Justia Insurance Law Opinion Summaries

Blue, a bus driver insured under Hartford group disability plans, stopped working because of chronic headaches in 1998; Hartford approved short-term disability (STD) benefits. Blue was diagnosed with sphenopalatine ganglion neuralgia. Hartford approved long-term (LTD) benefits in 2001. To qualify for STD benefits, Blue needed to show inability to perform his own occupation; for LTD benefits, he needed to show that he could not do “any occupation or work for which he was or could become qualified by training, education or experience.” In 2002, Hartford amended its LTD policy, retroactive to 1993, adopting the more lenient “own occupation” standard. Hartford received annual physician’s reports, and by 2008, his provider indicated that Blue was capable of full-time light or sedentary work. Hartford notified Blue that he was no longer eligible for LTD benefits, quoting the “any occupation” language; it apparently did not send the 2002 retroactive amendment. In 2011, Hartford acknowledged its mistake to the district court, reinstated benefits, and issued a check for retroactive benefits. After granting one, but denying a second, extension of time, the district court ruled without Blue’s response, finding the contract claim was moot and granting Hartford summary judgment on the bad faith claim. The Seventh Circuit affirmed. View "Blue v. Hartford Life & Accident Ins. Co." on Justia Law

Haight purchased an insurance policy that included underinsured motorist coverage for the named insured (him) and any family members. After his teenage daughter Nicole was injured while riding in a car driven by an acquaintance whose insurance did not fully compensate her, she made an underinsured motorist claim on her father’s policy. The insurance company maintained that Nicole is not entitled to coverage because she was not riding in a vehicle listed on her father’s policy when she was hurt. The district court ruled in favor of Haight. The Seventh Circuit affirmed. The policy provides underinsured motorist coverage to the named insured and his family members that does not require that they be occupying a vehicle listed on the policy during the accident. View "Grinnell Mut. Reins. Co. v. Haight" on Justia Law

In 2007, an explosion occurred at a metal processing plant in Manchester, Georgia owned by GSMC, which had obtained insurance through Continental, covering damage to the plant. Continental made some payments to GSMC, but GSMC subsequently sued, alleging that the payments were inadequate. GSMC is now in bankruptcy. Plaintiffs, claiming that the failure of Continental to timely pay adequate damages to GSMC caused them damages, brought suit against Continental and Hylant, their former insurance broker. Three of the plaintiffs are businesses affiliated with GSMC, and are additional named insureds under the policy that covered the Manchester plant. The other plaintiffs are owners and operators of GSMC, and allege that they are third-party beneficiaries of the policy. The district court dismissed the claims of: breach of contract; promissory estoppel; bad faith; negligence; tortious interference with contract; negligent infliction of emotional distress; and breach of fiduciary duties. The Seventh Circuit affirmed, applying Indiana law. View "G & S Holdings LLC v. Cont'l Cas. Co." on Justia Law

The tax court found underpayment of $8,553 on Brown’s 2005 income tax and assessed a penalty of $1,171, based on failure to include income realized upon cancellation of a $100,000 whole life insurance policy, issued in 1982. Brown did not receive any cash upon cancellation; he had already used policy dividends and taken loans to pay premiums. The IRS took the policy’s cash value, $37,356.06 and subtracted Brown’s “investment” of $8,271.76 to arrive at $29,093.30 in taxable income. The Seventh Circuit affirmed. The cash value of a surrendered (whether or not voluntarily surrendered) life insurance policy is includable in gross income to the extent it exceeds the taxpayer’s investment. The fact that this income was used to pay a debt to the insurance company is irrelevant, because it was a personal rather than a business debt and therefore was not deductible. It is also irrelevant that no money changed hands. By surrendering the policy (albeit involuntarily) Brown gave up the prospect of receiving $100,000 if he died but at the same time freed himself from having to pay $1,837 each year to maintain that prospect. View "Brown v. Comm'r of Internal Revenue" on Justia Law

Home Federal agreed to lend up to $95.5 million to finance construction of a new ethanol production plant. When the developer of the plant ran into serious trouble finishing the project, the bank did not disburse the final $8 million. The developer defaulted on the debt and fired its general contractor, which then filed a mechanic’s lien on the property to recover $6 million allegedly owed it. When the bank sought to foreclose on its mortgage, the general contractor counterclaimed, asserting that its lien had priority over, or at least parity with, the bank’s mortgage. The bank tendered its defense to the title insurer under a policy that required the insurer to defend the bank against a “claim . . . alleging a defect, lien or encumbrance or other matter insured against by this policy.” The policy contained an exclusion from coverage for claims “created, suffered, assumed, or agreed to” by the insured. The district court ruled in favor of the title insurer. The Seventh Circuit reversed. The undisputed facts show that the title insurer breached its duty to defend the bank on the contractor’s claim that its mechanic’s lien had priority over or parity with the mortgage. View "Home Fed. Savings Bank v. Ticor Title Ins. Co." on Justia Law

During tax years at issue, State Farm filed consolidated returns for life insurance and non-life subgroups. The IRS determined deficiencies. State Farm responded that, using a revised method for calculating alternative minimum tax, rather than owing $75 million in additional taxes, it was entitled to $500 million in additional refunds. State Farm also raised a loss reserve issue. The Tax Court ruled that State Farm should not have included a $202 million award of compensatory and punitive damages for bad faith in its insurance loss reserve for 2001 and 2002 returns. The Seventh Circuit affirmed, regarding punitive damages. Pending clearer guidance from the National Association of Insurance Commissioners (to whom Congress has commanded deference), punitive damages should be treated as regular business losses that are deductible when actually paid rather than deducted earlier as part of insurance loss reserves. With regard to the compensatory damages portion of the award, the court reversed. Extra-contractual obligations like compensatory damages for bad faith have long been included in insurance loss reserves; NAIC guidance supports that result. The court affirmed rejection of State Farm’s recalculation of alternative minimum tax, which would result in “creation from thin air of a virtual tax loss some $4 billion larger than” actual loss. View "State Farm Mut. Auto. Ins. Co. v. Comm'r of Internal Revenue" on Justia Law

Schorsch enrolled in a long-term disability plan in 1991, but apparently never received a summary plan description or explanation of the Employee Retirement Income Security Act, 29 U.S.C.1132. In 1992 she was in an automobile accident; in 1993 Schorsch began receiving disability benefits. In 2006, at the plan’s request, Schorsch underwent a medical exam, which resulted in a report finding her capable of performing a medium duty job. The plan notified Schorsch that it would terminate her benefits, but did not mention a surveillance report, which was part of the determination. , Schorsch’s counsel sent a letter, but neither Schorsch nor her attorney submitted a request for review. The plan notified Schorsch that the appeals period had passed. Schorsch’s claimed breach of contract and unreasonable denial of benefits under Illinois law and ERISA violations. The plan had lost the administrative record relating to Schorsch’s claim. The district court granted summary judgment on the ground of failure to exhaust administrative remedies. The Seventh Circuit affirmed. There are exceptions that may excuse a failure to exhaust, but Schorsch offered no evidence of reasonable reliance on information missing from the notice or that alleged deficiencies were material. View "Schorsch v. Reliance Standard Life Ins. Co." on Justia Law

Miller, a Fund beneficiary, fell from a ladder and was injured. He hired attorney Darr on a contingent fee basis to sue the person who was supposed to hold the ladder. The Fund advanced $86,709.73 in medical and disability benefits on the condition that Miller repay from any recovery, without deducting attorneys’ fees. Miller and Darr, signed a subrogation agreement. The lawsuit settled for $500,000. Calculating his fee based on $413,290.27, Darr submitted $57,806.48 to the Fund, stating that he was withholding $28,903.25 as a fee. To avoid jeopardizing Miller’s benefits Darr later submitted the $28,903.25. The Fund indicated that if Darr pursued his claim, it would consider Darr and Miller in breach of Plan terms and in repudiation of the subrogation agreement and would consider terminating coverage and seeking relief under ERISA. Darr sued the Fund in Illinois state court under the common fund doctrine, which permits a party who creates a fund in which others have an interest to obtain reimbursement for litigation expenses incurred in creating that fund. The district court enjoined Darr’s lawsuit. The Seventh Circuit vacated. A federal court may not enjoin “proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments,” 28 U.S.C. 2283.View "Trs. of the Carptenters' Health & Welfare Trust v. Darr" on Justia Law

Jeranek, a beneficiary of the Humana Plan, was hospitalized in 2006. Three days later, she was admitted at Nu-Roc Nursing Home. She was 88 years old and suffered from a variety of maladies that required her to use 14 prescription medications. A physician estimated at the time of her admission that Jeranek had a life expectancy of about one year. Jeranek was a resident at Nu-Roc for 702 days. On several occasions she declined medical treatment and her physician understood that she was to receive comfort care only. From November 15 until November 19, 2006, Jeranek’s stay at Nu-Roc was paid for by Medicare. Humana paid $50,097.67 to Nu-Roc for services provided from November 20, 2006, to September 30, 2007, but later determined that its disbursement had been a mistake, reasoning that “custodial” care was not covered by the Plan. Humana sought reimbursement for its previous payments and denied coverage for October 1, 2007 through October 22, 2008, when costs for Jeranek’s care totaled $64,669.74. The district court determined that Humana’s denial of coverage was not arbitrary and granted summary judgment for the Plan. The Seventh Circuit affirmed. View "Becker v. Chrysler LLC Health Care Benefits Plan" on Justia Law

Swanson hired ISF for steel fabrication work on an Indiana construction project. ISF hired Central to perform steel erection work. ISF and Central signed a subcontract in which Central agreed to procure insurance and to “defend, indemnify and hold harmless.” Central purchased insurance from Scottsdale: a $1 million commercial general liability policy and a $2 million umbrella insurance policy. ISF also carried $1 million in commercial general liability coverage from Amerisure and $7 million in umbrella coverage from National. Colip, a Central employee, was injured at work when he fell 30 feet through a hole in a building roof. Colip settled with ISF for $2.9 million, and the insurers paid according to an agreement that provided that Scottsdale would pay $1 million out of the CGL policy and $950,000 out of the Umbrella policy, while Amerisure would pay the remaining $950,000. Initially, National had no obligation to contribute. The agreement reserved the rights of the parties to seek reimbursement or contribution from each other. Amerisure sued Scottsdale and Central; Scottsdale filed counter- and cross-claims against Amerisure and National. The district court dismissed Central from the litigation and awarded Scottsdale $50,000 from Amerisure and the remaining $900,000 from National. The Seventh Circuit affirmed. View "Scottsdale Ins. Co. v. Nat'l Sur. Corp." on Justia Law