Justia Insurance Law Opinion Summaries

Sam was driving; his wife, Toni, was a passenger when their car slammed into a tree. Toni was injured and died within a week. Her estate sued Sam, claiming negligent driving, and sued the hospital and physicians, alleging malpractice. The medical defendants filed third-party actions against Sam, seeking contribution should they be held liable. State Farm is defending Sam in both suits, under a policy with indemnity of $250,000 per person ($500,000 total) for auto accidents. State Farm has offered to pay policy limits; its offer has not been accepted because of a dispute about the terms of the release. The couple had a Cincinnati Insurance excess policy ($5 million). Cincinnati unsuccessfully sought a declaratory judgment that its policy does not apply. The Seventh Circuit affirmed that Cincinnati must defend Sam in the suit between the estate and the medical defendants. The court found no prejudicial delay in notifying the company; rejected an argument that Cincinnati had no duty to defend because of State Farm’s failure to pay; and rejected Cincinnati’s argument that its policy does not apply because both Sam and Toni are insureds. The court cited the exclusion’s exception: “[w]hen a third party acquires a right of contribution against you or any relative.” Neither defense nor indemnity is appropriate in the estate’s suit against Sam. View "Cincinnati Ins. Co. v. Estate of Chee" on Justia Law

Stampley, an independent truck driver, sued Altom Transport, alleging that Altom had failed to pay him enough for driving his truck for it. Altom turned to its insurer, Westchester, for coverage in the suit. Westchester denied coverage; Altom handled its own defense; and the parties tried to settle. At that point, counsel for both Stampley and Altom tried to pull Westchester into the case, by making settlement offers within the limits of the Westchester policy and seeking Westchester’s approval. Westchester did not participate. Altom sought a declaratory judgment establishing that Westchester had a duty to defend, that it wrongfully had failed to do so, and that its handling of the matter had been unreasonable and vexatious. The Seventh Circuit affirmed dismissal of the suit, finding that all of the claims in the underlying suit arise directly from Stampley’s lease agreement with Altom and fell within the policy’s contract claim exception. View "Stampley v. Westchester Fire Ins. Co." on Justia Law

In 2003, a closely held corporation purchased a United life insurance policy on Clark, then its President. Buck, its COO, was the beneficiary. Clark thought that the $1 million death benefit would enable Buck to buy out his stock from Clark’s family. The policy was amended so that the benefit would go to the corporation. In 2005 Clark retired and sold his interest to Holtz, the firm’s new President. Buck remained as COO. Holtz owned 61% of the stock and Buck the rest. Holtz received a copy of the policy, including the amendment naming the corporation as the beneficiary. Another copy was in corporate files. Clark died in 2011. Buck told Holtz that the company was the beneficiary, but United paid the money to Buck. When Buck tried to use the proceeds to buy Holtz’s stock, he was removed from the board and quit as COO. The corporation sued. United conceded that the corporation was the beneficiary, but argued that the corporation knew the truth and allowed Buck to claim the money, carrying out the plan devised by Clark and Buck. During discovery,the corporation then admitted finding the amendment earlier. The judge entered summary judgment in favor of United. The Seventh Circuit affirmed, rejecting an argument that Holtz was misled by United’s error and had no reason to think that the corporation was the beneficiary. The corporation’s knowledge, not Holtz’s, is dispositive. View "Samaron Corp. v. United of Omaha Life Ins. Co." on Justia Law

Attorney Fleisher worked for two affiliated law firms. In 2013 Fleisher filed a written demand with the firms, claiming that when he retired, in 2011, he had accrued more than 90 weeks of unused vacation time and more than 322 days of unused sick leave, and that the firms were required by contract and by the Illinois Wage Payment and Collection Act, to pay him for those accruals. He estimated that he was owed about $950,000. The defendants sent a copy of Fleisher’s complaint to Hartford, seeking coverage under the “Employee Benefits Liability Provision” of their Business Owners Policy. It took five months for Hartford to reply that the matter was under consideration. Two months later Hartford denied coverage and sought a declaration that the insurance policy did not cover Fleisher’s claim, alleging that the failure to pay Fleisher was not the result of any negligent act, error, or omission in the administration of the employee benefits program, which was all that the policy covered. The district judge ruled that Hartford had no duty to defend under Illinois law and granted summary judgment. The Seventh Circuit affirmed, holding that delay was not a valid ground for estopping Hartford to deny coverage or a duty to defend. View "Hartford Cas. Ins. Co v. Karlin, Fleisher & Falkenberg" on Justia Law

Powers drove through a stop sign and caused a four-vehicle accident. The plaintiffs suffered personal injuries. Trotter was the driver of the vehicle; Jackson and Petrie were passengers. Powers was insured under a policy with liability limits of $250,000 per person and $500,000 per accident. The plaintiffs settled with Powers’s insurer for the per-accident limit of $500,000; Trotter received $250,000 and Jackson and Petrie split the remaining $250,000. The plaintiffs believed that the settlement did not make them whole and submitted claims to Harleysville, Trotter’s insurer under a policy that provides that Trotter and any occupant of his vehicle is an “insured” for purposes of underinsured motorist coverage. The policy's declaration page states that underinsured motorist coverage is limited to $500,000 for “each accident.” Because the plaintiffs had together already recovered $500,000 under the Powers policy, Harleysville denied their claims, concluding that Powers was not an “underinsured motorist.” The plaintiffs argued the policy can reasonably be construed to mean that the $500,000 limit applies on a per-person, rather than a per-accident, basis. The court entered summary judgment in favor of Harleysville. The Seventh Circuit affirmed, finding that the policy unambiguously states that coverage is subject to a $500,000 per-accident maximum, regardless of the number of insureds involved. View "Trotter v. Harleysville Ins. Co." on Justia Law

The Joyce law firm purchased professional liability insurance from Professionals Direct. In 2007 the firm won a large damages award for a class of securities-fraud plaintiffs and hired another law firm to sue to collect the money from the defendant’s insurers. Some class members thought the Joyce firm should have handled enforcement of the judgment itself under the terms of its contingency-fee agreement. They took the firm to arbitration over the extra fees incurred. Professionals Direct paid for the firm’s defense in the arbitration. After the arbitrator found for the clients and ordered the firm to reimburse some of the fees they had paid, the insurer refused a demand for indemnification. The district judge sided with the insurer, concluding that the award was a “sanction” under the policy’s exclusion for “fines, sanctions, penalties, punitive damages or any damages resulting from the multiplication of compensatory damages.” The Seventh Circuit affirmed. While the arbitration award was not functionally a sanction, another provision in the policy excludes “claim[s] for legal fees, costs or disbursements paid or owed to you.” Because the arbitration award adjusted the attorney’s fees owed to the firm in the underlying securities-fraud class action, the “legal fees” exclusion applies. View "Edward T. Joyce & Assocs. v. Prof'ls Direct Ins. Co." on Justia Law

Vee’s is a Subchapter S corporation wholly owned by Vee, who reports its income on his own tax returns. Vee sought a refund of $40,000 in penalties that the IRS had assessed because he took deductions for contributions to a benefit plan from 2004-2007 but did not file a Form 8886. In a separate Tax Court suit, the government is arguing that the deductions were improper. Contributions to multi-employer benefit plan, like the Vee's, are deductible unless the plan “maintains experience-rating arrangements with respect to individual employers,” 26 U.S.C. 419A(f)(6). Experience rating means that rather than pooling the risks and contributions of all the employees of the different employer-members to determine benefits, benefits are determined separately for each employer according to that employer’s contributions. If contributions go to purchase life insurance policies that accumulate cash value, the contributions are not tax deductible; such a plan is mainly an investment vehicle rather than insurance. Vee’s plan included no medical benefits. Vee’s contribution in ithe first year was $165,000, but the cost of the term life insurance purchased was only $5,400. The difference was invested to earn interest for and is the property of Vee. The district judge denied a refund. The Seventh Circuit affirmed. Vee’s plan was enough like the plan described in the IRS notice to require lForm 8886. View "Vee's Mktg., Inc. v. United States" on Justia Law

Essex issued a professional liability insurance policy to Galilee Medical Center, covering claims against Galilee physicians, including Angarita. Galilee’s application asked, “Do[] the Applicant’s employees or independent contractors use drugs for weight reduction for patients?” Galilee answered no. The question continued: “If yes, attach a list of drugs used and percentage of practice devoted to weight reduction.” Galilee did not identify any drugs. Galilee also answered “no” to whether its employees performed any experimental procedures and to “With the exception of surgery for obesity, does your practice include weight reduction or control by other [sic] than diet or exercise? 5.(b) Do you dispense any drugs? 5.(c) Do you use injections for weight control? 9.(a) Do you use experimental procedures, devices, drugs, or therapy in treatment or surgery?” In 2011, Ravelo, Angarita’s former patient, sued Angarita and Galilee for medical negligence based on mesotherapy treatments administered by Angarita. Mesotherapy is a non-surgical treatment involving injections into subcutaneous layers of fat, to dissolve deposits of fat and provide a more desirable body shape. Mesotherapy is not FDA-approved. Angarita admitted to providing mesotherapy treatment to more than 5,000 patients, including Ravelo. Essex denied coverage and sought a declaratory judgment rescinding the Policy. The Seventh Circuit affirmed summary judgment in favor of Essex, based on the misrepresentations in the applications. View "Essex Ins. Co. v. Angarita" on Justia Law

Cincinnati Insurance issued a liability policy to Painters, which allowed the insured to add an “additional insured” by oral agreement, if that agreement preceded the occurrence and “a certificate of insurance ... has been issued.” No permission from Cincinnati is required, if the insureds have a relationship consistent with the policy. Painters was hired to paint Vita’s premises and orally agreed to add Vita as an additional insurer. Painters’ worker fell, before there was any written confirmation of the oral agreement, and remains in a coma. In a suit by the insurer, seeking a declaration that Vita was not covered based on a certificate issued to Vita the day after the accident, the court granted summary judgment in favor of Cincinnati. The Seventh Circuit reversed. Summary judgment was premature. The policy is ambiguous. A certificate could be regarded a prerequisite to coverage of the additional insured, but also could be intended merely to memorialize the oral agreement. The policy could also mean that the oral agreement must be memorialized in writing before the insured can file a claim. Oral agreements are valid contracts and the policy is explicit that an oral agreement is sufficient to add an insured. The certificate is not a contract, but “a matter of information only” that “confers no rights upon the certificate holder.” View "Cincinnati Ins. Co. v. Vita Food Prods, Inc." on Justia Law

Morady sold life insurance policies. Davis, a former lawyer, approached elderly African-Americans and paid them small amounts to become the nominal applicant-buyers of the policies, with Morady as the insurance agent, and to put the policies into an irrevocable trust, with Davis as trustee. The beneficial interest in the trust would be sold to an investor who would pay the remaining premiums and wait for the death of the insured. The insurer would not have sold the policies had it known that the premiums would be paid by an unrelated third party in the expectation that the policy would be transferred to him; its contracts with agents, including Morady, required them to conform to an “absolute prohibition against participation in any type of premium financing scheme involving an unrelated third party,” but the law allows an investor to purchase the beneficial interest in an existing life insurance policy. The net loss to Ohio National (beyond $120,000 commissions paid to Morady) was $605,000 in litigation expenses to void the policies. The total death benefits specified in the illegal policies amounted to $2.8 million. The Seventh Circuit agreed that Morady’s conduct constituted fraud and a breach of her contract and affirmed summary judgment, with damages of $726,000. View "Ohio Nat'l Life Assurance Corp. v. Davis" on Justia Law