Justia Insurance Law Opinion Summaries

A developer was required to make public improvements to be turned over to the city and, in 2006, obtained bonds to ensure performance, as required by ordinance. Work began, but the subdivision failed and subcontractors filed mechanics' liens. The developer notified the city that three foreclosures were pending and recommended that it redeem the bonds. The insurer refused to pay. The city did not follow up, but a subcontractor sued, purporting to bring its case in the name of the city for its own benefit. The subcontractor contends that it should be paid out of the proceeds of the bonds. The case was removed to federal court. The district court dismissed, finding that the subcontractor did not have standing to assert claims on the bonds because it was not a third-party beneficiary to the bonds. The Seventh Circuit affirmed, based on the language of the contract.

The company previously gave retirees credit toward their share of health care costs, based on unused sick-leave. Union workers could take that sum in cash or put it toward the premium. Executives who quit before retirement, or decided not to participate in the plan, did not receive any other form of compensation for unused leave. It had value only as a credit toward retirement health-care costs. In 2008 the company amended the plan and stopped paying any part of retirees' health-care costs. Money for employees who could have taken their balances in cash is put in an account administered by the health-care plan. Retirees, including executives who never had an option to take balances in cash, plus one who had that option but elected to leave the money on deposit, filed suit under the Employee Retirement and Income Security Act, 29 U.S.C. 1081. The district court granted judgment on the pleadings to the company. The Seventh Circuit affirmed. The company, which did not take anything out of the plan, but simply reduced the amount it would pay in, reserved the right to amend its health-care plan. It is a business decision, not a legal question, whether to use that authority to retireesâ detriment.

A developer built a subdivision in a floodplain. The developer and buyers knew that the land is low-lying and prone to flooding. The developer constructed levees, floodwalls, retention ponds, and a stormwater holding system. The company that handled construction and sale of buildings in Parcel D had the developer fill one of the retention ponds, so that it could build additional homes; it also constructed duplexes where the developer had planned single-family housing. In 2003 several homes were inundated when a retention pond overflowed. In a state court suit, the company settled with homeowners for$335,000; homeowners agreed to take $35,000 from the company and seek the rest from its insurer. A federal court concluded that the company's insurance policy did not apply, reasoning that homeowners had not suffered "property damage" as defined by the policy because the state court complaint sought changes to curtail future loss. The Seventh Circuit affirmed, noting that neither party had asked the court to apportion the settlement between losses and improvements and that it was too late to do so.

A semi-truck jackknifed while making a delivery for a federally licensed carrier and struck a vehicle, killing its driver. The estate brought a wrongful death action in Illinois state court against the driver, his wife (titular owner of the truck), and the company. The suit settled with entry of a $2 million consent judgment against the company, the driver, and his wife. The estate agreed that payment by the company's carrier of the $1 million policy limit would satisfy part of the judgment; the remainder would come from the driver's policy for "Non-trucking/bobtail liability" that covers driving cabs without trailers outside the service of the federally licensed carriers under whose authority drivers operate. That carrier declined coverage, citing a policy exclusion for vehicles "while in the business of anyone to whom ... rented," and obtained summary judgment in federal district court. The Seventh Circuit affirmed, citing 49 C.F.R. 376.2(d)(2), which defines "owner" as including someone like the driver, "who, without title, has the right to exclusive use of equipment" and reasoned that the driver, as agent for his wife, leased the truck to the company, even though the company was unaware that the wife held title.

After being diagnosed with fibromyalgia, chronic pain, anxiety, and depression, plaintiff was awarded long-term disability benefits under an employee benefit plan issued and administered by defendant. Benefits were discontinued about 24 months later, when defendant determined that plaintiff had received all to which she was entitled under the planâs self-reported symptoms limitation. Because plaintiff had retroactively received social security benefits, defendant also sought to recoup equivalent overpayments as provided by the plan. The district court dismissed. The Seventh Circuit reversed in part and remanded for reinstatement. The self-reported symptom limitation violates ERISA, 29 U.S.C., 1022; the policy sets out that long-term benefits will be discontinued after 24 months if disability is due to mental illness or substance abuse, but does not mention that the time limitation applies if a participantâs disability is based primarily on self-reported symptoms. The Social Security Act does not bar recovery of overpayments occasioned by receipt of social security benefits.

Defendant is one of several investors (underwriters) in a mortgage bankers blanket bond issued to plaintiff to insure against financial loss resulting from employee misconduct. One of plaintiff's employees engaged in a scheme by which, for a kickback, he caused plaintiff to fund mortgages below its standards. Not knowing the loans were substandard, plaintiff sold them, warranting that they met its standards. Plaintiff was forced to repurchase the loans. The underwriters denied the claim. The district court dismissed a suit, finding that the bond did not cover the loss. The Seventh Circuit affirmed. The fidelity bond at issue contains direct-loss causation language. A financial loss resulting from contract liability to third parties is not directly caused by employee misconduct, even if employee misconduct is the source of the contract liability. Plaintiff's loss resulted from its contractual repurchase obligations; the employee misconduct did not directly cause the eventual financial loss. In addition, a specific exclusion in the bond bars coverage for losses resulting from loan-repurchase obligations.

In 1995, 14 years of applications and appeals, an ALJ found that the mine worker was entitled to black lung benefits, dated to 1981. The award was reversed in 1996. In 2000 the Seventh Circuit held that denial of a 1981 claim did not preclude the award and remanded. In 2001 an ALJ again awarded benefits. The company initiated proceedings for modification and refused to pay. In 2003 an ALJ denied the petition for modification; in 2004 the benefits review board reversed. The company, by then liquidated in bankruptcy, withdrew. The issuer of a surety bond, was notified, but did not intervene. The ALJ declined to hold the proceedings in abeyance. In 2008 a successor insurer filed a motion for conditional intervention in the modification proceedings. An ALJ granted the motion and the modification. In 2009 the miner died and the review board affirmed the modification, terminating benefits. The Seventh Circuit reversed. The modification proceeding should have been dismissed when the company ceased to be a real party in interest to serve as the proponent of modification, and the surety, which might have served as a real party in interest in support of modification, failed to seek timely intervention.

A $15,000 insurance policy covering the decedent named his brother as beneficiary. The brother was killed in the same accident that killed the decedent. Although the insurer received notice that the decedent's mother (estate administrator) had assigned the policy to pay for the funeral, the company obtained an order from the state court and paid the benefit to decedent's children, applying a "facility-of-payment" clause, which provided: "if the beneficiary he or she named is not alive at the Employeeâs death, the payment will be made at Our option, to any one or more of the following: Your spouse; Your children; Your parents; Your brothers and sisters; or Your estate." The assignee (finance company) filed suit. The federal district court entered judgment in favor of the insurer. The Seventh Circuit affirmed, exercising jurisdiction under the Employee Retirement Income Security Act, 29 U.S.C. 1132. Insurance companies have broad discretion under facility-of-payment clauses and the insurer's decision was not arbitrary. The court declined to award attorney fees.

After a fire at a discount mall, the insurer declined to defend negligence suits by tenants and sought a declaration that the losses fell within a policy exclusion for damage to "property in the care, custody, or control of the insured" because the mall was closed at the time of the fire and tenants did not have access. The district court entered an order to allow the insurer to appeal. The Seventh Circuit dismissed for lack of jurisdiction. That the trial magistrate and parties referred to a final Rule 54(b) order does not make it so; there are numerous other claims pending, such as duty to indemnify and bad faith, the resolution of which is tied to the duty to defend issue.