Insurance Agent: Professional or Salesperson?

The California Court of Appeals explored the issue of the responsibility of an insurance agent is the case of Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc., 177 Cal.App.4th 624, 98 Cal.Rptr.3d 910 (2nd Dist. 2009).

Insurance agents like to argue that they do not have a duty to advise a client that it should procure additional or different insurance coverage. However, the Williams case makes it clear that  when an agent assumes additional duties by holding  himself out as an expert he can be held liable for not procuring appropriate coverage.

This just makes sense.  Most folks rely on their agent to tell them what coverage they need, particularly in the commercial insurance field, but also in the consumer area.   Agents are in a far better position than potential insureds to know what types and amounts of insurance coverage should be in place.  To be sure, the agent cannot force a client to buy any type of coverage (just like a lawyer cannot force a client to follow his or her advice or a doctor cannot force a patient to stick to a diet) but the notion that insurance agent's are nothing but salespeople is an outrage.


New Tennessee Law Blog

There is a new blog in town - the Tennessee Insurance Litigation Blog.  The blog is authored by Parks Chastain and Brandon McWherter.   Parks typically represents insurance companies and Brandon typically represents policyholders.

Great idea, gentlemen.  Good luck.


Insurance Coverage Litigation?

In most states the duty to defend an insured in litigation is broader than the duty to indemnify that insured. 

Here is a 50-state survey prepared by the highly regarded Chicago-based firm of Hinshaw & Culbertson on the duty to defend.  Here is how they describe the 105-page publication:

Duty To Defend contains a survey of the law of the 50 United States and the District of Columbia on an insurer’s duty to defend a lawsuit against its insured and related topics. Each state entry includes a discussion of the scope of the duty to defend in that state and of the test employed by the state to determine whether the insurer owes such a duty. The state entries also include discussions of whether the insurer may defend pursuant to a reservation of rights and the implications of doing the same, including conflicts of interest which may be created; whether a declaratory judgment action may be brought to determine the insurer’s rights and obligations under the policy; and the consequences of the insurer’s failure to defend where it has an obligation to do so.


Death of Drunken Driver Not "Accidental"

The United States Court of Appeals for the Fourth Circuit has ruled that a drunk driver's death was not "accidental" and therefore his surviving spouse could not collect accidental death benefits under an insurance policy.

The decedent's blood alcohol level was fifty percent higher than the legal limit when he ran into the rear of a tractor trailer parked eight feet off a West Virginia road.  It was, of course, 3:49 a.m.

His wife sought "accidental death benefits" from an insurance policy provided by the decedent's employer.  The policy provided coverage "if the insured dies 'due to an accident.'  The Plan defined 'accident' as 'an unexpected and sudden event which the insured does not  foresee.' The Plan also provided that "ReliaStar Life has final discretionary  authority to determine all questions of eligibility and status and to interpret and construe the terms of this policy(ies) of insurance."  ERISA governed this case.

The Court reviewed the law and the facts and said this:  "In sum, we are hard pressed to say that a death must be deemed accidental where a decedent voluntarily gets behind the wheel after  voluntarily drinking too much. By choosing to drive under circumstances where his vision, motor control, and judgment were likely to  be impaired, the insured placed himself and fellow motorists in  harm’s way. To characterize harm flowing from such behavior as merely "accidental" diminishes the personal responsibility that state laws and the rules of the road require. This case, in short, affords us no basis for concluding that ReliaStar’s denial of benefits was unreasonable."

The Court went on to say this:  "Finally, we emphasize the boundaries of our holding. We do not  suggest that plan administrators can routinely deny coverage to  insureds who engage in purely negligent conduct or, for example, to  anyone that speeds. In fact, accident insurance is often purchased to  cover negligence at its most typical: Insureds seek "protection from  their own miscalculations and misjudgments." Wickman, 908 F.2d at 1088 (citations omitted). In this regard, the district court’s comparison of those who drive drunk to those who apply lipstick, fiddle with the
radio dial, or restrain a child is inapt. See Eckelberry, 402 F.Supp. 2d at 712. While these actions are hardly commendable driving habits, they do not generally rise to the level of crimes. Indeed, even though acts like speeding and (in some jurisdictions) driving while talking on  a cellular phone are illegal, none compare to driving while drunk, which has long been "widely known and widely publicized" to be both illegal and highly dangerous."

The case is Eckelberry v. ReliaStar Life Insurance Company,  No. 06-1020 (4th Cir. Nov. 17, 2006).  Read the opinion here.


Bad Faith Law Clarified

The Tennessee Supreme Court has issued an extremely important decision in the field of bad faith law.

In Johnson v. Tennessee Farmers Mutual Insurance Company, No. E2004-00250-SC-R11-CV  (August 28, 2006), Justice Holder, writing for an unanimous court, reversed the Court of Appeals and upheld a bad faith verdict against Tennessee Farmers.

Johnson sued his own insurer after he got hit for an excess judgment in an auto case.  A 2-1 decision of the Court of Appeals took away a plaintiff's verdict of $279,430.92 against Tennessee Farmers, saying that the trial judge had not charged the jury correctly on the law of bad faith.  Judge Lee dissented, saying the trial judge had gotten it right. 

The TSC approved these excerpts from the charge to the jury:

[a] mere mistake in judgment by the insurance company does not constitute quote “bad faith” end quote. Quote “bad faith” by the insurance company is, one, failure to investigate a claim to such an extent that it would be in a position to exercise honest judgment as to whether a claim should be settled, or two, failure to fairly consider the facts relative to the accident and a claimant’s injuries known to it whether they are the actual facts or not and deciding whether the insured should or should not settle, or three, failure of the insured [sic] with the right to control the litigation and settlement to fairly consider the rights and interest of the insured as compared to the interest of the insurance company.

[a] mere mistake in judgment will not constitute bad faith, that is, if the insurer dealt fairly with the insured and acted honestly and according to its best judgment, it is not liable as it owed its insured no duty to settle merely because a settlement could be made within the limits of the policy.

[i]f Tennessee Farmers made an honest judgment and fair investigation of the claim against Robert Johnson and exercised reasonable judgment based upon that investigation, then a mistake in judgment is not bad faith and will not render it liable for failure to settle the claim. There’s no duty to settle a claim merely because settlement could have been reached within the policy limits. If a failure to negotiate a settlement is a result of a reasonable business judgment made after weighing all of the interests, then there is no liability, even if the decision not to settle turns out to be quite wrong.

More importantly, the Court said what the law was not when it held that it was not error to refuse to give the following requested instructions:

Bad faith embraces more than bad judgment or negligence and it imports a dishonest purpose, moral obliquity, conscious wrongdoing, breach of a known duty through some ulterior motive or ill will partaking of the nature of fraud, and it embraces an actual intent to mislead or deceive another.

Bad faith on the part of an insurer is a frivolous or unfounded refusal to pay the proceeds of the insurance policy. Such conduct imports a dishonest purpose and means a breach of the duty of good faith and fair dealing through some motive of self-interest or ill will. Mere negligence or bad judgment is not bad faith.

Why was it not error to refuse to give these charges?  "We are aware of no Tennessee cases holding that an insured must prove dishonest purpose, moral obliquity, conscious wrongdoing, breach of a known duty through some ulterior motive or ill will 'partaking of the nature of fraud,' or an actual intent to mislead or deceive another to obtain a judgment for bad faith refusal to settle."

This is a must-read opinion.

It is respectfully suggested that the TSC is not suggesting that the quoted language from the charge must be given in every bad faith case.  The TSC approved the concepts in the charge, and held that (a) the charge as given was not erronous and (b) the language sought to be added to the charge by the defendant was not an accurate statement of the law. 

That being said, the charge includes redundant language that, in my opinion, need not and should not be given. Over time, a charge will be developed that concisely states these points of law. 


Jurisdiction Exercised Over Foreign Manufacturer

The Illinois Appellate Court has ruled that Illinois courts have jurisdiction over a Japanese parent corporation in a case alleging negligent design.

Plaintiff alleged that her daughter died as a result of a fire started with a Aim 'n Flame II lighting rod. The lighting rod was designed by Tokai Corporatin in Japan and distributed by its wholly-owned subsidiary, Scripto-Tokai. The subsidiary admitted that Illinois courts had personal jurisdiction over it but the parent contested jurisdiction.

The Court put the issue and holding this way: "This case presents the question of whether a foreign corporation that designs a product can immunize itself from liability for negligent design by marketing the product through a subsidiary. We hold that it cannot. We find that the use of a subsidiary to introduce the product it designed to Illinois markets suffices for the exercise of personal jurisdiction over the foreign corporation for an action for negligent design."

The opinion does a great job summarizing the law in this area and collects cases from across the country. The decision is a great place to start your research if you face this question in your practice.

The case is SAIA v. SCRIPTO-TOKAI CORPORATION, Nos. 1-04-2609 and 1-04-2736 (Illinois App. Ct. May 26, 2006). Read the opinion here. I have occasionally had trouble getting good links to these opinions so if the link breaks here is a list of the May decisions of the court that you can use to find the opinion.


Patient Wins Doctor's Case Against Insurance Company

This doctor got hit for an excess verdict in a medical malpractice case. He assigned the patient his bad faith claim against his insurer, alleging that it refused to settle the case within the policy limits and assigned him a lawyer with a conflict. The patient won compensatory and punitive damages. The case is Jurinko v. The Medical Protective Company, No. 03-CV-4053 (E.D. Pa. March 29, 2006).

The trial judge affirmed entry of judgment and issued the opinion including the following remarks:

"[Defendant] Medical Protective employee James Alff admitted that he knew that [the original defendant] Dr. Marcincin's exposure was in excess of $50,000, and yet he never offered more than $50,000.9 The jury also heard testimony that the [excess] CAT/MCARE fund had informed Medical Protective that their failure to tender was in bad faith and was undermining the settlement of the case. Alff admitted that Dr. Marcincin could not negotiate with funds from his $1 million secondary line of coverage (the CAT/MCARE fund) without tender of the full policy limits. Alff also admitted to unfair gamesmanship in his negotiating tactics, and attempting to get the CAT/MCARE fund to cover Dr. Marcincin's liability from Dr. Edelman's line of coverage in order to save Medical Protective money. The evidence demonstrated that both Alff and Jacqueline Busterna, who was negotiating for the CAT/MCARE fund, believed the case would settle for around $1 million. From the evidence presented, it was also possible for the jury to conclude that the Jurinkos would have been offered approximately $1 million had Medical Protective tendered its policy, even if the CAT/MCARE fund had not offered any money from Dr. Marcincin's $1 million line of secondary insurance. Overall, the Court finds sufficient evidence for the jury to find bad faith.

The jury also received sufficient evidence to find that Medical Protective acted in bad faith when it assigned Kilcoyne to defend both Dr. Marcincin and Dr. Edelman, thereby creating a conflict of interest that would affect and undermine Kilcoyne's representation of Dr. Marcincin throughout the malpractice litigation. Alff testified that Medical Protective made this assignment fully aware that it was unethical and would create a conflict of interest, and that it did so to save money. There was also sufficient evidence for the jury to find that this bad faith action deprived Dr. Marcincin of his ability to vigorously assert his best defense (the liability of Dr. Edelman) and thereby caused the excess jury verdict against Dr. Marcincin alone in the underlying litigation." [Footnotes omitted.]

On the issue of punitive damages:

"Third, the Court finds that the harm was the result of intentional conduct, and not mere accident. Alff testified that he knowingly appointed a single lawyer to represent Drs. Marcincin and Edelman, although hewas aware that this posed a conflict of interest, for the financial benefit of his employer. Alff also testified that he intentionally failed to tender Dr. Marcincin's policy during settlement negotiations, because he wanted the CAT/MCARE fund to paymore from Dr. Edelman's policy. He testified that he knew that such negotiating tactics were unfair, but engaged in them nevertheless, in an attempt to save his employer money. In other words, he was "intentionally stonewalling" during the negotiating process."

A very interesting opinion, especially given the fact that our supreme court is looking at the issue of defining the tort of bad faith as we speak.


Supreme Court Takes "Bad Faith" Case

The Tennessee Supreme Court has granted a Rule 11 application in Johnson v. Tennessee Farmers Mutual Ins. Co. With this case, the Tennessee Supreme Court will decide whether the tort of "bad faith" exists is Tennessee.

Judge Inman's decision in this case renders the tort virtually meaningless. It requires almost intentional conduct to give rise to liability.

Judge Lee's dissent says that the law of Tennessee is (and should be) that bad faith may be found if the jury determines from a consideration of all relevant factors that good faith was absent. She would not require proof of fraud or dishonesty.

Expect a decision in the Spring of 2006.


New Blog

I came upon a new blog - Insurance Scrawl - written by Marc Mayerson in D.C.

Here is how Marc describes the purpose of the blog:

"Insurance Scrawl focuses on the law of insurance, the insurance of business, and the business of insurance. It is the first insurance blog (or insurance blawg) that approaches these issues from the perspective of policyholders. The principal focus is on commercial property-casualty matters (and not life/health/disability/auto or the insurance needs of individuals). The goals of this weblog are to provide current updates, with links to source materials, on matters about which well-informed professionals should be aware and to share my perspective and knowledge about insurance-coverage issues. In-house lawyers, risk managers, brokers, outside counsel, insurance-company and reinsurance professionals, adjusters, professors, law students, and judges are the intended audience. Although Insurance Scrawl approaches the subject from a particular vantage point, readers should find the articles to be more analytical than polemical."

I read several of the posts and it seems to me that this blog is a good resource for those of us who do insurance coverage litigation.


Family Exclusion Held Valid

The Tennessee Supreme Court has ruled that the "family exclusion" that exists in every motor vehicle insurance policy I have ever seen is not void as against Tennessee law or public policy. The case came before the Court on a certified question from a federal district court in East Tennessee.

Applications for Insurance Coverage

Have you ever got the feeling that the insurance company trying to sell you life insurance did not want you to tell the truth? Have you ever had an agent say "you don't have to put that down?"

The questions on many applications are very difficult to understand. For instance, "Do you smoke?" I don't consider myself a smoker in any shape, form or fashion, and no other sane person would. ( I have plenty of other vices, to be sure, but not this one.)

Nevertheless, I made the mistake of answering that question "Yes" 6 years ago because 2 or 3 times a year I used to smoke a cigar with the guys. I use the term "smoke" lightly - it would be more accurate to say that I allowed the cigar to burn between the index and middle finger of my hand while using my right hand to raise a Bombay Saffire on the rocks (two olives) to my parched lips.

My candor raised the premium on my policy dramatically - and I learned a lesson. No - not a lesson to lie - a lesson that smoking an occasionally stoggie with my brothers or friends was not worth $12.87 per uninhaled puff.

Here is a decision about a woman who died of breast cancer. When her husband tried to collect on her life insurance policy, the insurance company denied the claim, saying that she had lied about her smoking history. The California Supreme Court does a great job explaining why there was a genuine issue of material fact and remanded the case for trial.

Be careful out there.


Discovery in Bad Faith Cases

The Florida Supreme Court recently held that a person bringing a first-party bad faith action against an insurance company has the right to discover all materials contained in the underlying insurance claim and related litigation file. Read the decision by clicking here.

In this type of case there is always a big fight over whether certain materials are protected by the work product privilege. Insurers attempt to invoke the doctrine. Plaintiffs seek the documents, saying that the information in such documents is directly relevant to resolution of the issue of whether bad faith was committed. In Florida, full discovery has traditionally been permitted in third-party claims but the law on first party claims was not as generous. This law opens up discovery in first party bad faith cases.

Florida has a well-developed body of bad faith law. This decision substantially changes the law of discovery in those cases and will greatly impact the law on this subject around the nation.


Bad Faith Action Survives

We have all seen it too many times. Your client has legitimate medical expenses well in excess of policy limits. Liability is not clear but will go to the jury. The defendant's insurer refuses to settle the case for policy limits.

That happened to defendant Johnson. His insurance company refused to settle an action against him. His $25,000/$50,000 in policy limits were to be of little help paying a judgment of $193,750. He sued his insurance company for bad faith failure to settle the case, and a jury agreed.

Continue Reading...