The book is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers who must comply with the requirements of the California SIU Claims Regulations that were rewritten and made operative October 1, 2020.
The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”). The SIU must comply with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.
It is necessary, therefore, that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California to be familiar with the SIU Regulations. The state has imposed on all claims personnel duties to deal with insurance fraud if the insurers are doing business in the state. California licensed insurers are required by California Insurance Code Sections 1875.20-24 and California Code of Regulations, Title 10, Sections 2698.30 -.41 to establish and maintain Special Investigative Units that identify and refer suspected insurance fraud to the California Department of Insurance (CDI) and directly to the local California County District Attorney’s Office for workers’ compensation only.
You Must Know how to Comply with the California SIU Regulations that are Effective October 1, 2020
New Regulations to Enforce Statutes Requiring Insurers To Maintain A Special Investigative Unit
See the full video at https://youtu.be/gy_3jDhDaNII have completed a resource for everyone involved in the insurance industry in the state of California to enable them to comply with the newly revised California SIU Regulations since the revisions add much to the obligations of insurers doing business in California.
The new book: California SIU Regulations 2020 a book explaining the revised SIU Regulations is now available from Amazon.com here.
The fortuity doctrine arises from the basic concept upon which insurance is founded: that insurance covers risks, not losses that were planned, intended, or anticipated by the insured. It has always been the view of insurers that losses that were expected by the insured could not be insured. To do so would have a counterproductive effect. No one would buy insurance until they were certain they would have a loss. The concept of spreading the risk on which insurance is based would be defeated. The creation of losses would be encouraged.
An accident or occurrence is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.
Latent Defect at https://zalma.com/blog
Cases that provide coverage despite an exclusion for latent defects fall generally within two categories. The court determines either that:
the defect could have been discovered through appropriate testing and it is therefore not latent; or
the loss resulted from a contributory covered risk.
“A policy will define latent defect” as “a hidden flaw inherent in the material existing at the time of the original building of the yacht, which is not discoverable by ordinary observation or methods of testing.” “The word “inherent” requires that a latent defect be characteristic of or intrinsic to the material. The word “flaw” imposes the exact opposite requirement. It includes problems with a specific piece of material, but not problems characteristic of the material itself. In short, giving the terms their plain and reasonable meaning, there can be no such thing as an inherent flaw.” (Ardente v. Standard Fire Ins. Co., 744 F.3d 815 (1st Cir. 2014))
Most policyholders do not have the in-house capability to investigate, evaluate, and negotiate significant property insurance losses. While some losses, such as a small fire loss requiring only minor repairs, may be dealt with easily, others, which involve more complex damages and different potential causes of loss, are much harder to assess. Resolving them may require expertise in understanding the scope of coverage provided by the applicable property insurance policy, scientific or other specialized background to determine the cause of a specific loss, the ability to determine the cost to repair or replace the damaged property, and the calculation of the amount of a time element (business interruption) loss.
In such cases, the policyholder may engage a public insurance adjuster (PA). PA’s are licensed by almost every state and their contract forms must be approved by the state. All PAs claim to be experts on property loss adjustment; most are. They represent only policyholders in fulfilling the duty to prepare, file, and adjust insurance claims. The PA should handle every detail of the claim, working closely with the policyholder and the insurer to obtain a prompt and reasonable settlement.
PAs usually charge a contingency fee, which they present to the insured as a fait accompli. But this fee is negotiable. The insured should try to lower it as much as possible. For a major loss, more than one PA will arrive at the site seeking a contract. A fee quoted by one can be reduced by seeking lower fees from the others. Rates can be negotiated from a low of 3% to a high of 40%, although the average charge is 10% to 15%. When considering a PA, the insured must take into account the fact that even if the insurer pays the full amount of the loss, the cost of the adjuster’s fee may not leave enough funds to fully repair the damaged structure.
Upon being retained, the professional PA should:
immediately inspect the loss site;
assemble the necessary support for the claim;
review the coverage to determine the portions of the loss which are covered;
assess the value of the loss; and
negotiate with the insurance company to reach the end result.
Trigger of Coverage
The term “trigger of coverage” means “what event must occur for potential coverage to commence under the terms of the insurance policy” and “what must take place within the policy’s effective dates for the potential of coverage to be ‘triggered.'” [In Re Feature Realty Litig., 468 F. Supp.2d 1287, 1295, n.2 (E.D. Wash. 2006)]
After the California Supreme Court adopted a continuous trigger in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 685, 42 Cal.Rptr.2d 324, 913 P.2d 878 (Montrose) in the case of successive policies, property damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods, so that the insurer’s duty to defend arose under those policies. Insurers, trying to limit their coverage, revised the policy wording.
Therefore, the precise question is what result follows under the language of the policies of insurance to which the parties agreed. The “continuous injury” trigger has been applied mostly in cases involving gradual release of pollutants and other environmental harms. After Montrose, the insurer revised its policies to use the language for the very purpose of “obviat[ing] the application of the ‘progressive damage-continuous trigger’ articulated in Montrose.” As a result, the defendant’s policies state that property damage “which commenced prior to the effective date of this insurance will be deemed to have happened in its entirety prior to, and not during, the term of this insurance.” [Ins. Co. of Pa. v. Am. Safety Indem. Co., 32 Cal.App.5th 898, 244 Cal.Rptr.3d 310 (Cal. App., 2019)]
In King Cnty. v. Travelers Indem. Co. (W.D. Wash., 2019) the Louisiana Court of Appeals ruled that allegations by a property owner that an environmental consultant failed to detect the presence of pollutants on its property did not trigger coverage under the consultant’s liability policies. The Court found that the “occurrence” giving rise to the claims against the insured took place years prior to the issuance of the policies in question.
Many people use the terms “casualty” and “liability” as if they were synonymous. However, casualty insurance includes insurance that does not fall within the definition of liability insurance. “Casualty insurance” is defined as an “agreement to indemnify against loss resulting from a broad group of causes such as legal liability, theft, accident, property damage, and workers' compensation.” Black's Law Dictionary 871 (9th ed. 2009).
Liability insurance is part of the casualty line of insurance. A “casualty” is an accidental injury, a fortuitous event.
For every such harm there is a law or legal principle that places the burden of the consequences back on the finances of the initiator of the harm. Applying the ancient maxim of the law that “for every wrong there is a remedy...” liability insurance exists to fund the remedy.
Another feature of casualty insurance policies is that they are limited to injuries to persons other than the insured. The ultimate concern of these policies is the insured—the person who buys the insurance who needs to be protected from claims made by third persons.
At one time, insurers were limited by statute and their charters were limited as to the type of insurance they could write. Casualty insurance could only be written by casualty insurance companies. That is no longer the case and casualty insurance may be written by any insurer willing to do so with sufficient assets to perform.
• Terrorism Coverage
• Flood Insurance
• Political Risk or Government Liability
• Employee Theft and Dishonesty
• Surety Bonds
Read the full article and see the video at https://www.linkedin.com/…/hallelujah-texas-allows-fraud-ex… and at https://zalma.com/blog plus more than 3150 posts.
The eight-corners rule of insurance contract interpretation about duty to defend directs Texas courts to determine a liability insurer’s duty to defend its insured based on:
the pleadings against the insured and
the terms of the insurance policy.
For many years plaintiffs’ lawyers have taken advantage of the rule and with careful pleading have required an insurer to defend a suit that was probably not covered by the insurance policy.
In Loya Insurance Company v. Osbaldo Hurtado Avalos And Antonio Hurtado As Assignees of Karla Flores Guevara, No. 18-0837, Supreme Court of Texas (May 1, 2020) the Texas Supreme Court, in the face of an obvious fraud, was asked to create an exception to the eight corners rule.
It is about time that the state of Texas created an exception to the eight corners rule. Hopefully this decision will lead to others allowing the admission of extrinsic evidence to determine the duty to defend as is the case in California and other states. A careful lawyer drafting a suit can always allege something that will allow for a defense. Consider my blog post on how a murder’s estate got a defense when he shot the plaintiff in: “Four Corners Rule Requires Defense for Person who Shot Plaintiff in the Face
A Proposal to Create a Staff of Insurance Claims Professionals
See the full video at https://youtu.be/1nVg3ZqtDpA
To avoid claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers must maintain a claims staff dedicated to excellence in claims handling. That means they recognize that they are obligated to assist the policyholder and the insurer to fulfill all the promises made by the insurer in the wording of the policy.
When the claims staff is made up of claims people who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling litigation between the insurer and its insureds will be reduced exponentially.
To keep the professional claims staff operating efficiently and in good faith they must be honored with increases in earnings and perquisites.
Conversely, those who do not treat all insureds and claimants with good faith and fair dealing should be counseled and given detailed training. If they continue with less than professional conduct they must be fired.
The insurer must make clear to all employees that it is committed to immediately eliminating staff members who do not provide excellence in claims handling and must be ready to publicly and quickly fire those who do not provide excellence in claims handling.
An excellence in claims handling program can include a series of lectures supported by text materials like the program I created for Experfy.com. It must be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce the information learned in the lectures. To guarantee that the training and requirement for excellence in claims handling is effective the insurer must also institute a regular program of auditing claims files to establish compliance with the requirement to deal fairly and in good faith to the insured.
The insurer’s management must support the training and repeat it regularly. Management should be closely involved in all claims and required to audit claims files to determine that the training has taken and is being applied to each claim.
There is no quick and easy solution. The training takes time; learning takes longer. If the insurer does not have the ability to train its staff it should use outside vendors who can do so using available sources like this publication, training from professional organizations, and continuing education providers.
A Video Explaining Why an Agent is Not an Insurer
Private Limitation of Action Provision is Enforceable
The video is available at https://youtu.be/RvFP2j0Jpp4
Frankie and Michael Cabral sued for breach of contract, insurance bad faith, conversion, and negligence after defendant Public Storage disposed of personal belongings that plaintiffs had placed in a leased storage unit. Plaintiffs appeal from summary judgment in favor of Public Storage, and also challenge the court’s sustaining of a demurrer without leave to amend based on a limitations provision contained in plaintiffs’ Lease Agreement.
California courts accord contracting parties substantial freedom to modify the length of the statute of limitations. Courts will enforce an agreed upon limitations period that is shorter than what is otherwise provided by statute if the limitations period is reasonable. Reasonable in this context means the shortened period nevertheless provides sufficient time to effectively pursue a judicial remedy.
The limitations provision in this case was clear. Plaintiffs were informed they had one year to commence an action for a claim based on lost or damaged property covered under the lease. The one-year period afforded plaintiffs adequate time to determine the damages resulting from the loss of stored property and to file a claim. Plaintiffs contended that the Lease Agreement and limitations provision were unconscionable. The issue whether a contract or provision is unconscionable is a question of law.
Procedural unconscionability focuses on oppression or surprise due to unequal bargaining power. Substantive unconscionability refers to a provision involving terms that are so one-sided as to shock the conscience, or that impose harsh or oppressive terms. In light of Court of Appeal’s finding that the provision is reasonable, a fortiori the limitations provision is not substantively unconscionable.
The Court of Appeal concluded that the 12-month limitations provision is reasonable and enforceable. As a general rule, a plaintiff may only sue for breach of an insurance contract and breach of the covenant of good faith and fair dealing against an insurer that is a party to the contract. The insurer’s agents and employees who are not parties to the insurance contract cannot be sued. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576; Filippo, supra, 74 Cal.App.4th at pp. 1442-1444).
Insurance Conditions Precedent
Video available at https://youtu.be/I1ByB3cE34E.
When used in contract law, the word condition refers to an event, the occurrence or non-concurrence of which alters the previously existing relations of the parties by creating or extinguishing a legal duty. A condition is different from a promise or warranty. When used in an insurance policy the condition imposes duties on the insured (the promisor) and gives a corresponding right to the insurer (the promisee). Breach of a condition gives the insurer legal justification for refusing to perform its obligations under the policy.
There are two types of conditions:
conditions precedent; and
The distinction is significant in the resolution of insurance disputes because it determines the allocation of the burden of proof. The insured has the burden of proving the fulfillment of a condition precedent. The insurer has the burden of proving that a condition subsequent has not been fulfilled in order to avoid liability.
A condition precedent is an event, not certain to occur, which must occur, unless its non-performance is excused, before performance under a contract becomes due. [Restatement (Second) of Contracts § 224 (Am. Law Inst. 1981); accord IDT Corp. v. Tyco Grp., 13 N.Y.3d 209, 214 (2009); Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995).] While no particular words are necessary to create a condition, the words “if” or “provided,” as well as the phrases “provided that,” “on condition that,” “in the event that” usually connote an intent for a condition rather than a promise. [13 Samuel Williston & Richard A. Lord, Williston on Contracts § 38:16 (4th ed. 1990, updated 2019); accord MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009)].
The violation of a condition precedent precludes recovery. [Gordon v. St. Paul Fire & Marine Ins. Co., 163 N.W. 956, 957 (Mich. 1917); Yeo v. State Farm Ins. Co., 555 N.W.2d 893, 895 (Mich. Ct. App. 1996).” Durasevic v. Grange Ins. Co. of Mich. (6th Cir., 2019)]
Marine Insurers Invented The Warranty In An Insurance Policy
The video is available at Zalma on Insurance on YouTube at https://youtu.be/Vjb1PKEs3K8
Marine insurers invented the warranty in an insurance policy. So, it is fitting that a boat was involved in Lloyd’s of London v. Pagan-Sanchez, 539 F.3d 19 (1st Cir. 2008), in which the First Circuit Court of Appeal enforced a warranty and deprived the insured of all rights to indemnity because of the breach of warranty.
The case arose in 2003. A vessel called the Gabriella was at sea when an exhaust hose came loose and the Gabriella began taking on water through its exhaust system. Attempts to pump out the water were unsuccessful, and the Gabriella flooded and sank. The insured later submitted a claim to the plaintiffs for $175,000 for the loss of the boat and $100,000 for the costs incurred during salvage operations.
The insurers found by investigation that the loss of the Gabriella was caused by wear and tear, gradual deterioration, and lack of maintenance, and they also found that the vessel’s fire extinguishing equipment had not been inspected or certified within the preceding year and that the automatic engine room fire extinguisher system had been disconnected prior to the loss. Both were warranted by the insured to be in effect.
Even though there was no relationship between the terms of the warranty and the actual cause of the loss, the First Circuit concluded that “under the federal rule and the law of most states, warranties in maritime insurance contracts must be strictly complied with, even if they are collateral to the primary risk that is the subject of the contract, if the insured is to recover.”
In addition, “in marine insurance, there is historically no requirement that the breach of warranty relate to the loss, so that any breach bars recovery even though a loss would have happened had the warranty been carried out to the letter.” The treatise noted that most courts agree that in a maritime insurance contract, “[i]f the warranty is breached, the insurer is discharged.”
New York law has long provided that "the breach of an express warranty [in a marine insurance policy], whether material to the risk or not, whether a loss happens through the breach or not, absolutely determines the policy and the assured forfeits his rights under it." Cogswell v. Chubb, 1 A.D. 93, 36 N.Y.S. 1076, 1077 (1st Dept.1896) (navigation limit warranty), aff'd, 157 N.Y. 709, 53 N.E. 1124 (1899).
As New York's Court of Appeals has explained, an express warranty in a marine insurance policy "must be literally complied with, and that noncompliance forbids recovery, regardless of whether the omission had a causal relation to the loss." [Jarvis Towing & Transp. Corp. v. Aetna Ins. Co., 298 N.Y. 280, 82 N.E.2d 577, 577 (1948) and Levine v. Aetna Ins. Co., 139 F.2d 217, 218 (2d Cir.1943); Kron v. Hanover Fire Ins. Co., 15 N.Y.2d 521, 254 N.Y.S.2d 119, 202 N.E.2d 563-64 (1964) all of which required literal compliance rule to bar coverage where insured breached a warranty. [Great Lakes Ins. SE v. Aarvik (S.D. Fla., 2019)]
In admiralty, a vessel owner impliedly warrants the seaworthiness of a vessel at the inception of an insurance policy. [State Nat'l Ins. Co. v. Anzhela Explorer, L.L.C. , 812 F.Supp.2d 1326, 1365 (S.D. Fla. 2011)]
Surplus Line Broker Not an Insurer
After her house burned to the ground and her insurer rescinded the policy Suzan E. Taylor sued the insurer and the surplus line broker who obtained insurance for her from certain underwriters at Lloyd’s, London. The broker moved to dismiss Taylor’s action in Hiscox Dedicated Corporate Member Limited v. Suzan E. Taylor v. The Society Of Lloyd’s, The Corporation At Lloyd’s, and Burns & Wilcox, Ltd., NO. 6:18-CV-06100, United States District Court Western District Of Arkansas Hot Springs Division (April 20, 2020)
Lloyd’s Policy No. VSRD634943 (the Policy), provided fire insurance coverage for the high value home owned by Suzan E. Taylor, in Garland County, Arkansas. Taylor purchased fire insurance coverage from Certain Underwriters at Lloyd’s of London (the Insurer). Under the terms of the Policy, the dwelling was insured for $2.6 million and the personal property was insured for $1.3 million. Hiscox Dedicated Corporate Member Limited (“Hiscox”) is the majority underwriter of Lloyd’s Syndicate #33, the only syndicate subscribed to the Policy.
An insurance broker is a person or entity that transacts insurance with but not on behalf of an insurer. They are not insurers. A Surplus Line broker is an intermediary between the person seeking insurance, that person’s agent, and the insurer. Under Surplus Line law the broker can provide a policy to the insured but may not be considered an insurer. It was overkill on the part of the insured to sue the broker when the policy, in clear and unambiguous language, explained Burns and Wilcox was not an insurer and liable for any claims.
The market at Lloyd’s is a place where groups of individuals and corporations can transact insurance. After hundreds of years it has developed a strict method of placing insurance.
The Corporation of Lloyd’s never sells insurance itself and is not at risk on the insurance sold on the floor at Lloyd’s. Rather, the underwriter members subscribe to cover all or part of a proposed placement of insurance, at their own election. Numbers of individual underwriters, many in England but others scattered throughout the world, have joined together to form syndicates. Syndicates may have anywhere from two or three to hundreds of members. The individual members are known as the “names” on that syndicate. These syndicates are the entities which subscribe on behalf of their members to cover risks and percentage parts of risks. The actual potential liability of a given name depends upon his percentage share of the syndicate of which he is a member, as well as the percentage of the risk to which his syndicate has subscribed.
Lloyd’s includes a number of different types of members who are involved in the business of insurance at Lloyd’s. Individual members or “Names” — high-net-worth individuals whose exposure to the insurance risks they underwrite is unlimited – and corporate members formed exclusively to underwrite insurance business at Lloyd’s. Currently, underwriting is also conducted by partnerships and syndicates that include individual and corporate names.
When insureds receive Lloyd’s policies of insurance, what they actually obtain are commitments from each individual, corporate, limited liability, or partnership insurer (the underwriters) to pay claims up to their entire assets. The Names are jointly and severally obligated to the insured for the percentage of the risk each has agreed to assume.
The History of Insurance
The essence of insurance is the spreading of risk from one person to many. As early as 1200 BC, Phoenician merchants began transferring some of their risk to the backers of specific voyages, whereby the backers would profit if the voyage was successful, but would lose their investment if the cargo was lost at sea, either from natural disasters or from pirates. In exchange for backing a voyage and to assure payment if the voyage was successful, Phoenician law allowed the lenders to confiscate the merchant's ship for nonpayment.
This form of collateralized loan was called bottomry: this term probably arose because the ship's hull was referred to as the bottom. Since substantial resources were required for voyages, and the wealth of these early nations depended heavily on trade, other settlements around the Mediterranean and in Asia also enacted bottomry laws by 400 BC.
In 300 BC the Babylonians developed a system of loans for shipments by sea. Merchants found the risks of shipping by sea to be too great to take on alone, since the loss of one ship could bankrupt a merchant. With insurance, the risk of shipping was equitably spread among those subscribing to the loan.