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Archive for the ‘Insurance Coverage/Bad Faith’ Category

Insurers Should Exercise Caution Before Denying Coverage for Wage-and-Hour Claims

Posted on: April 17th, 2017

By: Jeff Kershaw

Plaintiffs are filing wage-and-hour suits at a rapid clip so far in 2017, continuing an almost decade-long trend, and the steady pace of litigation shows no signs of abating notwithstanding the recent efforts of the Trump administration to curtail the impact of the Fair Labor Standards Act (“FLSA”). Such claims, typically brought by employees and alleging unpaid wages or a failure to pay overtime, can present employers – and their insurers – with enormous potential exposure, particularly in multi-plaintiff class actions.   

Both Directors and Officers (“D&O”) and Employment Practices Liability (“EPL”) liability insurance policies usually contain exclusions purporting to eliminate coverage for wage-and-hour claims. Typical exclusionary language bars coverage for “loss for any claim for violation of the responsibilities, duties or obligations imposed on an insured under any wage and hour law” or for “any actual or alleged violation of…the Fair Labor Standards Act…or any rules or regulations promulgated thereunder, or similar provisions of any federal, state or local statutory law or common law.” 

Insurers must nevertheless tread carefully before denying coverage for any wage-and-hour suit. Some courts, particularly in California, have shown little hesitation in construing relevant exclusions as ambiguous depending on the specific circumstances at issue. This is especially true where courts consider state wage-and-hour protections, along with the question whether such enactments are “similar” to federal FLSA provisions. In PHP Insurance Services, Inc. v. Greenwich Insurance Co., for example, the court sided with the insured, granting its summary judgment motion and holding that the specific California Labor Code provisions at issue were not analogous to any FLSA Provisions, and therefore, not “similar.” No. 15-CV-00435-BLF, 2015 WL 4760485, at *8 (N.D. Cal. Aug. 12, 2015). Likewise in California Dairies, Inc. v. RSUI Indemnity Company, the court held that the relevant policy’s FLSA exclusions applied to some, but not all, of the relevant allegations. 617 F. Supp. 2d 1023, 1028 (E.D. Cal. 2009). The lesson of these cases that insurers must carefully consider both the specific provisions cited by the plaintiff(s) and whether they closely track the FLSA in making any coverage determination. 

Beyond these questions of statutory interpretation, a careful, case-by-case assessment of the specific wage-and-hour claims asserted is necessary as part of any coverage analysis. For example, many such suits include allegations that an insured “misclassified” employees as exempt from overtime requirements, or, for example, forced employees to work without overtime. A court could well construe these sorts of claims as alleging the kinds of “employment-related misrepresentations” or “breach of implied contract” covered by an EPL policy. Such allegations may also go hand-in-hand with allegations of covered discrimination. 

If you have any questions or would like more information, please contact Jeff Kershaw at [email protected]


Insurance Disclosures Under § 627.4137 and its “Teeth”

Posted on: April 3rd, 2017

teeth[1]By: Jeremy W. Rogers

For those insurance defense attorneys and insurance carriers handling liability cases or claims in Florida, unless you have not been paying attention for the past 35 years, you are aware of Fla. Stat. § 627.4137 and its requirements. This statute gives claimants access to information about a defendant’s liability insurance. This usually occurs at or near the outset of plaintiff’s engagement of his or her attorney because, as is always the case, insurance coverage is a major factor (or, in reality, THE factor) in how a plaintiff pursues the case and negotiations toward settlement. The statute requires a liability insurer to produce a copy of the policy and to disclose the following information, under oath, within 30 days of a claimant’s request: a) the name of the insurer; b) the name of each insured; c) the limits of liability coverage; d) a statement of any policy or coverage defense which such insurer reasonably believes is available to such insurer at the time of filing such statement; and (e) a copy of the policy.

While we know the requirements, a question often arises about what are the consequences of failing to comply. The statute has no provision for a private right of action. See Lucente v. State Farm Mut. Auto. Ins. Co., 591 So.2d 1126, 1127-28 (4th DCA 1992)(stating there is no implicit third party right of action against an insurer for failure to comply); Brannan v. Geico Indemnity Co., 569 Fed.Appx. 724, 728 (11th Cir. 2014)(indicating there is no first-party private cause of action). Without a private right of action, where are the “teeth” in the statute?  Most or all of the decisions on the issue appear to fall within two categories:

  1. Invalidating settlements
  2. Invalidating or striking of defenses or pleadings

In the first category, the courts reason that the purpose of disclosure is to guide the parties in their handling of the case and negotiations. The failure to disclose, or to supplement as new information is obtained, means that the plaintiff is proceeding with false or incomplete information. Thus, the statutory disclosure requirement is an essential term of the settlement. The end result is that motions to enforce settlement are denied or defenses based on a pre-suit settlement are not tenable. There was no settlement because there was not meeting of the minds. See, e.g., Cheveire v. Geisser, 783 So. 2d 1115 (Fla. 4th DCA 2001); Schlosser v. Perez, 832 So. 2d 179 (Fla. 2d DCA 2002).

The second category of cases are usually those where the carrier is sued and assert various policy defenses. The court will invalidate or strike a policy defense as a sanction for failure to comply with § 627.4137. In United Auto. Ins. Co. v. Rousseau, 682 So. 2d 1229 (Fla. 4th DCA 1996), because the carrier failed to comply with § 627.4137, the court affirmed a denial of the carrier’s motion for directed verdict that was based upon the failure of plaintiff to comply with certain policy conditions. In Figueroa v. U.S. Security Ins. Co., 664 So. 2d 1130 (Fla. 3d DCA 1995), the court reversed summary judgment in favor of the carrier for the same reason.

The most disturbing decision is a case where a defendant’s pleadings were stricken entirely and the case went forward on damages only. In Oceanside 932 Condominium Assoc., Inc. v. Landsouth Construction, LLC, Case No. 16-2009-CA-007958, plaintiff made a pre-suit insurance disclosure request under the statute. The defendant responded, but not completely. Shortly before trial, Plaintiff’s counsel discovered additional policies which provided coverage. As a result, upon plaintiff’s motion, the Court struck the defendant’s pleadings, entered a default judgment as to liability, and allowed a trial on damages which resulted in an excess verdict. While this is a trial court decision and not binding, it illustrates that there is real jeopardy in the most egregious failures to comply.

So, to answer the question of whether there are “teeth” in § 627.4137, the answer is certainly a yes. It is important, therefore, that when faced with a disclosure request, one complies with the requirements set forth in the statute.

For any questions, please contact Jeremy Rogers at [email protected].

It Can Take Much Less Than Fraud to Forfeit Insurance Coverage

Posted on: March 28th, 2017

By: Jessica C. Samford

When people think of insurance fraud, they likely imagine someone intentionally causing a loss in order to receive policy proceeds, but most insurance policies do not limit a carrier’s right to deny coverage or void the policy to fraud alone. Rather, all kinds of policies (homeowner, commercial general liability, and more) often include in their fraud-related provisions misrepresentation of a material fact as well. But what constitutes a “material misrepresentation” exactly? The answer, of course, depends on which state law applies.

Take for example an insurance carrier that filed an action in California, asking the federal district court to declare that there was no coverage under a cyber liability policy because, among other reasons, the insured had represented in its policy application that its medical records system had certain security measures in place to protect personally identifiable information and other sensitive data while, allegedly, patient information was accessible online with no encryption.

Although the court did not make a ruling on this issue, incorrect statements that are made by an insured in a policy application, even if unintentional, are very likely to support rescinding and voiding the policy ab initio (from its inception) under California law. This is because California’s test for materiality is the effect which truthful answers would have had upon the carrier in its evaluation of risk (such as requiring additional underwriting or charging additional premium): the fact that the carrier requires answers to specific questions in an application for insurance is usually in itself sufficient to establish the materiality as a matter of law.

The rule under Georgia law is a similar one, although from a more clearly objective standpoint: A material misrepresentation is one that would influence a prudent insurer in determining the nature, extent, or character of the risk and whether or not to accept it or fix a different amount of premium.  And a Georgia statute sets forth specifically that all that is required in a policy application to give grounds to deny or rescind is a material misrepresentation, omission, concealment or incorrect statement (as opposed to proof of intent to defraud).

Going back to our example, the data security measures implemented by the insured would likely be material under Georgia law by increasing or decreasing the risk assessed by a prudent carrier of a cyber liability policy, such that any incorrect statement in the application as to those measures could entitle a carrier to deny or rescind. Under California law, since this carrier alleged it actually asked the insured in the application about checking for security patches, replacing factory default settings, etc., the insured’s responses would likely be found material as a matter of law.

Again, the meaning of material misrepresentation can involve other inquiries depending on the applicable law, such as proof of actual reliance by the carrier on that representation or other prejudice to the carrier, so when faced with a potential false statement or omission, a carrier should seek counsel to determine which state law(s) could be applicable.

For any questions, please contact Jessica Samford at [email protected].

Strict Scrutiny Standard Applied for Reservation of Rights Letters

Posted on: March 13th, 2017

By: Joyce Mocek

The South Carolina Supreme Court recently addressed whether an insurer’s reservation of rights letter was adequate where a carrier was providing a defense in a claim and, adopting a strict scrutiny standard, found that the letters did not adequately explain to the insured how the policy provisions quoted in the letter applied to preclude coverage. Harleysville Group Insurance v. Heritage Communities, Inc., et al., 2017 S.C. LEXIS 8 (Jan.  11, 2017). To be a valid reservation of rights letter, the Court maintained that the letter needed to contain specificity on the reason for the reservation and be detailed and precise enough to explain to the insured why there might not be coverage under the policy. The Court advised that the letter should notify the insured of the potential for conflict, that the insurer might file a declaratory judgment action, and the potential of a special verdict for apportioning damages. Although the reservation of rights letter at issue included quoted verbatim policy language, the Court stated that “cutting and pasting” from a policy is not enough. Further, the Court held that the insurer did not sufficiently inform the insured how the exclusions referenced could result in an allocation between covered and noncovered damages, if the insurer decided to file a declaratory judgment action.

The Court did not cite any specific South Carolina authority, rather it relied on decisions from other jurisdictions and maintained that the insurer’s letter was not sufficiently specific and precise. Although the claim at issue involved a construction defect claim, the decision did not appear to be limited to construction claims. Thus, it may have far reaching implications to liability insurers in South Carolina and potentially other jurisdictions reviewing reservation letters in all liability claims. The decision did not specify that it would only apply on future claims. As a result, insurers that have issued reservation of rights letters that pre date this decision may want to review the letters to determine whether they meet the requirements outlined in the Harlesyville decision and, if there is any concern, consider supplementing or amending the letters. 

For any questions, contact Joyce Mocek at [email protected].

Cancellation vs. Expiration: The Subtle Distinction and Why it Matters

Posted on: February 14th, 2017

By: Connor M. Bateman

In most jurisdictions, insurers must adhere to a detailed set of statutory provisions when cancelling or refusing to renew certain types of insurance policies. Most notably, insurers are often charged with delivering or mailing a written notification to the insured providing clear and unequivocal notice that the insurance coverage at issue is ending. Even slight deviations from the statutory requirements governing such notices will likely vitiate the cancellation or nonrenewal and cause coverage under the policy to remain in place.

Although the law typically requires strict compliance with these provisions, there is an important distinction between cases where an insurer cancels a policy and cases where the policy simply expires by its own terms due to the insured’s failure to remit his or her premium payment. In the latter case, an insurer is not bound by the notice requirements in place for cancellations. The same distinction exists between cases where an insurer refuses to renew a policy and cases where the coverage simply lapses.

For example, say that an insurance company issues a standard residential fire insurance policy for a one year effective term. The insured consistently makes timely premium payments for five years and renews his coverage at the end of each term by paying the renewal premium. On the sixth year, however, the insured fails to pay the minimum balance required to renew his coverage and the policy expires at the end of that term. Although insurers are normally required to provide written notification of an impending nonrenewal, many courts have determined that this requirement only applies to cases where the insurer is unwilling to renew an insurance policy. In other words, the statutory notice provisions are generally inapplicable to situations where a policy is not renewed because of nonpayment of premium by the insured. Thus, in the above example, the insurer would have no obligation to notify the insurer that the policy was set to expire.

This distinction may prove crucial in cases where a loss occurs after the policy expires, and the insured insists that coverage should be afforded due to the insurer’s failure to abide by the statutory notice provisions. Although it is important for insurers to carefully follow the statutory guidelines when cancelling policies, insurers should also be aware of the distinction between instances where the termination of coverage is due to the expiration of the risk insured by the policy.