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Insurers Will Take Lead On Oil Rail Transport Safety Push

David McMahon was quoted in a Jan. 23, 2014, Law360 article, Insurers Will Take Lead On Oil Rail Transport Safety Push, about how a series of fiery derailments of trains carrying crude oil have not only led lawmakers to consider new rules, but also could push insurers to take action, forcing the oil and rail industry to improve safety to cut down on underwriting costs.

According to the article, rail transport of crude oil has grown significantly in recent years with the U.S. energy boom. Three recent crashes have highlighted safety problems: a Dec. 30, 2013, collision near Casselton, N.D.; a November derailment in rural Alabama; and a derailment in Lac-Megantic, Quebec in July. That accident set off massive blasts, destroyed part of the town and killed 47 people.

There was a real concern about the condition of the railroad’s assets in [the] Alabama [crash]. You might see carriers put inspection requirements on their own assets before writing the coverage,” McMahon said. “The carrier doesn’t want to write coverage where the assets of the railroad are dilapidated and haven’t been maintained.”

McMahon told the publication that the crashes and the resulting push for tougher rules governing the transport of oil by rail could lead insurers to limit what they are willing to underwrite.

You can see them saying, 'We’re not going to give you a blank check and allow you to carry 100 tanker cars with oil. We’re going to limit it to 40 to 50 cars,’” he said. “Or there could be outright exclusions of some particular activities.”

McMahon said insurers will not doubt embrace whatever rules regulators and lawmakers enact to improve safety.

The tighter the regulations are ... it can result in a safer environment, which insurers like,” he said. “They like things they can effectively evaluate — the safer it is, it tends to be safer to insure.”


Homeowners and Related Policies

Barger & Wolen recently updated Chapter 36 of the California Insurance Law & Practice, Homeowners and Related Policies

The chapter revisions include:

  • Trigger of coverage rules;
  • Triggering first-party coverage vs. third-party coverage;
  • Continuing or progressive damage issues;
  • The known loss rule;
  • Recission of the policy;
  • The Residential Property Insurance Bill of Rights; and,
  • Personal property coverage and exclusions.

In addition, there are 28 new practice tips covering a wide range of issues attorneys may confront in regard to homeowners insurance and reports of several court decisions on point.


Claims Handling and the Duty of Good Faith

Barger & Wolen partners Gregory Eisenreich and John  Holmes recently updated Chapter 13 of the California Insurance Law & Practice, Claims Handling and the Duty of Good Faith

The chapter revisions include:

  • The nature and scope of the insured’s duty of good faith;
  • General principles of bad faith actions;
  • The duration of the implied covenant extending from the policy’s inception and remaining in force during litigation;
  • Insured may impact their rights under their policies if they do not comply with policy conditions;
  • The burden of proving in bad faith actions that policy benefits were wrongfully withheld;
  • The use of litigation conduct and settlement offers to prove that policy benefits were wrongfully withheld;
  • Standards for finding bad faith and awarding punitive damages contrasted;
  • Tort damages are not available for an insurer’s breach of an obligation unrelated to claim handing, and
  • An insurer found liable to its insured based on estoppel rather than the contract’s terms of coverage cannot be liable for tortuous bad faith.


Insurance Cases To Watch In 2014

Larry Golub was recently quoted in an article by Law360, Insurance Cases to Watch in 2014 (subscription required), detailing what is expects will be the biggest insurance cases decided in 2014.

Golub's comments pertained to Fluor Corp. v. Superior Court of Orange County. The California Supreme Court agreed to take up the case this year, reconsidering its 2003 ruling in Henkel Corp. v. Hartford.

The Henkel ruling limits the circumstances under which policyholders can transfer insurance rights without an insurer's permission, allowing transfers “only if a loss has already been reduced to a sum of money due under the policy as a result of a settlement or judgment.”

The Fluor case argues that when it ruled in Henkel, the court ignored an 1872 statute which allows companies to freely assign their rights under insurance policies following a loss.

Golub told Law360 that the court's ruling in Fluor could be key given that there have been an increasing number of mergers and acquisitions and that it would provide certainty for both insurers and policyholders.

“The supreme court will reconsider the issue in light of this 1872 statute and hopefully draw a bright line, so parties know which way to go,” he said.


Barger & Wolen Partners Author "Insurance Practices and Coverage in Liability Defense"

Barger & Wolen partners David McMahon, Robert Levy and John (Jack) Pierce authored the second edition of Insurance Practices and Coverage in Liability Defense (formerly Defending the Insured). 

Intended for legal practitioners, researchers, courts, and other insurance industry professionals, the book provides the first comprehensive and objective analysis of the various duties and potential pitfalls confronting each party in a three-way relationship between insurance carrier, insured, and the appointed counsel in insurance defense.

Through national study and state-specific analysis, the book offers a detailed discussion of topics engendered by the duty to defend and the consequent obligations of each of the parties. Reference tables and appendices then survey the law in each state on those topics.

Our approach to writing this book was to provide our unique perspectives from our day-to-day knowledge of the laws and our industry experiences through our firm’s insurance defense practice,” said David McMahon. “We are confident it will be a valuable resource to the legal and insurance industries.”

David McMahon, the Managing Partner in Barger & Wolen's San Francisco office, is a co-editor of the firm’s Litigation Management & Attorney Fee Analysis blog, and a California State Chair for the Council on Litigation Management.

Jack Pierce is a nationally recognized author and an expert witness in the areas of legal fee disputes, fee and cost allocation, legal ethics, and issues related to legal and ethical responsibilities of lawyers that arise from the tripartite relationship between insurers, insureds and defense counsel.

Robert Levy is a frequent author and has more than 33 years of experience encompassing coverage and defense litigation on behalf of major commercial general liability and professional liability insurers throughout the United States

Insurance Practices and Coverage in Liability Defense, Second Edition, published by Wolters Kluwer Law & Business is available for purchase through Wolters Kluwer website here.

Genuine Dispute Doctrine Precludes Bad Faith Claim Reaffirmed by District Court

Barger & Wolen LLP Secures Summary Judgment On Behalf of Client

District Court Reaffirms “Genuine Dispute Doctrine,” Precludes Bad Faith Claim

LOS ANGELES –On November 29, 2013, United States District Court Judge Margaret M. Morrow granted summary judgment to Barger & Wolen LLP client Mitsui Sumitomo Insurance Company of America in Lucky Leather Inc. v. Mitsui Sumitomo (Case No. CV12-09510-MMM).  Lead attorneys Stephen Klein and Peter Sindhuphak were successful in convincing the Court that the insured had failed to raise a triable issue that benefits under the Mitsui Sumitomo policy were owed. 

The Court found that not only did plaintiff fail to produce evidence that the claimed loss of leather goods from water damage was covered, but that the insurer’s reasonableness in the claims-handling process was indisputable,” says Klein, a partner in the firm’s Los Angeles office. “Under the “genuine dispute” doctrine, absent any evidence that the insurer’s coverage determination was unreasonable, the insurer was not in violation of the covenant of good faith and fair dealing.”

Judge Morrow’s decision relies upon both state and federal California cases allowing a trial court to conclude, as a matter of law that an insurer’s denial of a claim is not unreasonable, so long as there existed a genuine issue as to the insurer’s liability at the time the claim decision was made. 

The Genuine Dispute Doctrine is designed for cases like this where there was clear evidence that the insurer’s coverage determination was based on a thorough investigation of the claim and its actions in concluding that there was no coverage were indisputably reasonable given the facts and the policy language,” said Stephen Klein.


Companies Increasingly Look To Captive Insurance

David McMahon and Peter Felsenfeld’s article, Companies Increasingly Look To Captive Insurance, takes a look at the captive insurance market and how more and more companies have been choosing it as an alternative to traditional risk management.

According to McMahon and Felsenfeld, the captive works as a private in-house insurer that is wholly owned by the parent company. The company pay the captive premiums but the parent company keeps its capital if claims are less than premiums. At the same time, the company pays the difference if the opposite happens.

As reported by the authors, captive self-insurance now comes in a variety of forms, such as trade association and group captives. Some industry experts estimate that roughy 90 percent of Fortune 1000 companies use captive insurance while 60 percent of mid-sized companies take advantage of some form of captive structure. A majority of states now also allow for licensing of captive insurers under equally advantageous conditions.

Among the numerous benefits of forming a captive are increased control over the risk management process, reduced costs and greater underwriting flexibility, McMahon and Felsenfeld wrote. Even so, there are risks and they aren't for everyone.

A company must carefully assess its unique risk management characteristics before plunging into the captive market. Captives, for example, can be costly to maintain and may be more complicated than the standard insurance contract,” the authors wrote. “Also, captives are generally more appropriate for businesses with recurring, predictable risks, such as slip and falls, construction accidents and auto claims. A business with more varied, unpredictable risks may want to stick with the more predictable insurance model.”


California Court Releases Insurers From Strict Duty To Settle

Larry Golub was quoted in an October 23, 2013, article published by Law360 about a California appeals court decision, Paul Reid v. Mercury Insurance Co., which held that insurers generally don’t have to launch settlement discussions with those injured by their policyholders in high stakes cases, freeing insurers from the greater bad faith liability.

This ruling put to bed confusion that was stirred up by the Ninth Circuit's ruling in Du v. Allstate Insurance Co. which said California insurers must proactively work toward a settlement when it's clear that the policyholder is liable, even if claimants have not made a settlement demand.

Golub told Law360 that it would have been helpful for the appeals court to rule that claimants must make a formal settlement demand before insurers have a duty to settle.

Insurance companies often hold off on responding to claimants' requests for policy limits because they need more information, especially in cases where there are multiple injured parties and there is little insurance available, Golub said.

He explained that an explicit rule requiring formal settlement demands would ensure that all parties act in good faith.

There should be a bright line rule because there are going to be disputes," Golub said. “It's easy for the insured or the insured's attorney to make a settlement demand formally, and there's no question."

For more information on the decision, see this blog's discussion No Settlement Offer, No Bad Faith Liability for Insurer.

Accrual of Statute of Limitations for ERISA Disability Claim to be heard by SCOTUS

By James A. Hazlehurst

On October 15, 2013, the United States Supreme Court will conduct oral argument in Heimeshoff v. Hartford Life & Accident Ins. Co., et al., addressing the accrual of the statute of limitations for judicial review of an adverse benefit determination under an employee benefit plan governed by the Employee Retirement Income Security Act (“ERISA”).

As discussed below, the District Court of Connecticut granted defendants’ motion to dismiss, holding that plaintiff’s lawsuit was time-barred given the plan’s contractual limitation requiring legal action to be commenced within three years “after the time written proof of loss is required to be furnished.” The Second Circuit Court of Appeals affirmed in an unpublished per curiam opinion. In granting the petition for review, the Supreme Court limited the scope of its inquiry to a single question, rejecting consideration of two others that had been posed.

This blog entry will therefore “tee up” Tuesday’s oral argument before the Supreme Court, summarizing the underlying District Court and Second Circuit decisions and clarifying what are – and what are not – the core issues to be resolved.

Continue Reading...

Reasoning Behind Punitive Damages Calculations Provided By California Appellate Court

Royal Oakes was quoted extensively in an Oct. 7, 2013, Claims Journal article, California Court Of Appeals Decision Provides Reasoning Behind Punitive Damages Calculations, about a significant insurance case where $19 million in punitive damages were awarded, then later shot down by the California Court of Appeals, which found the verdict excessive. The court capped the award at $350,000.

The case, Nickerson v. Stonebridge Life Ins. Co., involved a former Marine who sought payment for 109 days in the hospital due to a fall after his insurance company concluded that only 19 of the days were medically necessary. The jury awarded him $35,000 for emotional distress and $19 million in punitive damages.

Oakes told the publication that traditionally the way in which punitive damages have been calculated has varied.

“For years the appellate courts have been trying to interpret the various pronouncements by the U.S. Supreme Court about the issue of the size of punitive damages and specifically, the ratio of punitive damages to compensatory damages. The reason it has been a bit of a struggle on occasion is because of the high court and the appellate courts, in general, are not prepared to impose a strict bright line test, limiting punitive damages to a single digit ratio,” Oakes said.

“Having said that, this new case is one of many cases that have come very close to seeing that, in the absence of exceptionally reprehensible conduct, then it is a due process violation to exceed a ratio of 9 or 10 to 1. In fact, many appellate courts have suggested that far smaller ratios are appropriate in virtually all cases.”

Oakes also said that the decision is significant to insurers because it doesn’t include breach-of-contract damages.

“The significance of this decision is to reinforce the idea that though evidence of reprehensible conduct may have been found by a jury; nonetheless, it is almost impossible for an appellate court to find that a ratio of more than 10 to 1 between punitives and the compensatory damages satisfies constitutional due process requirements. There’s another very significant and separate aspect to this decision. When you figure out how much compensatory damages exist in order to come up with the punitives to compensatory ratio, do you have to decide what components of damages should be included in compensatory damages? This new Nickerson case reaffirms the idea that in computing compensatory damages, you do not include breach of contract damages. Instead, you only include damages for torts, such as bad faith and emotional distress,” he said.

According to Oakes, in Nickerson the court concluded that in determining compensatory damages, “for purposes of computing a ratio between punitive and compensatory, you do not include the breach of contract damages.

 “The reason for that is that punitive damages relate to tortuous conduct. You don’t get punitive for a breach of contract. You might get punitive for tort, depending on the tort and depending on whether the punitive damage standard is met, such as malice, oppression or fraud. And so, this case is an important reminder that in computing compensatory damages for purposes of arriving at a ratio between punitives and compensatory you exclude breach of contract damages and you include tort damages,” he said.

In general, if a contract is breached and the party who breached it is sued, damages are limited to contractor damages, the article notes.

“However, years ago, the courts decided that because of the special relationship between a policy holder and an insurance company that if a policyholder is suing for breach of contract and can also go beyond that and prove additional conduct such as bad faith or emotional distress then the policy holder is entitled to try to assert those causes of action,” Oakes said.

Oakes also told the Claims Journal that there have been several court decisions that have come close to saying it’s a due process violation to exceed the ratio of 9 or 10 to 1 between punitive and compensatory damages.

“I think that we have been moving in the direction of a bright line test limiting punitive damages to a single digit ratio. It may be that because every case is different and you occasionally see cases that suggest an extreme level of reprehensibility, there will continue to be a reluctance to impose a bright line test,” Oakes said.

Older Entries

August 16, 2013 — Health Insurer Again Evades TCPA Suit Over Jobs Calls

August 8, 2013 — Fingers Point to Different Defendants in Asiana Airlines Plane Crash

August 6, 2013 — Zhang Ruling Yanks Insurer Shield Against UCL Claims

August 6, 2013 — Barger & Wolen partner skeptical that Zhang will increase suits against insurers

August 6, 2013 — Asiana Flight 214 Victims' Lawsuit Amounts Will Vary Widely

August 5, 2013 — Could Medpay Be The Latest Target In California Bad Faith Claims?

June 28, 2013 — Proposed Regulations list 20 standards to determine if insurer is operating in hazardous financial conditions

June 10, 2013 — Oppression and Surprise Render Arbitration Provision Unenforceable

June 4, 2013 — 5 Tips for Attorneys Turned Claims Investigators

May 31, 2013 — Insurer Has No Duty To Verify Accuracy of Insurance Application Representations

May 28, 2013 — HP Inkjet Printer Litigation: Fee Award Fails to Comply With Provisions of the Class Action Fairness Act

May 23, 2013 — Cigna Agrees to Re-evaluate and to Compensate Disability Insureds in the Amount of $77 million

May 6, 2013 — Liability Insurers May Have Duty to Defend Against Federal Prosecutions, California Court of Appeal Holds

April 19, 2013 — Barger & Wolen Insurance Regulatory Attorneys Guide Insurer Through Demutualization, Acquisition

April 4, 2013 — Barger & Wolen Completes First California Demutualization Since 1997

April 1, 2013 — David McMahon to Present at ACI 2013 Bad Faith Conference`

March 1, 2013 — When a Cruise Goes Off Course

February 26, 2013 — Recovery From Dissolved Corporation's Liability Insurer Barred By Foreign Survival Statute

February 20, 2013 — Sewage Cruise Suits Least of Carnival's Coverage Worries

February 14, 2013 — Winning Insurers Gain Clarity on Defense Duty During Appeals

January 28, 2013 — Canon Ruling May Spur Unfair Competition Claims In Calif.

January 2, 2013 — Insurance Cases to Watch in 2013

December 18, 2012 — California Supreme Court's Reconsideration of Henkel Decision Will Re-Assess Consent-to-Assignment Clauses

November 27, 2012 — Speaker at 2012 ACI Bad Faith Litigation Conference

November 26, 2012 — NCOIL Insurance Certificate Law May Aid Carriers In Court

October 25, 2012 — Barger & Wolen Launches Disability Insurance Industry Conference

October 24, 2012 — Musicians Lawyer Up Over Insurance "Exclusion"

October 24, 2012 — Equitable Principles Guide Court In Self-Insured Retention Case

October 16, 2012 — 9th Circuit Ruling Won't Stop Push For Proactive Insurance Deals

September 19, 2012 — Podcast: Impact of Recent California Legislation

September 19, 2012 — Unfair Acts Ruling May Save California Insurers from Stiff Fines

September 13, 2012 — A Duty (to Settle) Too Far

August 20, 2012 — Stacking of Policy Limits - Podcast interview regarding State of California v. Continental Insurance

August 14, 2012 — California Court Says Insureds Can Stack Policies For Max Coverage

August 14, 2012 — State Supreme Court Rules Against Insurers in Stringfellow Acid Pits Case

July 23, 2012 — Insurance Regulatory Issues Up Front at ACIC Annual Conference

July 23, 2012 — Foreign Investments: Iran Investment Bill Well-Intentioned, But Unconstitutional

July 23, 2012 — Liberty Mutual Ruling Could Trigger California Classification Feuds

June 18, 2012 — Wheels Of Justice To Grind To Halt After Calif. Budget Cuts

June 1, 2012 — Auto Manufacturer and Insurer See In-Car Connectivity Systems as Win-Win in the Fight for Market Share - How Far Will Regulators Let Them Go?

May 31, 2012 — California Assembly OKs Bill to Curb Insurers' Iran Investments

May 18, 2012 — Action Against Workers' Comp Claims Administrator Not Covered by Insurer's Arbitration Provision, Court of Appeal Rules

May 3, 2012 — California Legislation Aims to Protect Personal Social Media Account Access by Employers

April 25, 2012 — Big Brother - Are Americans Ready for the Growth of Usage (Telematics) Based Insurance?

April 4, 2012 — "Do Not Track" and Telematics

March 28, 2012 — FTC Issues Best Practices Guide to Protecting Consumer Privacy

March 9, 2012 — Workshop held by California Department to Discuss Contemplated Changes to Life Settlement Regulations

March 2, 2012 — Legislation to Non-Admit Iran-Related Investments

February 24, 2012 — Agreement with California Attorney General May Set Floor for Privacy Protections for Users of Mobile Applications

February 21, 2012 — California's Reader Privacy Act: What Every Bookseller Must Know

February 14, 2012 — Dodd-Frank Does Not Preempt All California's § 1011(c) Reinsurance Approval Requirements Applicable to Foreign Insurers

November 18, 2011 — Potential Changes to Prior Approval Regulations for Property/Casualty Insurers Under Consideration by California Department of Insurance

November 14, 2011 — Barger & Wolen's Insurance Litigation & Regulatory Law Blog Named to The Insurance Law Community's Top Blogs for 2011

November 1, 2011 — U.S. News & World Report & Best Lawyers Names Barger & Wolen to Their Best Law Firms List

June 14, 2011 — Former President of Association of California Insurance Companies Joins Barger & Wolen

March 22, 2011 — Attorney Conflicts of Interest: Identifying and Resolving Ethical Pitfalls

March 21, 2011 — California Seeking Suitability Requirements Again

December 14, 2010 — Insurance Commissioner Removes Four Companies from List of Companies Doing Business with Iran

November 22, 2010 — Request for Increase in Workers' Comp Cost Benchmark Rejected by Commissioner Poizner

October 4, 2010 — 14th Annual Insurance Forum in Chicago Sponsored by Barger & Wolen

September 20, 2010 — California Court Determines No Coverage Based on Unambiguous Motor Vehicle Exclusion

September 17, 2010 — Barger & Wolen Receives First-Tier Ranking in the Inaugural "Best Law Firms" Survey by U.S.News and Best Lawyers®

August 19, 2010 — Barger & Wolen's Insurance Law Blogs Named to Top 50 Blogs by LexisNexis Insurance Law Community

August 19, 2010 — California Department of Insurance Corporate Application Filing Deadline Fast Approaching

May 18, 2010 — Barger & Wolen Updates the Book of Insurance Law

December 4, 2009 — 2009 California Legislative Update

July 28, 2009 — The Federal Fair Credit Reporting Act & State Regulation of Credit Scoring: Chartered & Unchartered Territory for Insurance Companies Post Safeco V. Burr