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Posts Tagged ‘policy’

Cancelling a Financed Policy: Reliance on a Power of Attorney

Posted on: February 8th, 2019

By: Eric Benedict

When a prospective insured is applying for and obtaining coverage, no matter the type of risk, the cost of the premiums is likely to be a foremost concern. To cover the cost of the premium, an insured may choose to seek financing from third-party entities known as premium financing companies. In exchange for agreed upon terms, premium financing companies will pay all or part of the premium due, with expectation that the insured will pay back the loan over time. In an effort to reduce the risk that the premium finance company will suffer a loss as a result of the insured’s default, premium financing companies often require that the insured grant the company a power of attorney to cancel the policy on the insured’s behalf and collect any returned premium in the event of a default. Both the terms of a policy and relevant legal authorities may set forth different requirements for cancellation when the policy is cancelled by the insured than when it is cancelled by the insurer.

As a result of the relationship established between the premium finance company and the insured, an insurer is often placed in the position of receiving a notice of cancellation from the premium finance company on behalf of the insured. In many states, premium finance companies are subject to regulation and some states have set forth specific procedures that a premium finance company must follow when exercising a power of attorney to cancel a policy on the insured’s behalf. To provide certainty to the insurer regardless of whether the premium finance company has complied with statutory or regulatory requirements prior to cancellation, some statutory schemes also provide insurers the ability to rely on representations and cancellations from premium finance companies. Many of the states which have adopted such schemes provide specific conditions under which an insurer is entitled to rely on a notice of cancellation from a premium finance company, thereby shielding the insurer from liability after it cancels a financed policy at the direction of the premium finance company. While many of these schemes contain similar language, the circumstances and conditions under which an insurer may properly rely varies by jurisdiction.

Ultimately, although an insured’s ability to finance an insurance premium may have the effect of widening access to coverage to those who require financing, it is imperative that both the premium finance company and the insured understand their rights and obligations under the relevant statutory scheme. Similarly, it is critical that insurers understand the relevant legal authorities concerning its rights and responsibilities when dealing with an insurance premium finance company which exercises its right to cancel a party on behalf of the insured.

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

A Holly(cal) Jolly (Almost) Christmas

Posted on: December 28th, 2018

By: Zach Moura

In what is sure to be the beginning of a slew of cases litigating coverage for injuries caused by drones, the U.S. District Court for the Central District of California recently issued an opinion denying coverage under an aircraft exclusion in the drone operator’s Commercial General Liability (CGL) policy. Philadelphia Indemnity Insurance Company v. Hollycal Production, Inc., et al., 5:18-cv-00768.

The accident at issue occurred when Hollycal Production (“Hollycal”) used a drone to photograph an event. The drone collided with one of the attendees, Darshan Kamboj, blinding her in one eye. Ms. Kamboj subsequently filed suit against Hollycal, its owner, and the Hollycal employee that operated the drone. Hollycal tendered the defense of the suit to Philadelphia Indemnity Insurance Company (“Philadelphia”) under the CGL policy on which Hollycal was an additional insured. Philadelphia agreed to defend Hollycal under a reservation of rights, and then filed a declaratory judgment action seeking a determination that it had no duty to defend or indemnify Hollycal for the Kamboj suit.

Philadelphia moved for summary judgment, in part on the basis that the Aircraft exclusion in the Policy excluded coverage in pertinent part for bodily injury or property damage “arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured.” Because “aircraft” was not a defined term in the policy, the Court looked to the Merriam-Webster’s Collegiate Dictionary definition of the word, along with the definition included in 49 U.S.C. § 40102(a)(6) and 14 C.F.R. § 1.1. The Court concluded that a “drone … is an aircraft under the term’s ordinary and plain definition.” Accordingly, the Court found that the Kamboj suit was excluded from coverage and Philadelphia had no duty to defend or indemnify Hollycal.

Drone operators will need to carefully review their insurance and ensure that they have appropriate coverage in place for their drone operations. As this matter makes clear, and as reinforced by recent reports of a drone striking the nose of an Aeromexico plane, an October near-miss of a drone by a passenger plane near London Heathrow, and the shutdown of London Gatwick airport last week because of suspected drone activity, there is substantial exposure arising from drone operations. Without the right insurance, operators may be left disastrously exposed.

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

In the Land of Insurance Coverage, Specificity is King

Posted on: December 13th, 2018

GA Court of Appeals Finds Insurer Must Cover Millions in Damages Because of Policy Ambiguities

By: Brandon Howard

Whenever a court suspects an insurance policy is “ambiguous,” anxiety strikes the minds of both coverage counsel and insurers alike. For coverage counsel, combating an alleged ambiguous provision of a policy typically occurs on the back-end, after an incident has occurred and the claimant or plaintiff has already made underlying allegations of liability. As a result, coverage counsel can only advise clients or litigate matters within the framework of any given insurance policy’s established language. Yet, as policy issuers, insurers are uniquely positioned to monitor trends in litigation, on the front-end, in an effort to anticipate and revise policy language which may appear ambiguous in light of unique or uncommon facts. By proactively taking on vague policy provisions, a prudent insurer may avoid unanticipated exposure and a public battle over any alleged ambiguities during litigation.

Recently, in Nat’l Union Fire Ins. Co. v. Scapa Dryer Fabrics, Inc., 2018 Ga. App. LEXIS 634 (Ga. Ct. App. Oct. 26, 2018), the Georgia Court of Appeals demonstrated how a pair of ambiguous policy provisions can expose an insurer to millions of dollars in unanticipated liability. In that case, over a period of five years, the primary insurer, National Union, issued commercial general liability policies to an entity selling asbestos-containing dryer felts (Scapa). Three of the policies had $1 million occurrence/aggregate limits, while the last two policies purported to cap the insured’s liability limits for any one occurrence at $7.2 million. Citing the policies’ non-cumulation and limit erosion provisions, National Union argued that its duty to indemnify Scapa was discharged when the Scapa’s liability reached $7.2 million. Scapa, however, argued that both the non-cumulation and limit erosion provisions were ambiguous, thus allowing it to “stack” the limits of each of the primary policies, for a total coverage limit of $17.4 million.

On appeal, the Georgia Court of Appeals held that Scapa was allowed to stack the coverage limits of the five National Union policies because the policies’ non-cumulation clauses were ambiguous. The policies provided that if “[Scapa] has been provided with more than one policy by [National Union] covering the same loss/losses, the limit of liability stated in the schedule of this endorsement is the total limit of [National Union’s] liability for all damages which are payable under such policies. Any loss incurred under this policy shall serve to reduce and shall therefore be deducted from the total limit of [National Union’s] liability.” Confronted with this language, the Court concluded that the non-cumulation provision is ambiguous because “[it] does not indicate whether the limit applies to [each discriminate] policy period only or to the aggregate period under the original and renewed policies.” Construing the policy in favor of the insured, the Court held that the non-cumulation provision did not apply in the aggregate and, therefore, Scapa could stack its policy limits to gain an additional $10.2 million in coverage beyond what National Union contended was due.

On the issue of policy limit erosion, the Court also sided with Scapa. National Union had argued that, under its policies, the liability limits were eroded by the costs expended to defend Scapa against liability. For support, Scapa pointed to the policy, which provides that the limits of liability are reduced by “all expenses incurred by [National Union], . . . in any claim, suit[,] or other action defended by [National Union].” The Court noted, however, that National Union’s limits “[are] eroded only by the total sums that National Union ‘become[s] obligated to pay due to’ any bodily injury or . . . property damage.” The erosion provision, according to the Court, “is ambiguous as to whether such expenses include defense costs National Union is obligated to pay solely as part of its contractual duty to defend (as opposed to those sums it is legally obligated to pay by reason of the liability imposed upon Scapa by law for damages).” Again, construing the policy in favor of the insured, the Court held that National Union’s limits were not eroded by the costs incurred defending Scapa.

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

Notice Prejudice Rule Alive and Well in California

Posted on: December 6th, 2018

By: Zach Moura

California’s Second District Court of Appeal said October 16th (Marty Lat v. Farmers New World Life Insurance Co., No. B282008, Calif. App., 2nd Dist., Div. 1, 2018 Cal. App. LEXIS 932) that under the notice prejudice rule, an insurance company may not deny an insured’s claim under an occurrence policy for lack of timely notice or proof of claim, unless it can show actual prejudice from the delay. The court further held that the insurer has the burden of establishing that it was prejudiced.

The insured, Maria Carada, had purchased an occurrence life insurance policy from Farmers New World Life Insurance Co. and named her sons as beneficiaries. The policy included a rider under which Farmers agreed to waive the cost of the insurance while the insured was disabled if Carada provided Farmers with notice and proof of her disability.

Carada was diagnosed with cancer and became disabled as a result, after which she stopped making payments on the policy. Two months after ceasing payments, Carada contacted the insurance agent who had sold her the policy, told the agent of her illness and disability, and asked if the policy could be reinstated. Farmers refused to reinstate the policy. Carada died the following month.

After the beneficiaries made a claim for benefits under the policy, Farmers denied the claim on the ground that the policy had lapsed before Carada died. Carada’s beneficiaries filed suit.

The Court reversed the trial court’s ruling granting an MSJ in favor of Farmers, determining that California’s “notice prejudice rule” applied to the Farmers’ policy rider regarding notice of a disability.

Finding that there was “no dispute” that Carada was totally disabled while the policy was in force and that she would have been entitled to the deduction waiver benefit if she had given Farmers timely notice of her disability, the Court held “Farmers could not deny Carada the benefit of the deduction waiver unless Farmers suffered actual prejudice from the delayed notice.” Because the Court determined that Farmers made no such showing, it held Carada was entitled to the deduction waiver benefit.

For any questions about this decision, or coverage questions generally, please contact Zach Moura at [email protected].

DOL Guidance On No Fault Attendance Policies

Posted on: September 21st, 2018

By: Joyce Mocek

The Department of Labor (DOL) Wage and Hour Division issued a new opinion letter on an employer’s no-fault attendance policy which effectively froze an employee’s attendance points that had accrued prior to taking the FMLA leave.  The DOL maintained that the no-fault attendance policy did not violate the FMLA if it was applied in a non-discriminatory manner, and applied consistently with other types of leave.

The FMLA prohibits employers from “interfering with, restraining, or denying” an employee’s exercise of FMLA rights, and prohibits employers from “discriminating or retaliating against an employee.. for having exercised or attempted to exercise FMLA rights.”  29 CFR 825.220.  In its opinion letter, the DOL noted that employees cannot accrue points for taking FMLA leave under a no-fault attendance policy.  Further, the FMLA does not entitle an employee to superior benefits simply because they take FMLA leave.

In the opinion letter, the DOL advised that since the employee’s number of accrued points remained frozen during the FMLA leave the employee neither lost a benefit that accrued prior to taking the leave, nor accrued any additional benefit which he or she would not have been otherwise entitled.  The DOL thus advised that this policy would not violate the FMLA.  However, the DOL noted that if the employer counted other types of leave (i.e. active service) under its no-fault policy, then the employer may be discriminating against employees that take FMLA leave as this inconsistency would violate the FMLA.

Employers should be mindful of this recent DOL opinion letter guidance and review their no-fault attendance policy to ensure compliance and consistency with other leave policies.

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