Tennessee Insurance Litigation Blog Honored as One of the Top 50 Insurance Blogs
A month or so ago I was excited to announce that this blog was nominated by the LexisNexis Insurance Law Community as one of the top 50 insurance blogs on the web. I recently learned that we were in fact selected as one of the top 50. Thanks to all of our readers for making this blog a success.
For a full list of the Top 50 Insurance Blogs, click here.
Discovery in Bad Faith and Consumer Protection Act Cases, Part I
In bad faith and Tennessee Consumer Protection Act cases, I routinely run into work product objections during discovery. Often these objections are made even as to reports and documents generated before the claim was denied. I believe work-product objections as to pre-denial materials are improper. As we know, Rule 26.02(3) protects against disclosure of materials prepared in anticipation of litigation. In general, courts seek to distinguish those materials that are generated “in the ordinary course of business” from those prepared “in anticipation of litigation.” The work product doctrine does not protect documents prepared in the ordinary course of business. See Boyd v. Comdata Network, Inc., 88 S.W.3d 203, 225 n.33 (Tenn. Ct. App. 2002) (citing Simon v. G.D. Searle & Co., 816 F.2d 397, 401 (8th Cir. 1987). In light of the above, the obvious question in litigation involving an insurance claim is when the insurance company begins investigating and acting “in anticipation of litigation” as opposed to doing so in the ordinary course of its business. Fortunately, there is case law to help, and I’ve compiled a few helpful citations below for use by lawyers fighting this decades old battle:
- “The investigation and evaluation of claims is part of the regular, ordinary and principal business of insurance companies." Fine v. Bellefonte Underwriters Ins. Co., 91 F.R.D. 420, 422 (S.D.N.Y. 1981).
- “It is . . . well established that insurance companies have an independent obligation to review and follow up on claims, and their reports are thus not protected, although they are usually prepared with an eye toward litigation." Fru-Con Constr. Corp. v. Sacramento Mun. Util. Dist., 2006 U.S. Dist. LEXIS 53763 at *4 fn. 3 (E.D. Cal. July 20, 2006) (citing Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655 (S.D. Ind. 1991)).
- Any investigation, including statements obtained as part of this process, would fall within the insurance company's ordinary business and independent duty to investigate and evaluate claims. Accordingly, it can be presumed that "documents which were produced by an insurer for concurrent purposes before making a claims decision would have been produced regardless of litigation purposes . . . ." Stout v. Illinois Farmers Ins. Co., 150 F.R.D. 594, 605 (S.D. Ind. 1993).
If any Tennessee practitioners have dealt with this issue and received rulings from trial courts, I keep a database of such Orders and would love to hear from you.
Answering Questions Posed About Valuation for Purposes of the Co-Insurance Penalty
We have had some excellent comments and questions on the topic of co-insurance, and specifically whether there can be any “iron-clad” or “black and white” rules as to who is responsible for any undervaluation. Obviously, the readers are concerned as to who, between the applicant/insured and the agent or company, should be held responsible for the valuation of the property.
There may be some “hard and fast” rules in some jurisdictions, but for the most part, the answer as to who will be responsible is – it depends! If an applicant approaches an agent, and affirmatively represents the value of property, and the agent or company takes no step to assess the property’s valuation, then the likelihood is that the insured would be responsible for any undervaluation. This should be true even if the applicant is basing his or her opinion as to the value of the property on a real estate appraisal done in the course of obtaining financing, a tax assessment (which almost always undervalues the property), or any other type of valuation. The point here is that, as between the agent and the applicant, the only person discussing valuation is the applicant.
However, experience shows that agents and companies are often involved in the valuation of property. For instance, most agents today can run a replacement cost calculation based upon the square footage, the type of construction, and the location of the property. If we were to assume that an applicant contacted an agent, and stated that he or she did not know the value of the property (if, for instance, it was inherited),and asked the agent to run a valuation on the property, then who should be responsible if the coverage is issued for that amount,? In my mind, that is going to be the agent’s responsibility, and the carrier is probably going to be estopped to contest the insurance to value of the property, such that the co-insurance is not going to be applied. In another instance, as our readers know, Tennessee’s valued policy law provides a 90 day period during which a company can inspect the property and assign a different value to it than that contained on the application. I have seen his inspection change the value of the insured property on only a few occasions, but the point for consideration here is that a valuation specifically placed on property by the insurance company within 90 days of the issuance of the policy should estop the insurance company from contesting the value of the property when a loss occurs shortly thereafter.
The bottom line is that there is really no rule, in my opinion, that will govern each and every case without regard to the facts. It is extremely important to assess who (as between the applicant and the agent/insurer) placed the value on the property. If the applicant had sole responsibility for placing the value, then the applicant should be responsible for an undervaluation. If the agent or company placed the value, then the company probably should not be able to assert the undervaluation of the property (presuming that the insured provided correct and accurate information). If it was a mixture of the two, it is going to depend on the circumstances.
The "Draft" expert report - is it still discoverable in federal court?
The U.S. Supreme Court has apparently approved changes to the rules governing expert discovery in federal court. These changes are set to take effect December 1, 2010. The most interesting, and the one drawing attention at this time, is the Supreme Court‘s exempting of drafts of expert reports from discovery. The Committee on Rules of Practice and Procedure proposed changing Fed. R. Civ. P. 26(a)(2)(B) so that only the "facts or data considered by the witness" in forming the expert opinions must be disclosed, instead of all "data or other information" upon which the expert relied. Drafts of expert reports will be immune form discovery, apparently unless a party could show substantial hardship. The purpose of this modification was to streamline litigation. The new rule will still allow discovery of communications between counsel and expert on the topics of compensation, assumptions and facts and data provided by the attorney. Now, however, the prior drafts of expert reports appear to be privileged from discovery.
The commentary seems to suggest that discovery along these avenues has not been fruitful, and has just taken up much discovery time. I have had experiences where it has been of limited utility, but usually about once a year, I have a case where an attorney’s modification to an expert’s preliminary report has caused concern or been a hot topic of examination. I was surprised to learn that this modification was supposed by both plaintiff and defense lawyers.
I believe this modification is "final," so to speak, so watch out for it and plan accordingly in your federal litigation.
Innocent Spouse - What has the Tennessee Supreme Court signaled with respect to the innocent spouse or innocent co-insured doctrine?
Brandon has written a couple of excellent posts on the recent Tennessee Court of Appeals opinion of Tuturea v. Tennessee Farmers Mutual Insurance Company and whether the opinion calls the ability of an insurer to “end-around” (as he puts it) the innocent spouse or innocent co-insured doctrine.
I think we must look to the pronouncements of our state’s highest court, the Tennessee Supreme Court. The most in depth discussion of these doctrines came in the case of Spence v. Allstate Ins. Co. , 883 S.W.2d 586, 591 (Tenn. 1994). In the case, Allstate relied upon the following provisions to deny recovery to the allegedly innocent spouse:
DEFINITIONS.
“You” or “Your”-means the person named on the declarations page as the insured and that person's resident spouse.
“Insured person”-means you and, if a resident of your household: (a) any relative; and (b) any dependent person in your care.
. . . . .
INSURING AGREEMENT.
The terms of this policy impose joint obligations on persons defined as an insured person. This means that the responsibilities, acts and failures to act of a person defined as an insured person will be binding upon another person defined as an insured person.
. . . . .
CONCEALMENT OR FRAUD
This policy is void if it was obtained by misrepresentation, fraud or concealment of the material facts or if you intentionally conceal or misrepresent any material fact or circumstance, before or after loss.
Allstate contended that the policy unambiguously sets forth its intention to prevent an innocent co-insured from recovering for losses caused by the wrongdoing of an insured. The Tennessee Supreme Court disagreed, but stated:
Although we would be inclined to agree if these were the only provisions applicable to this case, other relevant provisions introduce a substantial amount of ambiguity into the status of an innocent co-insured under the policy. For example, in addition to the “CONCEALMENT OR FRAUD” provision, Allstate relied upon the following provision in its denial letters to James and Pamela Spence:
LOSSES WE DO NOT COVER
We do not cover loss to the property ... resulting in any manner from:
. . . . .
6. Intentional or criminal acts of an insured person, if the loss that occurs: (a) may be reasonably expected to result from such acts; or (b) is in fact the intended result of such acts.
Spence, 883 S.W.2d at 591. I would simply note that this case seemingly signals that our highest court would allow an insurance company to avoid the innocent spouse or innocent co-insured doctrine if the policy were clear, and its provisions did not create the ambiguity discussed in Spence.
Tennessee Insurance Litigation Blog Nominated as One of the Top 50 Insurance Blogs
I just learned today that our blog, just under a year old, has been nominated as one of the top 50 insurance blogs. The LexisNexis Insurance Law Community publishes the list each year. Although its a bit late to ask all of you to send in positive comments to the folks at Lexis who decide which blogs make the final cut (the deadline for comments is tomorrow), thanks to all our readers for making our little blog a success.
For a list of all the nominees or to comment on our blog or others, click here.
Supplemental Claims and Reopen Claims - Is There a Difference?
Shaun Marker and Jeremy Tyler, attorneys at Merlin Law Group in Florida, recently posted a pair of blog posts - here and here -- regarding the difference between "supplemental" claims and "reopen" claims. Indeed, there is a difference, and Shaun and Tyler did a good job showing why. The distinction is especially relevant here in Tennessee after the recent flooding, as many Nashville and Middle Tennessee residents will find additional, previously unknown, damage in the months to come.
Thanks as always to the fine minds at the Property Insurance Coverage Law Blog.
Can An Insurance Company "End Around" the Innocent Spouse Doctrine . . . Maybe Not
Yesterday, I wrote a bit about the recent Tuturea v. Tennessee Farmers Mutual Insurance Company case that was decided last week by the Western Section of the Court of Appeals. Remember, this is the case where the plaintiff's allegedly insane husband set fire to the house in an unsuccessful effort to commit suicide. I saved the best part for today . . .
One of Mrs. Tuturea's arguments in favor of coverage was that the innocent co-insured doctrine should allow her to recover. However, like pretty much all policies I read these days, Tennessee Farmers had contracted around that doctrine to prohibit an innocent insured from recovering when another insured intentionally causes the loss. Accordingly, Mrs. Tuturea lost.
What's intriguing about this this case is that the Court of Appeals stepped outside of its scope of review and considered, without deciding, an issue that was not presented by Ms. Tuturea, i.e., whether the policy language excluding recovery by an innocent co-insured is enforceable at all. The Tuturea court stated,
We recognize that insurance companies have written policies in response to the proliferation of the innocent co-insured doctrine that often expressly exclude recovery by an innocent co-insured or, at the very least, more clearly impose joint responsibility on the co- insureds. An argument exists that these carefully written provisions return the relationship between insureds and the insurer to the former status quo previously deemed unacceptable, but it is not the duty of the judiciary to impose liability where none exists. See Certain Underwriter's at Lloyd's of London v. Transcarriers Inc., 107 S.W.3d 496, 499 (Tenn. Ct. App. 2002) (citations omitted) (recognizing that courts are not at liberty to rewrite an unambiguous insurance policy simply to avoid a harsh result). While courts in other jurisdictions have reformed or held unenforceable policies excluding recovery by an innocent co-insured where the policies did not comply with legislative limitations on liability exclusions, e.g., Sager v. Farm Bureau Mutual Insurance Co., 680 N.W.2d 8, 9 (Iowa 2004); Watson v. United Services Automobile Ass'n., 566 N.W.2d 683, 692 (Minn. 1997). Mrs. Tuturea has not argued that similar limitations govern the enforcement of insurance agreements in Tennessee. Because the specific language of the policies before us clearly excludes recovery by an innocent co-insured, the trial court’s decision is affirmed.
Needless to say, I'll be taking a hard look at the cases cited above as the Court's dicta seems to be a clear invitation for someone to present the issue. A favorable ruling would certainly be advantageous for policyholders, and I see plenty of opportunities to give the Court an opportunity to do just that.
The "I'm Too Crazy To Intentionally Burn My House" Defense - Is it Viable in Tennessee?
The Tennessee Court of Appeals released Tuturea v. Tennessee Farmers Mutual Insurance Company on June 29, 2010. Its certainly an interesting opinion, although a bit long for fun reading (29 pages). The basic facts are this. Mr. Tuturea suffered from terminal cancer, and set fire to his house in an unsuccessful attempt to commit suicide. His home was destroyed in the fire, and he then passed away a few months later. His wife's claim for insurance proceeds was denied, and she sued to recover on the insurance policy.
The issue presented by Mrs. Tuturea on appeal was whether the fire was "intentional" within the meaning of the subject insurance policy. Relying on expert testimony, she argued that Mr. Tuturea did not form a conscious desire to bring about the fire because "he was insane, had an acute break with reality, and was not in control of his actions when he set the fire." After weighing the evidence, the trial court disagreed, and the Court of Appeals affirmed his decision. What's interesting about this case is the issue that wasn't decided. In a footnote, the court noted that "some jurisdictions hold that an insane person is incapable or forming the intent to commit an intentional act in the insurance context," while others hold "that an actor is able to commit an intentional act so long as the actor understands the physical nature and consequences of the act, regardless of whether the actor is able to distinguish right from wrong." Unfortunately, that issue wasn't presented, nor was it decided.
There was one other interesting twist about this case, but I'll save that for tomorrow.
Delay, Deny, Defend
Delay, Deny, Defend - Why Insurance Companies Don't Pay Claims and What You Can Do About It. No, that's not the theme of a bad faith trial. Its the title of Professor Jay M. Feinman's new book that chronicles the bad faith practices of insurance companies. Several months back, the book's publisher, Penguin, provided me with an advance copy, and I found it to be dead-on. An easy and enlightening read, Feinman details the systematic and widespread practices utilized by insurance companies across the country, and then shows insurance consumers exactly how to best deal with these mammoth companies that seldom have the insured's best interest at heart.
Here's a description of the book directly from its author and publisher, taken from the book's website:
Do you think your insurance policy has your property protected from life's many mishaps? That those premiums you pay every month guarantee you the help you need when you need it? That your insurance company is a benevolent entity that strives to pay claims fairly and promptly? Think again.
Your insurer's main objective is not to protect you; in fact, insurers often try to avoid paying justified claims. Today the name of the game is delay, deny, defend: to improve their profits, insurance companies delay payment of justified claims, deny payment altogether, and defend their actions by forcing claimants to enter litigation.
It's unconscionable, and it's widespread. From stonewalling and lowballing claims to instigating arbitrary fraud investigations, insurance companies are increasingly failing to live up to their contractual commitments. Some major insurers even hired the big-name consulting firm McKinsey to help them squeeze even more cash out of their claims centers. Why? Because insurance companies have realized they can add to their bottom line by using your monthly payments as a profit center, rather than a fund for giving you what you deserve if tragedy strikes.
Expert Jay M. Feinman details the infuriating systemic abuses, including:
Katrina victims left homeless because of an obscure flood exemption clause in their homeowners insurance policies.
Computer programs that arbitrarily cut the settlements offered to auto accident victims on a take-it-or-leave-it basis.
Claims adjusters who receive cash incentives to reduce the amount paid out on each claim.
Feinman shows you how to fight back, explaining how to choose a carrier that won't take advantage of you, how to file a claim so that your provider can't avoid paying you, and what to do when your insurer disputes your claim. He also details the steps lawmakers need to take to protect consumers and thwart the aggressive and abusive tactics of insurance companies. No matter what the advertisements say, your insurance provider is not your friend or a "good neighbor." You need to be smart and savvy to deal with your insurer-Delay, Deny, Defend tells you what you need to know.
Feinman did a great job with this one, and its a must-read for both insureds and insurance consumer advocates.
