proposals from being incorporated into the final bill.  But the self-insurance story does not end there.

Congressional critics of self-insurance, presumably prompted by traditional health insurance industry lobbyists, were able to slip in provisions at the eleventh hour requiring federal studies on self-insurance.  This effectively allowed for a second bite at the apple on restricting the self-insurance marketplace through federal action in some form in response to perceived abuses and/or adverse effects on broader health care reform objectives.

Powerful interest groups, vocal consumer protection advocates and influential policy-makers are now pushing regulators to take that second bite for reasons that are largely fictional, but resonate nonetheless.

It’s not yet clear if the current Tri-Agencies’ fishing expedition is simply being done to satisfy health care proponents’ demands that the self-insurance industry be more closely investigated and that the regulators are conducting good faith due diligence without a pre-determined outcome.

The alternative theory is that the Tri-Agencies already have some regulatory action in mind and are using the RFI process to justify new federal rules.   This of course begs the question of what specific action could this be?

 

Let’s explore this.

The ACA clearly distinguishes stop-loss insurance from health insurance.  Moreover, it does not provide federal regulators with explicit statutory authority to impose additional requirement and/or restrictions on self-insured group health plans. 

The conventional understanding of separation of powers dictates that should the regulators conclude that the self-insurance marketplace needs to be regulated differently than what is provided for in the ACA, they should make such recommendation to Congress so that this can addressed through the legislative process.   But that’s not going to happen according to well-placed congressional sources.

The more likely scenario is that the federal agencies with jurisdiction over the Public Health Services Act (PHSA), the Employee Retirement Income Security Act (ERISA) and ACA will rely on their general rulemaking authority given to them under these respective laws to justify creative rulemaking that would restrict the availability of stop-loss insurance and/or make other changes to federal law that adversely affect the self-insurance marketplace.

In fact, the Treasury Department breached its statutory authority just six months ago when the IRS proposed a rule that would let people get subsidies to buy health insurance through a federal exchange although the legislative language specified that that the subsidies could only be used for state exchanges.   This happened to be a drafting error, but Treasury decided to take the liberty of asserting congressional intent.

Senator Orrin Hatch (R-UT), ranking member of the Senate Finance Committee cried foul.  In a letter to to Treasury Secretary Tim Geithner and IRS Commissioner Doug Shulman wrote “I am concerned that if finalized these rules would exceed your regulatory authority, violating the Constitution’s separation of powers.”

The rules were promptly finalized.  Sadly, this illustrates the power of the federal bureaucracy even in the face of potential blowback from Congress.

When asked pointedly this week about his view regarding limits to statutory authority as it relates to self-insurance/stop-loss insurance, a key Democratic Senate staffer responded that he believes the regulators have “general authority to prevent abuses.”  He added that such issues are “better addressed in the regulatory process.”

Should the Tri-Agencies correctly conclude that the self-insurance marketplace effectively regulates itself already and therefore no further federal intervention is needed, then perhaps this congressional source had it right. 

Of course in the meantime, the U.S. Supreme Court will have its own say on the separation of powers, which could silence both the bureaucrats and the legislators on health care reform…at least for now.

 

Jessco, Inc. v. Builders Mutual Insurance Co: Part 1 - “Your Work,” Late Notice, and the Duty to Indemnify

Post by Logan Wells

A recent opinion of the United State Court of Appeals for the Fourth Circuit addressed a multitude of issues presented in litigation involving commercial general liability policies – the “your work” exclusion, late notice, and the duty to indemnify.

On March 29, 2012, in Jessco, Inc. v. Builders Mutual Insurance Co., the Fourth Circuit affirmed in part, reversed in part, and remanded by unpublished per curiam opinion the judgment of the United States District Court for the District of South Carolina, thereby finding that Builders Mutual Insurance Co. (“BMIC”) had a duty to defend Jessco, Inc. (“Jessco”) in the underlying construction-defect action, but BMIC was not obligated to indemnify Jessco for the re-grading allowance it paid to the underlying plaintiff homeowners.

In Jessco, Inc., the Mazycks hired Jessco to build a house in a North Charleston subdivision. After moving into the house in 2004, they provided Jessco with a punch list of items to be completed or repaired. These items were not resolved to the Mazycks’ liking, and in 2005, they filed the underlying suit against Jessco, alleging, among other things, that their lot flooded due to improper grading. In 2006, the action was stayed so the claims could be arbitrated. In the fall of 2007, experts for the Mazycks identified water damage to the house caused by the flooding of the property.

In October 2007, after the escalation in the Mazycks' demands, Jessco finally notified BMIC of the underlying claims. BMIC concluded the claims were not covered by the Policy and Jessco failed to promptly notify BMIC of the lawsuit. Accordingly, BMIC refused to defend or indemnify Jessco with regard to the underlying suit. Jessco thereafter filed a declaratory judgment action seeking a declaration that the claims in the underlying action were covered by the Policy. BMIC counterclaimed, seeking a declaration that it was not obligated to defend or indemnify Jessco.

The arbitration hearing on the Mazycks' claims was conducted in late 2008. The arbitrator issued his award in April 2009, ordering Jessco to pay almost $55,000 in damages. As to the flooding issue, the arbitrator concluded the flooding was proximately caused by "the overcapacitation of the wetlands, caused by the overall design and development of the surrounding neighborhood." Although the arbitrator found that Jessco's work was "not the legal proximate cause of the flooding of [the Mazycks'] property," the award included a $10,000 allowance for re-grading of the lot. BMIC appealed, challenging the district court’s determination that (1) BMIC had a duty to defend Jessco in the underlying action; and (2) BMIC had a duty to indemnify Jessco for the re-grading allowance.

Duty to Defend

In asserting it had no duty to defend, BMIC argued (1) coverage for the Mazycks’ claims was excluded by the Policy’s “your work” exclusion; and (2) Jessco failed to notify BMIC of the underlying lawsuit “as soon as practicable” as required by the Policy.

BMIC did not dispute on appeal that the allegations of the underlying complaint raised the possibility of “property damage” caused by an “occurrence,” but instead contended it had no duty to defend because coverage for the claims was excluded under the “your work” exclusion, which excluded coverage for any claims of “’[p]roperty damage’ to ‘your work’ arising out of it or any part of it.” “Your work” was defined as “[w]ork or operations performed by you or on your behalf,” a definition broad enough to encompass and preclude coverage for work done by the insured’s subcontractors. Although the Policy included an exception restoring coverage for damage to work performed by a subcontractor, it also contained an endorsement removing the subcontractor exception.

BMIC argued all the work on the property was done by subcontractors on Jessco’s behalf, and therefore, the “your work” exclusion barred coverage for all underlying claims. The court disagreed, noting “the exclusion does not withdraw coverage for any and all work done by the insured or its subcontractors; it withdraws coverage in cases where the insured causes property damage to work done by the insured or its subcontractors... ‘It does not exclude coverage for a third party’s work.’” (Emphasis in original) (quoting Limbach Co. v. Zurich Am. Ins. Co., 396 F.3d 358, 365 (4th Cir. 2005) (per curiam)). Thus, the court concluded, “the Policy’s elimination of the subcontractor’s exception means that Jessco’s subcontractors will not be viewed as third-parties for purposes of determining whose ‘work’ was damaged, but the elimination of the exception does not, as BMIC contends, preclude coverage if Jessco’s work in fact damages the work of a third party.”

The court determined the Mazycks’ claims against Jessco created a possibility that a third-party’s work or property was damaged by the faulty workmanship of Jessco or its subcontractors, noting the contract between Jessco and the Mazycks specifically contemplated that Mr. Mazyck would perform some of the work, and that Mr. Mazyck himself installed (or hired a subcontractor to install) the flooring and landscaping. Accordingly, the court found the “your work” exclusion did not bar coverage for the underlying claims.

With regard to “late notice,” BMIC argued even if the Policy otherwise provided coverage, Jessco lost its right to coverage by waiting more than two years to give notice of the underlying suit. Assuming for purposes of the opinion that notice was untimely, the court noted that under South Carolina law, “recovery under the Policy is barred only if BMIC proves that it was substantially prejudiced by the late notice.” See Vermont Mut. Ins. Co. v. Singleton, 446 S.E.2d 417, 421 (S.C. 1994) (“Where the rights of innocent parties are jeopardized by a failure of the insured to comply with the notice requirements of an insurance policy, the insurer must show substantial prejudice to the insurer’s rights.”); Squires v. National Grange Mut. Ins. Co., 145 S.E.2d 673, 677 (S.C. 1965) (“The burden of proof is upon the insurer to show not only that the insured has failed to perform the terms and conditions invoked upon him by the policy contract but in addition that it was substantially prejudiced thereby.”) Therefore, because BMIC failed to present any evidence of prejudice and “prejudice to the insurer may not be presumed,” the court rejected BMIC’s assertion that Jessco’s delay in notification precluded recovery under the Policy.

            BMIC also challenged the attorney fee award; however, it failed to substantively address the issue in its brief. Accordingly, the court found BMIC had abandoned the issue. See Wahi v. Charleston Area Med. Ctr., Inc., 562 F.3d 599, 607 (4th Cir. 2009) (“Federal Rule of Appellate Procedure 28(a)(9)(A) requires that the argument section of an appellant’s opening brief must contain the ‘appellant’s contentions and the reasons for them, with citations to the authorities and parts of the record on which the appellant relies.’ Because Wahi has failed to comply with the specific dictates of Rule 28(a)(9)(A), we conclude that he has waived his claims . . . .”).

Duty to Indemnify

BMIC also contended that the $10,000 re-grading allowance was not compensation for loss caused by a covered risk. Recognizing the Mazycks asserted contract and negligence based claims against Jessco in the underlying action, the Court determined that if the re-grading allowance was awarded by the arbitrator as compensation for negligence by Jessco in grading the property, Jessco’s negligence would constitute an “occurrence,” and the policy would provide coverage. Thus, the court first determined the legal basis for the re-grading allowance ordered by the arbitrator:

Although the arbitrator stated that Jessco and the Mazycks both “b[ore] some responsibility for the flooding,” the arbitrator ultimately determined that the flooding was caused by “the overcapacitation of the wetlands, caused by the overall design and development of the surrounding neighborhood.” The arbitrator concluded that the development and overcapacitation was “an unforeseen intervening cause,” and Jessco’s work was “not the legal proximate cause of the flooding of [the] property.”

The arbitrator’s determination that Jessco’s work was not the proximate cause of the flooding necessarily amounted to a rejection of any negligence-based claim asserted against Jessco. See, e.g., Hurd v. Williamsburg Cnty., 579 S.E.2d 136, 144 (S.C. Ct. App. 2003) (“It is apodictic that a plaintiff may only recover for injuries proximately caused by the defendant’s negligence.”). While there may have been some negligent conduct by Jessco, the proximate-cause determination means that Jessco could not have been held accountable to a third-party for that negligence. See, e.g., Howard v. Riddle, 221 S.E.2d 865, 866 (S.C. 1976) (“Plaintiff must show, as a matter of law, not only that defendant was negligent but also that his negligence was a contributing or proximate cause of the injury . . . .” (internal quotation marks omitted)).

Having established the arbitrator determined there was no actionable negligence on the part of Jessco, the court reasoned the re-grading allowance could only have been awarded as compensation for a breach of contract. Therefore, because the Policy unambiguously excluded coverage for breach of contract damages, the court found BMIC had no obligation to indemnify Jessco for the re-grading allowance paid to the Mazycks.

Having determined that BMIC owed a duty to defend Jessco in the underlying action, but did not owe a duty to indemnify Jessco for the re-grading allowance, the court vacated the district court’s judgment and remanded for further proceedings consistent with the opinion.

Part II of this blog post will discuss the decision of the district court on remand. We will post it on Tuesday.

Until then - have a wonderful Memorial Day. 

Logan

Collins & Lacy to Present CLE "Managing Your Risks: A 2012 Perspective on Business, Social Media & Litigation Risks" to Association of Corporate Counsel

Post by Pete Dworjanyn

In June, I will be part of the Collins & Lacy team presenting a Continuing Legal Education (CLE) to the Association of Corporate Counsel entitled "Managing Your Risks: A 2012 Perspective on Business, Social Media and Litigation Risks." The presentation is Thursday, June 7, 2012 from 2:00 p.m. to 5:00 p.m. at EdVenture Children's Museum in Columbia, S.C.   

My section will address how to best manage business risk from an insurance perspective, including issues regarding Certificates of Insurance, Additional Insured status and Indemnity Agreements. 

Other parts of the three-part presentation include:

• Products Liability Practice Group Chair Brian Comer will offer best practices learned in litigation.
• Employment Law Practice Group Chair Christian Boesl and employment law attorney Charles Appleby will address the management of social media risks in the workplace. The presentation will draw upon emergent issues raised by the National Labor Relations Board, as well as general risks involving social media and employers.
• Public Policy & Governmental Consulting Practice Group Chair Jon Ozmint will lead a panel discussion on how to manage risk in litigation from several different business perspectives.

This presentation is free to in-house counsel, but they must register to attend. For more information and to RSVP, please contact Kathleen Yarborough at kathleen@amchouston.com.

Duty to Defend - Exclusion Clause did not Apply

Durham District School Board v Grodesky 2012 ONCA 270 (C.A.)


This appeal highlights the importance of carefully crafted exclusions in insurance policies.

In the underlying action, the school board alleged the appellants' son intentionally set fire to the school. The appellants were added as defendants based on allegations that they failed to impose a curfew and to supervise their son. Their insurance company refused to defend them based on the following exclusion in their home owner’s policy:

We do not insure your claims arising from (6) Bodily injury or property damage caused by any intentional or criminal act or failure to act by: (a) any person insured by this policy; or (b) any other person at the direction of any person insured by this policy.


The motion judge held there was no duty to defend. He relied on G.P. v. D.J., 26 C.C.L.I. (3d) 76 (Ont. S.C.), a case interpreting the same exclusion clause, which held any tortious failure to act (not just an intentional or criminal one) triggered the exclusionary clause.

The Court of Appeal allowed the appeal. The exclusion clause could be read in two ways: 1) where the words “intentional” or “criminal” modify the phrase “act or failure to act”, or 2) excluding an intentional or criminal act, or any failure to act. Juriansz J.A. held the exclusion could have been read as excluding a mere negligent failure to act; however, such an interpretation would have the effect of excluding almost every negligence action, rendering coverage useless. He cited Non-Marine Underwriters, Lloyd’s of London v. Scalera, [2000] 1 S.C.R. 551, where the Supreme Court considered a similar clause and held that reading the clause to exclude negligent failures to act would lead to absurd consequences.

The Court also considered whether the negligence claim was derivative of the intentional tort claim in order to determine whether it was excluded by the clause. Juriansz J.A. held that the negligence claim was not derivative of the intentional tort claim as the elements alleged against the parents were distinct. As a result, the exclusion did not apply and the parents were entitled to a defence.

Turning 65 soon?

If you or someone you know will be turning age 65 in the next year or so, check out our new Medicare web pages. We launched a series of web pages called “What is Medicare?” to help people who will soon become eligible for Medicare. The information provides a basic overview of Medicare, explaining the different parts and options available to people.

For additional help with Medicare choices, we also offer our free, unbiased and confidential Statewide Health Insurance Benefits Advisors (SHIBA) service. We have more than 300 volunteer advisors around the state who we extensively train to help advise people on their Medicare options. SHIBA’s a great service. These folks can help you navigate the Medicare maze. Call 1-800-562-6900 and ask to speak with a SHIBA advisor in your area.

Insurance and broken windows

Q: Am I covered if my son breaks a neighbor's window while he's hitting rocks with his baseball bat or mowing our lawn?

A: Generally yes -- if it's an accident. Your homeowners policy will typically cover this type of accident at home or even away from home. But if it was a deliberate act, the damage may not be covered.

Also, consider your deductible. If the estimate to repair the window is small, it may be worth it to pay the damages out of pocket.

Note: This is one of a series of common -- or in some cases, particularly unusual -- questions received by our consumer advocacy staff, who answer questions from consumers.
Got a question or insurance problem of your own? If you live in Washington, feel free to give us a call, toll-free at 1-800-562-6900. We'll do our best to help. (And if you live in another state or territory, here's a handy map that lists the contact info for your local insurance regulatory office.)

Chillingly Accurate Predictions by Paul Harvey April 3, 1965

PAUL HARVEY’S ‘IF I WERE THE DEVIL’ TRANSCRIPT

If I were the devil … If I were the Prince of Darkness, I’d want to engulf the whole world in darkness. And I’d have a third of it’s real estate, and four-fifths of its population, but I wouldn’t be happy until I had seized the ripest apple on the tree — Thee. So I’d set about however necessary to take over the United States. I’d subvert the churches first — I’d begin with a campaign of whispers. With the wisdom of a serpent, I would whisper to you as I whispered to Eve: ‘Do as you please.’

“To the young, I would whisper that ‘The Bible is a myth.’ I would convince them that man created God instead of the other way around. I would confide that what’s bad is good, and what’s good is ‘square.’ And the old, I would teach to pray, after me, ‘Our Father, which art in Washington…’

“And then I’d get organized. I’d educate authors in how to make lurid literature exciting, so that anything else would appear dull and uninteresting. I’d threaten TV with dirtier movies and vice versa. I’d pedal narcotics to whom I could. I’d sell alcohol to ladies and gentlemen of distinction. I’d tranquilize the rest with pills.

“If I were the devil I’d soon have families that war with themselves, churches at war with themselves, and nations at war with themselves; until each in its turn was consumed. And with promises of higher ratings I’d have mesmerizing media fanning the flames. If I were the devil I would encourage schools to refine young intellects, but neglect to discipline emotions — just let those run wild, until before you knew it, you’d have to have drug sniffing dogs and metal detectors at every schoolhouse door.

“Within a decade I’d have prisons overflowing, I’d have judges promoting pornography — soon I could evict God from the courthouse, then from the schoolhouse, and then from the houses of Congress. And in His own churches I would substitute psychology for religion, and deify science. I would lure priests and pastors into misusing boys and girls, and church money. If I were the devil I’d make the symbols of Easter an egg and the symbol of Christmas a bottle.

“If I were the devil I’d take from those, and who have, and give to those wanted until I had killed the incentive of the ambitious. And what do you bet? I could get whole states to promote gambling as thee way to get rich? I would caution against extremes and hard work, in Patriotism, in moral conduct. I would convince the young that marriage is old-fashioned, that swinging is more fun, that what you see on the TV is the way to be. And thus I could undress you in public, and I could lure you into bed with diseases for which there is no cure. In other words, if I were the devil I’d just keep right on doing on what he’s doing.

Paul Harvey, good day.”

WA to get at least $450,000 in MetLife settlement

From a press release our office issued this morning:

OLYMPIA, Wash. – Washington stands to receive at least $450,000 as part of a multi-state settlement with Metropolitan Life Insurance Company.

The $40 million settlement, which was announced in April and now involves at least 28 states, is based on concerns raised by insurance regulators over the extent of MetLife’s efforts to investigate and pay life insurance benefits. MetLife did not admit liability.

Under the terms of the settlement, MetLife agreed to regularly check the Social Security death master file or similar records to determine if its life insurance policyholders, annuity owners or retained asset account holders have died. The company will then make efforts to locate beneficiaries and pay claims.

“From what we’ve seen, I’m happy to report that there don’t appear to be major or widespread problems in Washington state with paying life insurance benefits in a timely manner,” said Insurance Commissioner Mike Kreidler. “But it’s important to hold companies accountable when they fail to pay benefits when due.”

Under Washington state law, insurers must pay interest on a life insurance policy from the date of death. Unclaimed policies are turned over to the state’s unclaimed property fund, which holds the money for any future claims.

Washington’s share of the settlement, to be determined in early July, depends on the number of states that sign on to the settlement. The money will go into the state’s general fund.

Enforcing Settlement

Amyotte v. Wawanesa, [2012] ONSC 2072 (S.C.J.)


The issue on this motion was whether a settlement entered into by counsel could be upheld.

The defendant served a r. 49 offer to settle the plaintiff's accident benefits claim shortly before trial. The offer was sent by email in the following terms: "Payment to the Plaintiff of the sum of $15,000.00 inclusive of interest in full and final settlement of all accident benefits claims of the Plaintiff and all claims as against the Defendant in the within action" and partial indemnity costs. Plaintiff counsel responded with “We accept the offer and the action is settled…”. Defence counsel asked plaintiff counsel what was wanted for costs. Plaintiff counsel e-mailed back “15 k all in”. The next day, defence counsel e-mailed “How would you like the settlement broken down for Release purposes? $10,000 past and future rehab and $5,000 for costs and disbursements?” The reply was “Yes thx”.

Upon receiving a release and settlement disclosure notice from the defendant, the plaintiff took the position that the settlement did not include all accident benefits and that she was entitled to rescind the offer under the rescission provisions of the SABS. The Court disagreed, holding that if the plaintiff meant to restrict the settlement she should have done so rather than unconditionally accepting it. Once she chose to pursue litigation she could not avoid the consequences of r. 49 by falling back on the rights afforded by the SABS.

The settlement was upheld.

- Tara Pollitt

Spokane-area woman convicted of theft in insurance case

A Liberty Lake, Wash. woman pleaded guilty today in Spokane County Superior Court to theft for filing thousands of dollars in false insurance claims.

Sarah Shireee Walters was sentenced to 10 days in jail, which was converted to 80 hours of community service. She was also ordered to pay more than $4,000 in restitution and fees.

Walters and her husband, Jeremy Walters were both employees of Liberty Mutual/Safeco insurance company since early 2010. They had a renter's policy for their apartment in Liberty Lake.

Last April, Sarah Walters called Safeco and reported the loss of two Gateway laptops and computer games while the couple was on a day trip. The company processed the claim and issued a check for $1,524.

A few weeks later, Walters again called Safeco. This time, she reported the loss of two $500 iPod Touch devices, a set of $450 Dr. Dre headphones and a $580 camera. She said she'd left them in a Spokane park, and that they may have been stolen. The couple was sent a $2,030 check.

Less than three weeks after that, Walters again called Safeco to say that she'd lost two EVO phones and a BlackBerry. She said she'd had all three phones in her sweater pocket at the park.

After three claims in three months, the company referred the claim to one of its investors. Confronted with discrepancies in the claims, Sarah Walters admitted that the laptops, camera and other items were never really missing.

She pleaded guilty today to two counts of second-degree theft.

IS COLLEGE STILL A GOOD IDEA??

THE SLOW DEATH OF COLLEGE??


All my young life, I knew I was going to college. College had propelled my father from a sharecropper’s boy to a clinical psychologist with a Ph.D. by about age 27. That changed the trajectory of our family and greatly influenced my early thinking.

There was just never any doubt about that. College, at that time, represented several things to me:  a “university experience” away from home, lots of friends in a Greek fraternity, and a good job afterwards.

With my academic scholarship, my working, my parent’s college funding and a few student loans, I was able to get through my four year degree at the University of Arkansas, Fayetteville, in just 3.5 years, even while working 40-56 hours a week.  Then I completed law school at what was then called Memphis State University.

I always have wanted the same for my children if they felt led to pursue a degree. However, college has changed a lot in the 25 years since I enrolled.

For one, student loans are no longer an added help for many, but a way of life. It’s worse than most of us realize. Americans' outstanding student loan debt obligations now exceed $1 trillion! (It takes one thousand billion to make a trillion.)  Parents have mostly divorced, which often decimates any savings plan for college. Due to some abysmal public schools, many parents use any extra to get their kids in private schools, which prevents college savings as well.  Or Mom may stay home and homeschool and thus forego another income, which curtails any saving for higher education.  Other parents are themselves facing a bad recession with pay cuts or unemployment. Thus, students borrow more money to pay rising costs of tuition. The average borrower graduating from a public or private institution owes an unprecedented $25,250.00 each.

Rutgers University did a study and found that only 53 percent of recent U.S. four-year university grads were even working full-time jobs. Fewer had jobs where their degree was required at all. In fact, I have heard that many Starbucks employees actually have a college degree.

More than one new source has started to see a striking similarity between student loans and the height of the real estate bubble, yet a student borrower cannot discharge or even refinance his debts in bankruptcy. The Student Loan Forgiveness Act of 2012 has been proposed as yet another federal bailout that is supposed to create jobs.

As drafted, this new law would create full loan forgiveness up to a limit of $45,520.00 for current borrowers who have paid the equivalent of 10 percent of their discretionary income for 10 years or who are able to do so over the coming years. It caps interest rates on federal student loans at 3.4 percent and converts many private loans into federal loans.

Universities and colleges get that student loan money in tuition, which goes up every single year. Some think they play the same modern role as some real estate agents and mortgage brokers played during the housing bubble that burst so violently in 2008.
Since all major colleges were founded as Christian institutions, this slide toward shady business on the backs of debt-ridden students does smack of hypocrisy. If you are surprised to learn that our nation’s oldest and most respected colleges were founded to teach people to best apply the Bible, just look at the
Ivy League’s mottos:

Brown University
In Deo Speramus (In God We Hope)
Columbia University
In lumine Tuo videbimus lumen (In Thy light shall we see the light)
Dartmouth College
Vox clamantis in deserto (The voice of one crying in the wilderness)
Harvard University
Veritas (Truth)
Princeton University
Dei sub numine viget (Under God's power she flourishes)
University of Pennsylvania
Leges sine moribus vanae (Laws without morals are useless)
Yale University
Lux et veritas (Light and truth)


It appears that the “university experience” of these days is different from 1987—lots  of crushing student debt, almost no job options using the degree, and a bankrupt government that will have to do more with less.  There are certain intangibles that going away to a university can provide, and well off families will always be able to pay for those. But, for the more average family, it does not appear so.  In fact, if you look at economics, college may not be such a wise investment these days.

If you get your diploma and serve a two-year electrician’s apprenticeship, at maybe $25,000.00 a year in whatever part of the country is hiring (at the moment it’s North Dakota and Montana), you are paid to learn the trade. You will be earning an average of $43,000.00 in year three.  By year seven, many in the field are making $60,000.00 yearly.

If you get a degree in business, you give up four years of working many true full-time jobs. You might be able work some, but you are likely not to make much during college.  Following college, you will likely be unemployed for a while. You might decide you have to work at an $18,000.00 a year retail job for a year. Then, if you are selected, you might become a branch management trainee for something like a rental car company. That would net you $36,000.00 in years two and three of that job on average. However, if you graduated with $35,000.00 debt, your net worth suffers severely. And remember, the electrician started earning much earlier than you did.

The net spending ability of the electrician after year seven totals $296,000.00.

Conversely, the trainee has had $98,000.00 minus monthly payments with interest that are higher than the electrician’s payment on his new Camaro.  If the trainee paid off the student loan straightaway, he has had only $63,000.00 to spend.

Are we seeing the death of widespread college education? The rise of online courses seems to suggest that the brick and mortar places are fading fast. Branded courses that are tied closely to industries (like aircraft engine maintenance) seem to place many of their graduates.

Is the education bubble the next to burst? What do you think?
______
Mr. Peel seeks justice for those injured in car accidents, work place incidents, medical malpractice, and nursing homes. He often addresses churches, clubs and groups without charge. Mr. Peel may be reached though PeelLawFirm.com wherein other articles may be accessed.

Insurance: When a driver admits liability

Q: I was in a car accident and the other driver admitted that it was his fault. But his insurance company won't pay 100 percent. Why not?

A: Determining who is at fault for an accident depends on the facts as discovered during the investigation, not on just one driver's opinion. Even though one driver might be cited by police or admit fault, the issue of liability can only be determined after all the accident facts, weather, visibility, and all other driver actions and factors at the scene are taken into account.

It may sound hard to believe, but even if someone runs a stop sign and gets a ticket, the other driver could be found partially at fault for contributing to the accident by speeding, for example.

Note: This is one of a series of common -- or in some cases, particularly unusual -- questions received by our consumer advocacy staff, who answer questions from consumers.
Got a question or insurance problem of your own? If you live in Washington, feel free to give us a call, toll-free at 1-800-562-6900. We'll do our best to help. (And if you live in another state or territory, here's a handy map that lists the contact info for your local insurance regulatory office.)

Financial Crisis Simplified

THE FINANCIAL CRISIS IN SIMPLE TERMS

For years, deposits into your savings account gained about 1%. The bank then made mortgage loans at say, 7% to anxious homeowners.  The banks made 6%, which was referred to as the “spread.”  The bank is loaning $144,000 in exchange for a future monthly stream of payments of close to $1,000 per month for a 30-year, fixed-rate mortgage. The lower the interest rate a homebuyer gets, the higher the price the bank is actually paying for the income stream.

A few homebuyers would lose their home to foreclosure, and that loss was factored in. However, it was rather rare, because homebuyers had to bring a whopping 20% of the purchase price in cash, along with fees, to the closing. (On an $180,000 home, that’s $36,000 plus closing costs).  They were unlikely to walk away from all that, and if they sold for less than market value, they lost only some of their own down payment. It was a pretty stable system.

So what changed?

Lenders made riskier loans to less than creditworthy folks, for one. These are “subprime loans.” Borrowers were even allowed to borrow the 20% down that used to be required in cash! In other words, they buyer walked into a home with “no money down.”

Remember that your local bank often resells your mortgage product (called “paper”) to investment banks.  Your local bank receives the loaned amount back, plus a few fees that make it a profitable deal, and they then do more. Now the out of town bank owns your mortgage and you have to send payment to them, instead of your local bank.

The investment bank will now “securitize” your mortgage. It will be bundled with thousands of other mortgages. It will be rated, based mostly on the credit of the buyers. Your little American dream home is now part of a pool of 10,000 mortgages, with about $10 million in payments coming in from borrowers every month. Investors can buy the right to a part of that pool. The more solid the credit of the borrowers, the more they are worth.

Shares of some pools are treated differently. A “collateralized debt obligation” is a securitization where some slices have priority. They are entitled to the very first payments that come in each month, and hence are the safest. Some slices of the pool only get the last of the monthly payments, so those are the risky ones. These were cheaper, but paid much higher interest, when they paid at all.

If an investment bank paid $2 million for a slice of a pool, it happily lists that as an asset and waits on the money to roll in from you and your credit-worthy neighbors. But things go badly. The investment bank has used many millions of its own money (“capital”) and borrowed much from others to invest.  To borrow, they usually sold “bonds,” which are just IOU’s with a bit of interest to be paid at some future point. These millions bought slices of mortgage pools with the income stream at 7% and it only paid out, say 1%, on their bonds. This was just a larger version of the old saving account plan mentioned in the first paragraph, and proved quite profitable.

But by 2008, housing prices and securitized subprime mortgages plummeted. Others in the same pool started selling these slices at fire sale prices. Maybe it was at only 25% of the value. Thus, the bank’s $2 million “asset” was now only worth about $500,000! The loss of 75% is called a “write down.” These, in sufficient numbers, can really affect the health of the investment bank, because it is listed just like money out the door for nothing.

Remember the bank runs in the movie, It’s a Wonderful Life? The FDIC insures all deposit accounts to prevent such panic. Other banks can also help a bank out if they are now short on assets to borrow against to pay its depositors.  But following 2008, all banks wanted to simply hold onto its cash in case it became the target of a bank run, or the other bank ultimately fails. A self-fulfilling prophecy resulted:  banks wouldn’t lend, therefore banks had no credit, and were subject to a modern day bank run. Some banks did fail, just not as many as some feared.

Companies like AIG that insured so many bonds on what is called “credit default swaps” were famously deemed “too big to fail.” While it is generally agreed that saving the banking system was required, as usual, the government acted in a wasteful and unwise way in doing it. The “bail outs” were often paid at 100% of value, which is unheard of in a fire sale.  Of course--it was not their money--it was ours.

Unfortunately, with foreclosures still sadly occurring at high rates, appraisals are bottomed out and people cannot sale or refinance their house.  Ultimately, the housing bubble popped and will probably re-inflate rather slowly. It was a return to those original rules of lending that has helped the market start the recovery.

Insurance company turned down your claim? We may be able to help.

Often when consumers call us with insurance problems, we suggest that they file a complaint with our office. And it's not uncommon for people to say something like “Why should I bother? I already called the insurance company, and they gave me their answer.”

First off, don't give up. Filing a complaint with our office can still help.

Here's why: When we receive complaints, we send the paperwork to our contact people at each insurance company. These are usually higher up in the insurance company than the front-line staff who answer customer service questions. Because of their position in the company, the insurance workers we deal with often have more discretion to consider all the factors and make a decision on your claim.

Also, state law says that when an insurance company receives a complaint from our office, the company needs to investigate the issue and respond to us in a timely manner. Sometimes, just the process of having another person from the insurance company take a closer look can lead to a resolution.

Finally, these complaints give our office a window into what’s going on within an insurance company, so the time that you spend filing the complaint can help us see a bigger picture. In the long run, that can help a lot of consumers in addition to you. In some cases, complaints by just a few individuals have led to investigations that resulted in refunds to hundreds of people. (Here's an example of that.)

So if you need help -- and live in Washington -- give us a call at 1-800-562-6900 or send an e-mail to AskMike@oic.wa.gov. (If you live elsewhere, here's how to find your area's insurance regulator.) Our services are free and we won't try to sell you anything. We're the government agency that regulates the insurance industry in Washington state.

Stop-Loss Insurance Regulatory Developments Spill Over into the Captive World

The regulation of medical stop-loss insurance has long been on the radar screen of those involved with self-insured group health plans, but more recent developments should rattle the cages of many captive insurance industry service providers as well.

This convergence of interest relates to employee benefit group captives structured for health care risks, which arguably is the fastest growing segment of the alternative risk transfer marketplace.  The reason for this growth, of course, is that small and mid-sized employers are clamoring for solutions to better control the cost of providing quality health benefits for the their workers. 

And taking a longer view, the potential premium volume associated with health care risks could easily eclipse premium volume connected with P&C-related liability if the captive insurance marketplace figures out how to effectively respond to market demands.

But unless smaller and mid-sized employers are able to operate self-insured group health plans, captive insurance solutions are moot.  That’s because individual self-insured employers are the essential “building blocks” for the viable variations of group captive structures.  For these structures, individual employers must obtain separate stop-loss insurance policies, either from a stop-loss carrier or direct from the captive.  If employers cannot access stop-loss policies with appropriate terms, the employee benefit group captive model explodes.

That threat is at our doorstep so it is important that captive insurance industry leaders fully understand what is happening and why.

This blog has been reporting for some time about how stop-loss insurance with lower attachment points has attracted negative attention from state and federal regulators.  Most recently, we commented how developments in California (see previous blog post) portend a new round of attempts to restrict access to stop-loss insurance across the country by smaller employers…again, the key components for group benefit captives.

It is important to note that while SB 1431 in California only applies to stop-loss policies sold to employers with 50 or fewer employers (small group market definition), the Affordable Care Act provides that states may apply to redefine the definition of small group market up to 100 employees in 2014, which California and many other states will most certainly do. 

In addition to regulatory encroachments at the state level, federal regulators are now taking a closer look at stop-loss insurance, which could result in additional restrictions.  This blog will be commenting on these federal developments in more detail soon, so be sure to check back to understand what is happening in Washington, DC.

As an aside, there seems to be confusion about what health care reform (and its potential repeal) means for the captive insurance in a general way so we’ll try to quickly cut through the fog.   The ACA does not directly create nor suppress any captive insurance opportunities but there are some indirect connections.  

Health care reform has had the effect of driving up health insurance premiums, thus prompting more interest in self-insurance and potentially group captives as we have discussed.  There may also be opportunities for captives to provide financial backstops for Accountable Care Organizations (ACOs) as provided for by the ACA.

The potential for increased stop-loss insurance regulation is another indirect effect of the ACA, but it is the most important development to watch.  Most everything else is really just “white noise” with regard to the captive insurance marketplace.

And by the way, the regulatory focus on stop-loss insurance is likely to continue even if the U.S. Supreme Court overturns the entire health care law this June, so this industry concern has shelf life regardless of the judicial outcome.

So what to do?   In short, pay close attention to these developments and be receptive to opportunities to advocate for the ability of smaller employers to purchase stop-loss insurance without artificial attachment point restrictions and/or other inappropriate regulatory hurdles.

Those opportunities are almost certain to come.

Independent Medical Examinations - Second IME Ordered

Walsh v. Newland, 2012 ONSC 2123 (S.C.J.)

Motions to compel a plaintiff to attend at an independent medical examination are often dependent on their facts, as can be seen in Justice Eberhard's decision in Walsh v. Newland.

In this case the plaintiff had previously been assessed by the defendant's neurologist. The defendant sought to have a second neurologist assess the plaintiff. Trial was scheduled for April 2012. In February 2012, the plaintiff served a report which linked the plaintiff's Bell's Palsy to the motor vehicle accident. At the time of the first IME, no link had been made so the first neurologist did not comment on it.

At paragraph 4, Justice Eberhard stated the basic test for compelling additional IMEs:

a) Whether the moving party established a need for the further examination;
b) Any new symptoms or complaints or a change in the landscape of the case as a result of a new medical report from the plaintiff. This is often used as a basis to justify a further defence medical examination; and
c) The overriding test of fairness and both sides having the ability to put the best evidence before the court at trial.

Justice Eberhard concluded that although the trial would be adjourned in order to allow for the examination to take place, the defendant was entitled to the IME. There was no real prejudice and it was important the defence be permitted to assess the new allegation.

- Tara Pollitt

Prestige Administration ordered to stop selling insurance products in WA

An Arizona company that has sold at least 82 vehicle service contracts illegally in Washington state has been ordered to stop.

Our office has issued a cease-and-desist order against Phoenix-based Prestige Administration Inc.

Our legal affairs investigators found that the company issued at least 82 motor vehicle service contracts or similar products to Washington consumers. (Under Washington law, these contracts are considered a form of insurance.)

The problem is that the company is not authorized to conduct insurance transactions here in Washington. Nor have they registered with our office as a service contract provider.

Here's a key part for consumers who bought those contracts: Nothing in our order prevents the company from fullfilling the terms of the existing contracts.

The company has the right to demand a hearing.

Don't Just Ignore Compliant Requests

Post by Jack Griffeth

Sometime ago, I wrote a blog article on the new Code Section 38-77-250, which requires automobile insurance companies to disclose, prior to suit, the limits of coverage pursuant to specific requests.  Since then, I have had a number of inquiries asking two recurring questions. 

1. What is the operative trigger for the statute – the date of the accident or the date of the request?
2. Do insurers even have to respond to requests for fleet insurance information?

In my opinion, it is the date of the compliant request that triggers the statute, not the date of the accident.  In other words, if an accident happened in 2011 or at any time before the effective date of Section 38-77-250, an insurance company must provide the information requested, if the compliant request is after January 1, 2012, unless exempted from the statute.

If you read the statute as a whole, the focus centers on a “compliant request.”  Not every letter requesting the information complies with what the statute provides as the necessary steps that a plaintiff must do in order to get the information.  Assuming, however, that a plaintiff’s lawyer has properly requested the information, then an automobile insurance company must provide the information as designated by the statute regardless of the date of the accident. 

The second question has to do with a fleet policy. Fleet policies are exempt from the statute, but the question is, must an automobile insurance company at least respond to the compliant request?  In my view, an automobile insurance company cannot ignore a compliant request along these lines, but it should respond to the plaintiff’s lawyer, enclosing a copy of the statute if need be, and politely decline to provide the coverage because it is exempt from the statute’s requirements.  In other words, I would favor at least a reply to the request and would urge insurance companies not to simply ignore the request.  For instance, the statute requires an insurer to reply to a non-compliant request and advise as to the deficiencies of the request.  Don’t just ignore! 

I suppose that either of these items above-mentioned can be taken to a ridiculous conclusion.  For instance, a compliant request might be made for an accident on which the statute of limitations has expired.  Though a plaintiff’s lawyer might be prohibited from filing suit, nevertheless, there is no provision in the act that allows the insurance company NOT to respond to a compliant request.  My suggestion would be to send a reply, explain that the statute of limitations has expired and provide the information anyway.  A response is what the statute, taken to its absolute logical [or perhaps, illogical] conclusion, requires.

If you have any questions, please don't hesitate to contact me.

- Jack