Category Archives: Bad Faith

McIntosh case punitive damages eliminated, case settled

Holy Cow! The McIntosh case, which I have referred to as the Verdun of insurance litigation, has been dismissed by the plaintiffs’ own motion.  Given this litigation had long been the scene of intense trench warfare, consuming attorney fee dollars like five NFL offensive linemen chowing down on popcorn shrimp at an all-you-can-eat  buffet, it is surprising to see this turn of events.

If you remember, Thomas and Pamela McIntosh v. State Farm is the granddaddy of Katrina litigation, or perhaps more accurately, the Mother of All (Insurance) Battles.   This is the case where Kerri Rigsby of Rigsby sisters "whistleblower" fame approved the flood payment to the McIntoshes, and where, strangely enough, the original engineering report on the damage to the home said the damage was from wind, not flood.  Alexis "Lecky" King, a State Farm catastrophe team leader, found fault with the report and asked the engineers to re-evaluate.  The second report noted the presence of both wind and water damage.  Before we move on with the recap, remember that the first report was done by a man named Brian Ford, because his name will come up again. Ford did not work on the second report. 

Now, the McIntosh claims file was among those taken by the Rigsby sisters and fed to Dickie Scruggs for use in lawsuits he was bringing and planned to bring against State Farm.  This is the case that really started all the public uproar about changed engineering reports, insurer fraud, etc. etc.  Keep in mind that Kerri Rigsby and her sister, Cori, who like Kerri was another claims adjuster working with State Farm, both quit and went directly to work for Scruggs in what federal judge L.T. Senter called a "sham" consultant arrangement — but not before they had performed a massive "data dump," where they and some friends spent the weekend copying State Farm claims files to give to Scruggs and his good friend, Mississippi AG Jim Hood.  (Don’t forget Hood once called Scruggs his "confidential informant" and helped him play keep away with the documents the Rigsby sisters took. Jeez, talk about backing the wrong horse — if you go to the track with Jim, use him as a reverse barometer.)

You may also remember that the Scruggs Katrina Group, besides "employing" the "whistleblower" Rigsby sisters, also discussed hiring Brian Ford as a consultant.  Ford wanted a similar deal to those of the Rigsby sisters, somewhere in the neighborhood of 10-Large per month.  Entrepreneurism at work, you say?  Maybe.  But of course, payments by a party to material witnesses they would be calling to support their case is frowned upon, and in the end, that led Judge Senter to disqualify the Rigsby sisters as witnesses and to disqualify the Scruggs Katrina Group itself as counsel for the McIntoshes. 

Their present counsel, the Merlin Law Group, went a different direction with this than Scruggs did.  Here’s a copy of the motion, and here’s part of what the motion says:   

After engaging in extensive discovery, the Plaintiffs have determined the following:

(a) the McIntosh dwelling was damaged as a result of Hurricane Katrina;

(b) the majority of the damage to the McIntosh dwelling was caused by flooding;

(c) the McIntosh dwelling sustained flood damage of at least $250,000 to the structure and $100,000 to its contents;

(d) State Farm promptly and properly paid Plaintiffs the full policy limits of their flood insurance policy; and

(e) State Farm promptly tendered payment to Plaintiffs for wind damage covered under their homeowners insurance policy prior to the time that the dwelling was inspected by an engineer.

This has got to the most surprising development since those German and English soldiers met on that World War I battlefield for a soccer game during a Christmas truce.

The motion, which was granted yesterday by Judge Senter, dismissed with prejudice all the punitive claims.  That left only the contract claims, and my understanding is that those were settled. 

I’ll discuss this more later. 

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Today’s post is Saturday’s post

The news about State Farm suing Mississippi AG Jim Hood came late Friday, and so most readers may not have heard of it or seen the post I wrote about it Saturday morning.  So with thanks to all the folks who keep sending me ideas for posts — and I do appreciate this greatly — I’m going to let them pile up a little longer so as not to detract from this news, which is still sizzling hot. Would have had the post done Friday night, but there was a lot to read and comprehend before I wrote.  Also, you folks who e-mail me, I love to hear from you.  It is not easy to set your alarm to get up at 5 o’clock Saturday morning to write a post, and if I didn’t like this blog’s readers so much, I wouldn’t think about doing so.  Never was much of a morning person before this blog came along.  I read every e-mail, do my best to answer them all, sometimes it’s not easy with my day job.  As I’ve said before, work is the curse of the blogging class. 

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McKinsey documents: smoking gun or blowing smoke?

The so-called McKinsey documents have become something of a Moby Dick in certain quarters, the legendary Great White Whale of the insurance world.  Some plaintiff lawyers have become positively Ahab-like in their obsession with these documents, which they say shows that Allstate systematically engages in bad faith claims practices to grind down accident victims. 

The McKinsey documents had a big test in state court in Kentucky in the Hager case, where on Wednesday, after a seven-day trial, a jury returned a unanimous verdict for Allstate after deliberating just 35 minutes.  Getting a zero verdict with the jury coming back that quickly is a big win for an insurance company, friends.  Here is more on the decision from an excellent story by Brandon Ortiz of the Lexington Herald-Leader (click here to read the story):

The verdict calls into question whether the so-called McKinsey documents are the dynamite evidence of systematic bad faith that trial lawyers across the country have claimed them to be. The documents, which are actually 12,500 pages of PowerPoint slides, were produced by consulting firm McKinsey & Co. as it overhauled Allstate’s claims-handling in the 1990s.

[Plaintiff’s lawyer J. Dale] Golden had showed jurors documents that described claims-handling as a "zero sum economic game" in which "Allstate gains" and "others must lose." Another says Allstate should "hold the line" with claimants and deploy "boxing gloves." The documents were the centerpiece of his case, and he cited them as proof that Allstate purposefully drags out claims and plays hardball.

But Allstate lawyers said Golden was cherrypicking quotes and taking the documents out of context, and the jury agreed. Attorney Floyd Bienstock, of Arizona, said the documents were referring to unscrupulous trial lawyers, chiropractors and claimants. He said Allstate’s claims-handling processes, called Claim Core Process Redesign or CCPR and implemented in 1995, were intended to vigorously investigate and root out exaggerated, "padded" and fraudulent claims.

Hager had sought $1.425 billion in the case — and no, that is not a typo.  This may not have been the best case in which to seek these Bill Gates-size numbers, as the Herald-Leader story explains:

Hager claimed she was permanently impaired by the accident, even though doctors who examined her said she had only a muscle strain that would clear up in a few weeks, [Allstate attorney Mindy] Barfield said. And Hager still ran her family’s pest-control business and started a tanning salon even as she claimed she could not work for two years.

Also, plaintiff’s attorney failed to connect any of the alleged bad faith Allstate practices — sending accident victims to biased doctors, monkeying with and redacting claims files, manipulating computer data to produce low-ball damage amounts and making invasive medical records requests — to this case. You can bet, however, this will not be the last we hear of the McKinsey docs.

If you want to read more about the McKinsey documents, here’s a 2006 story from BusinessWeek about David Berardinelli, the New Mexico trial lawyer who has made a side business out of selling strategies on how to take on Allstate.

UPDATE: I notice the Herald-Leader published a correction on a couple things in the story, none of which we were talking about here.  The correction can be seen here. 

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Comment on a couple Katrina cases

The complaint in this case, Hohan v. State Farm, is one that was filed just before Louisiana’s statute of limitations expired late last month.  This case presents an interesting allegation: under a federal flood policy adjusted by the insurer through the Write Your Own program, State Farm paid Hohan some $86,000 while his neighbor received in excess of $162,000, although Hohan and his neighbor own adjoining halves of a double townhouse unit.   Allegations are merely that — sometimes they turn out to be true, sometimes they turn out to be partially true, sometimes they turn out to be strangers to the actual facts. But what’s more interesting is the theory pleaded:

Pursuant to a directive issued by the director of the National Flood Insurance Program State Farm failed to treat the Plaintiff in the same manner as all other residents of the same geographic area, when it failed to tender the Plaintiff’s policy limits.

The complaint makes a claim for bad faith damages under Louisiana statutes.  I haven’t seen this particular theory before, whether the damage payment was correct or not is one thing, but if your damage is different from someone else’s, is an insurer really required to pay you the same amount merely because that’s what your neighbor received?

I saw this Mike Kunzelman story recently about another case before the Fourth Circuit Court of Appeal in Louisiana.   Like the U.S. Fifth Circuit in In Re Katrina Canal Breaches Litigation, the Louisiana Court of Appeals is considering a lower court ruling that said a flood exclusion was ambiguous in the context of man-caused flooding as opposed to "natural" flooding.  Here’s an excerpt of the story:

Sher, who lived in one of the five units at his apartment complex, rode out the storm at home and blames much of the damage to his property on water from levee failures in Katrina’s aftermath.

Lafayette [Insurance Co.] paid Sher about $2,700 for wind damage, but he estimates his home sustained a total of $223,488 in damage that should be covered.

In March, a jury awarded Sher $369,077 for property damage and lost rent, plus $184,538 in penalties. Giarrusso also ordered Lafayette to pay $258,728 in attorney fees.

Lafayette says its policies cover damage from wind but not flood water. Water from a levee breach is clearly excluded from coverage, whether it’s a man-made event or an act of God, the company argues.

"No non-flood policy has ever been called on to cover flood damage,” Lafayette attorney Howard Kaplan told a five-judge panel of the 4th Circuit, which didn’t immediately rule on the company’s appeal.

Sher’s attorneys argue that water damage from a man-made event, such as a levee breach, aren’t specifically excluded from coverage under the company’s policies. The U.S. Army Corps of Engineers has conceded that the city’s levees were poorly designed and constructed.

James Garner, one of Sher’s attorneys, said Lafayette could have written policy language that specifically excluded damage from a levee breach from coverage, but didn’t. "They wrote the contract,” he said. "It’s their job to make it clear.”

Sher’s lawyers cite a ruling last November in New Orleans by U.S. District Judge Stanwood Duval Jr., who sided with policyholders against several insurance companies and ruled that policy language excluding flood damage from coverage was ambiguous. But the 5th Circuit overturned Duval’s decision and ruled that water from a levee failure is a "flood” and is unambiguously excluded from coverage.

Lafayette attorney Ralph Hubbard said the issues raised in the federal appeal are virtually identical to those in Sher’s case.

"While you have your own road to follow, the 5th Circuit has given you a road map that will show you the right way,” Hubbard told the 4th Circuit panel.

The Fifth Circuit’s opinion in Canal Breaches was probably the best of the court’s recent Katrina decisions, but even in that case, as I noted at the time, the court misunderstood when a cause is independent of another cause. (Scroll down to the sixth paragraph).  

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An interesting post on a bad faith question arising out of the tripartite relationship

This is a very good post on the implications of a defense lawyer attempting to bifurcate a tort case into separate decisions on liability and damages, but as I was reading it, my thought, not knowing the law of Maryland in any great detail, was that bifurcating the case does not necessarily remove the potential third-party bad faith claim against the insurer if an excess verdict is returned.  I see one of the commenters said the same thing.  

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Tomlinson v. Allstate Katrina Case Suddenly Dropped In Midst Of Trial

You don’t very often see plaintiffs just drop their lawsuit right before it goes to the jury, but that’s what happened in the Tomlinson v. Allstate case in the U.S. District Court for the Eastern District of Louisiana.  No monetary settlement, apparently.  They just dropped it.  Here’s a good story on it from Michael Kunzelman of the Associated Press.  The Tomlinsons’ home was destroyed by Hurricane Katrina and Allstate paid them roughly $150,000 for wind damage and living expenses.  They said the wind damage was more extensive, and sued Allstate for breach of contract and bad faith.  Here’s a prior post I did on the case.

Why did the Tomlinsons drop their case at this point? The story refers to the effect of alleged material misrepresentations made by the Tomlinsons about their damages.  So I looked up a brief on the alleged misrepresentations filed by Allstate, and here is a pdf of that brief.  As you can see, the brief alleges the Tomlinsons falsely claimed they executed a lease on some property after their home was destroyed , and then claimed the amount of the lease as part of their damages.  The brief, which I’d have to classify as some pretty good writing, contained arguments that a material misrepresentation on damages voids the entire policy, and does not merely negate the part of the damage claim that is false.

The brief said that the amount of the supposed lease was part of the $30,000 in additional living expenses Allstate had already paid to the Tomlinsons, and contained a fact that I did not know and that surprised me: Mrs. Tomlinson is herself an attorney.  It contained another surprising statement: the house where the Tomlinsons allegedly executed the lease is their own former residence, which they owned.  So if that is true, any rent they paid, they paid to themselves. Whoa!  That changes everything. Here is a copy of the Tomlinsons’ response brief, which doesn’t truly deny the Allstate allegations, but instead argues the representations should not void the entire policy and that there  was no intent to deceive.  This brief was also good. 

UPDATE: I added a link to my prior post.

SECOND UPDATE:  Here is a link to a comprehensive story by the New Orleans Times-Picayune.

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Should Insurers Be Sued For Bad Faith For Drafting Hard-To-Decipher Policies?

Last week I posted about Harvard 3L Chris Robertson’s post regarding ambiguity in insurance contracts.  I didn’t buy his analysis that insurers intentionally make them vague as a form of consumer deception. When you’re up against a rule, as insurers are, that ambiguities will be decided against you, what sense does it make to place them in your policies intentionally?  That’s like me throwing a punch at Superman.  If I connect, all I do is break my hand.   

Now Chris has a Part II out, about which he was kind enough to e-mail me earlier this week, so I took a read.   Regrettably, I also fail to buy this post, but the thing I buy the least is the argument that ambiguities are present in insurance policies because insurers left them ambiguous when they couldn’t get their harsher terms past state regulators, who have to approve the language of insurance contracts sold in the state.  In almost every coverage dispute I can think of, the ambiguity did not stem from any differences between the way the clause read in one state as opposed to another.

There simply are limits to human expression, especially when you have lawyers billing by the hour going over a policy trying to find ambiguity any way they can.  I do this myself.  When I represent policyholders and make an ambiguity argument, what I need to do is present an interpretation that is reasonable in the totality of the policy and contradicts the insurer’s interpretation. To win, my interpretation doesn’t have to be better or even as good.  It just has to be reasonable.  Then there is ambiguity, and it is decided against the drafter.  What I see being found ambiguous are terms that are standard terms. I’m open to other evidence, but I simply have not seen it.   

As far as things I don’t buy about the post, in a very close second place is the concept that the tort of bad faith should be extended to drafting of policies, because insurers know consumers may think they are covered but they really are not.  This has some resemblance to the doctrine of reasonable expectations, which in the insurance coverage field has pretty much been bounced around like a Bobo doll.  Instead of this reasonable expectations standard, courts say policies have some objectively reasonable meaning whether you read them or not, or whether you understand them or not.  What, now bad faith is going to be extended to some undocumented, subjective belief people may have?  What if they haven’t thought about it at all, does that mean the insurer acted in good faith, bad faith or in-between faith?

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FAQ On State Farm Appellate Brief In Tuepker v. State Farm Katrina Case

Q: So you’ve finally gone with the blogosphere herd and resorted to the FAQ style for this post.  Why?

A: Hey, I’ve got a day job, which usually stretches into a night shift.  If you had my workload you’d be looking to get things done the quickest way possible too.     

Q: Another preliminary matter, how do you pronounce FAQ anyway?

A: Check the ultimate authority on everything: Wikipedia.   Which, by the way, even has this great entry about the chess game played in the movie Blade Runner: Director’s Cut.  What’s really cool about the use of this game is it’s a famous one played in 1851 called The Immortal Game, and the theme of the movie is that we’re not, none of us know how much time we’ve got. Incidentally, movies hardly ever get chess right, if you watch closely you’ll see the two chess boards, one at each player’s home, had the pieces arranged differently.  Hard to play a game when you can’t agree on where the pieces are.  No wonder Tyrell was surprised by that last move.  Also, if you look at the chess board in The Shawshank Redemption, you’ll see the board is cockeyed, with a black square on the far right of each player.  A white square is always on the far right of each player. But I digress. 

Q: Remind me, what’s the Tuepker case about? 

A:  One of the Katrina cases in Mississippi. Couple’s home was destroyed by Katrina, down to the foundation. They made a claim under their homeowners insurance to State Farm, which denied it, saying the home was destroyed by flood, waves and storm surge.  Those aren’t covered. The Tuepkers said the damage was caused by hurricane winds, which would be covered. They sued.  State Farm filed a motion for judgment on the pleadings. Judge Senter denied the motion because factual issues existed about what caused the destruction of the Tuepker home, wind or flood.  In the course of denying the motion, Senter discussed the State Farm anti-concurrent cause clause and said this: to the degree anyone wants to interpret it to bar coverage for damage from wind, the clause  is ambiguous, because the policy clearly covers wind damage.  He acknowledged flood damage was excluded.  

That’s a cursory treatment. If you want more, here is Senter’s opinion in Tuepker.  If you want something a little more fun to read and more comprehensive, here’s Randy Maniloff’s take.  

Q: What got filed and where?

A: After Senter denied the motion, he issued an order allowing an immediate appeal, which goes to the U.S. Court of Appeals for the Fifth Circuit.  State Farm gets to go first in the briefing and filed its brief January 30.  I got a copy from the records office at the Fifth Circuit, very nice people.  However, it was not free, in case you are tempted to call and order your own.  

Q: So you read the whole 80-page-plus thing? 

A:  More or less. You know appeals briefs, the type is so large it’s like they’re written in crayon.

Q: Lots of well-known lawyer and firm names on the brief.  What did you think of the overall presentation and arguments?  

A: I wasn’t blown away like I thought I’d be, having seen Judge Senter’s order certifying State Farm’s interlocutory appeal in this case. Senter stated State Farm’s argument pretty well and succinctly.  Still, I thought State Farm made some good points in this brief.  I liked the arguments made about Mississippi not following the efficient proximate cause doctrine, I thought that was pretty persuasive. The part on allocation of the burden of proof between claimant and insurer, it was good, it convinced me about halfway, but seemed to have too much finesse.  The stuff about the anti-concurrent cause clause kind of played hide-and-seek with itself, it was hard to follow and Senter’s characterization of their argument was more persuasive than what actually got filed. The writing was a tad on the ponderous side, which happens when you have a lot of people involved, not much relief for the reader, not many water stations along this marathon course.  The brief played it pretty safe, but I’ll say one thing for it, at more than 80 pages counting the index and exhibits, it was thorough. No one can blame them for that, a lot is at stake. You have to cover all the bases, maybe a couple times over.

Q: So you mentioned it’s not free to get a copy.  I don’t suppose you’d be willing to share yours at no charge whatsoever? 

A: Glad to do it. For readers of my blog, nothing is too good. Here’s a pdf of the brief, knock yourself out.

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Maniloff’s Top 10 Coverage Decisions Of 2006

It is hard to write excellent legal prose for a number of reasons, not the least of which is the surprising resistance one encounters to good writing from many people who treat legal writing as if it is not an art but merely an industrial process, like bleaching wood pulp. These people treat any attempt at originality, creativity or — heaven forbid — humor as if you had showed up at a job interview with a Harley tattoo on your forehead. In addition, writing anything good is just plain hard, often agonizing, work.  Strangely enough, really good writing does not bear the marks and bruises of all this laboring, but instead reads as if it flowed naturally from the author’s fingertips with little effort.  Good writing glides, turns, shoots and scores like The Great One in his prime.     

So here is an example of legal writing that is really good, by Randy Maniloff, of White and Williams in Philadelphia.  Here is a link to Randy’s upcoming article in Mealey’s Litigation Report: Insurance on the year’s 10 most significant insurance decisions.  When I praise the writing, don’t take that to mean I slight the substance, because good writing is substance.  I place this article in my highest category of legal writing — the Steve Buscemi class — named after the actor who always brings something fresh, surprising and original to a role, who puts maximum effort into each part without letting you see the effort, and who worked as a firefighter for four years before becoming a star, and then showed up for work at his old firehouse the day after 9/11, working 12-hour shifts at Ground Zero while disdaining publicity. 

I can’t quibble with Randy’s case selection — I’ve written about many of them myself — although for sentimental reasons, I found myself wishing at least one of the Hurricane Katrina coverage cases, which I have spent so much time analyzing and of which I have grown so fond, had made the list.  My favorite analysis in Randy’s piece is French v. Assurance Co. of America (4th Cir. 2006), particularly this excerpt that brings clarity to a construction defect issue that often seems murky:

However, the flaw in this argument is that the subcontractor exception to the your work exclusion is not called the subcontractor exception to the occurrence requirement. The French Court recognized this and concluded that, notwithstanding that the EIFS was defectively installed by a subcontractor, such defective application does not constitute an accident, and, therefore, is not an occurrence under the CGL policy. 

My favorite lede from the analysis of the cases is this one, from Standard Fire Ins. Co. v. Spectrum Community Assoc., 46 Cal.Rptr.3d 804 (Cal.App. 2006):

What’s the difference between a John Grisham novel and the continuous trigger? Answer: Nothing.  They are both legal fiction.

And here’s a great short summary of Brannon v. Continental Casualty Co.:

— Supreme Court of Alaska gave an insurer a chilly reception to its argument that the statute of limitations on an insured’s action for breach of the duty to defend began to run from the time of the disclaimer . . . .

Print the article out and read the whole thing.  At 23 pages, it will take a little time, but it’s worth it.

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Mississippi Federal Grand Jury Issues Subpoenaes For Transcript, Other Records From $13 Million Oklahoma Bad Faith Case Against State Farm

What this story means, I don’t know, maybe nothing, but I do pass it along as an interesting piece about the workings of a grand jury looking into Katrina claims handling.

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