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Posts Tagged ‘Washington’

The Restatement of The Law of Liability Insurance Is Coming~ Ready Or Not!

Posted on: May 21st, 2018

By: Gretchen Carner

On May 22, 2018, at the annual meeting of the American Law Institute (ALI ) in Washington, D.C., its members are set to vote on final approval of the Restatement of the Law of Liability Insurance (RLLI). The American Law Institute’s RLLI aims, as former Director Lance Liebman said, to seek “the efficient and fair rules that should govern the insurer/insured relationship.” The RLLI has taken eight years to write and has been the subject of much lively debate.

Many of the issues discussed in the Restatement have been hotly contested by insurers.  The RLLI, for the most part, states the majority rule on the vast majority of issues covered. Sometimes, however, the Restatement sets forth what the ALI considers to be the “better rule,” which is a practical approach taking into consideration the law and incentives underlying insurance and claims-handling.

It is anticipated that courts considering coverage issues of first impression, or where the law is not clear, may now turn to the RLLI for guidance.  Because Restatements are developed by learned individuals in their area of expertise at the ALI, and are only approved after a long and painstaking process, it would be reasonable for a court to look at what the RLLI has to say about an unsettled issue. If the Final Draft of the Restatement is approved this month, some of the following hot topics should be high on an insurer’s radar.

Policy InterpretationSection 3 adopts a presumption in favor of the plain meaning rule for interpretation of “standard-form” policy terms, stating: “an insurance-policy term is interpreted according to its plain meaning, if any, unless extrinsic evidence shows that a reasonable person in the policyholder’s position would give the term a different meaning. That different meaning must be more reasonable than the plain meaning in light of the extrinsic evidence, and it must be a meaning to which the language of the term is reasonably susceptible.”

The “extrinsic evidence exception” in Section 3(2) is a modification of the majority rule that extrinsic evidence is only relevant after the term is found ambiguous (i.e., has another reasonable interpretation).  Under Section 3, consideration of extrinsic evidence is relevant to determine whether there is another more reasonable interpretation of the term.

Insurers’ Duty to DefendSection 13 defines the applicable duty to defend standard as the traditional “potential for coverage” standard included in the “four corner/eight corners” rule adopted in most jurisdictions. Once the duty to defend applies, “[t]he insurer must defend until its duty to defend is terminated under § 18 by declaratory judgment or otherwise,” unless facts as to which there is no genuine dispute establish that:

(a) The defendant in the action is not an insured under the insurance policy pursuant to which the duty to defend is asserted;

(b) The vehicle involved in the accident is not a covered vehicle under the automobile liability policy pursuant to which the duty to defend is asserted and the defendant is not otherwise entitled to a defense;

(c) The claim was reported late under a claims-made-and-reported policy such that the insurer’s performance is excluded under the rule stated in § 36(s); or

(d) There is no duty to defend because the insurance policy has been properly cancelled.

The comments to this Section explain that the reasons behind it are based on public-policy concerns with allowing insurers to consider “an all-the-facts-and-circumstances approach” that extends well beyond the exceptions stated in Section 13 or elimination of the common rule that the insurer must pursue a declaratory-judgment action before rejecting its duty to defend. The comments also warn insurers against trying to include a contractual provision terminating the duty to defend in situations other than those listed in this Section unless it also contains a mechanism protecting the insured’s right to a defense.

Insurer’s Right to RecoupmentSection 25 (2) provides that an insurer defending under a reservation of rights is not relieved of the duty to make reasonable settlement decisions.  If the insurer decides to settle uncovered claims to cap its potential liability down the road, it cannot recoup any portion of the settlement payment unless that is allowed under the terms of the insurance contract.  The comments under this Section make clear that the no-recoupment rule is a default rule, which means that a contrary term in the insurance contract would prevail.

It will be interesting to see how this Section is applied in California where recoupment of uncovered settlement payments is allowed if the insurer complies with the strict requirements set forth in Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489, 502, and not any specific policy language.  Blue Ridge satisfied the prerequisites for seeking reimbursement for noncovered claims included in a reasonable settlement payment by asserting: (1) a timely and express reservation of rights; (2) an express notification to the insureds of the insurer’s intent to accept a proposed settlement offer; and (3) an express offer to the insureds that they may assume their own defense when  the insurer and insureds disagree whether to accept the proposed settlement.

The take-away here is that when there is no in-state law on an issue, a court’s resort to the RLLI, in conjunction with other sources, seems likely.  On the other hand, when there is precedent available, it seems unlikely that a court would opt to adopt the RLLI rule if it conflicts with well settled law. Time will tell what the impact and role of the RLLI will be on the cases in jurisdictions where the law is sparse on the topic or ripe for change.

If you have any questions or would like more information, please contact Gretchen Carner at [email protected].

Insurance Company Adjuster May Be Liable for Bad Faith

Posted on: May 14th, 2018

By: Joyce Mocek

Recently a Washington Court of Appeals held that an insurance adjuster, employed by an insurance company, could be held personally liable for bad faith and violation of the Washington Consumer Protection Act (CPA) in the context of adjustment of a claim. (Keodalah et al. v. Allstate Ins. Co., et al., No. 75731-8-I (Wash. Ct. App. Mar. 26, 2018).

In this case, an insured sought uninsured/underinsured motorist benefits under its auto policy with Allstate.  Allstate’s claim adjuster determined that the insured was 70% at fault.  The insured argued the accident was due 100% to the uninsured motorist, not him.  However, Allstate refused to change its position that its insured was 70% responsible for the accident-offering the insured only $5,000.  At the trial a jury determined the insured was not responsible for the accident, and awarded the insured $108,868.

The insured then filed a second lawsuit against the insurance adjuster and its insurer for bad faith, claims under the Insurance Fair Conduct Act and the CPA.  The trial court granted the defendants’ motion to dismiss, and the insured appealed.  The appellate court held that the adjuster was engaged in the business of insurance and acting as an Allstate representative had a duty to act in good faith, and could be sued for bad faith individually.  On the CPA issue, the Court rejected prior decisions that had held there must be a contractual relationship to be liable under the CPA.  Thus, the Court determined the insured could sue the adjuster individually for bad faith and CPA violations.

This decision may have far reaching implications as it opens the door for insureds to sue the insurance adjuster handling their claim, and/or any claims personnel, including supervisors, experts, or consultants.  Claims personnel may also be joined to defeat diversity.  There is also the potential for conflict between the claims professionals and their employer that may further complicate issues.   This case emphasizes the need to act in good faith, and engage in careful consideration of all issues involved in the claims process, and consider seeking legal counsel if any potential issues arise.

If you have any questions or would like more information please contact Joyce Mocek at [email protected].

Non-Pennsylvanians Can Sue Pa. Businesses for Out of State Transactions Under the Pennsylvania Unfair Trade Practices Consumer Protection Law

Posted on: March 2nd, 2018

By: Erin E. Lamb

Citizens from outside Pennsylvania can now sue Pennsylvania businesses for transactions that occurred outside the commonwealth, under the Pennsylvania Unfair Trade Practices Consumer Protection Law (UTPCPL). The Pennsylvania Supreme Court, in a unanimous ruling, affirmed such to the U.S. Court of Appeals for the Third Circuit in the class action suit Danganan v. Guardian Protection Services. The Third Circuit had certified the question to the Supreme Court of Pennsylvania. Previously, the District Courts within the Third Circuit had held repeatedly that the UTPCPL only applied to Pennsylvania business regarding Pennsylvania transactions.

Plaintiff Jobe Danganan sued Pennsylvania-based UTPCPL under the UTPCPL after he continued to be billed for a home security system in a Washington, D.C., house aft he had moved and after he had cancelled the contract. The district court ruled against him and he appealed to the Third Circuit.

Danganan argued that the language of the UTPCPL, specifically the terms “person,” “trade” and “commerce,” did not denote a specific geographic requirement, according to the Supreme Court’s opinion written by Chief Justice Thomas G. Saylor. The Court agreed. “Respecting the specific terms employed by the UTPCPL, we agree with appellant’s observation that the plain language definitions of ‘person’ and ‘trade’ and ‘commerce’ evidence no geographic limitation or residency requirement relative to the law’s application,” Saylor said. However, the law does state that it applies to conduct that “directly or indirectly affect[s] the people of this commonwealth.” Saylor, writing for the Court, did away with that clause by stating “that phrase does not modify or qualify the preceding terms. Instead, it is appended to the end of the definition and prefaced by ‘and includes,’ thus indicating an inclusive and broader view of trade and commerce than expressed by the antecedent language.”

Saylor also said the statute is meant to be construed liberally as it covers an expansive breadth of conduct. “In this respect, we recognize, as we previously have, the wide range of conduct the law was designed to address, including equalizing the bargaining power of the seller and consumer, ensuring the fairness of market transactions, and preventing deception and exploitation, all of which harmonize with the statute’s broad underlying foundation of fraud prevention,” Saylor said.

This has far-reaching implications for Pennsylvania’s businesses, particularly in the context of class actions like the one at issue in this case. (Its application to a certain global telecommunications conglomerate that is the largest broadcasting and cable television company in the world by revenue certainly springs to mind.)

If you have any questions or would like more information, please contact Erin Lamb at [email protected].