From Out of the Abyss...
This week’s article from the past is titled Investigation of Wildland Fires and was written by George Berdan, Assistant Law Enforcement coordinator – California Division of Forestry. It is taken from June, July, August Vol. IX No. 1 issue of the CCAI newsletter.
Investigation of Wildland Fires
The recall involves the 1,500 watt Patriot Power Generators. The generators were sold in black or dark blue with “Patriot Power Generator” printed on the right side of the unit. The recalled generators have serial numbers U14040001 through U14041092 and U14110001 through U14111092 printed on a sticker in the upper right hand corner of the rear panel of the unit. The generators measure about 18 inches long by 10 inches wide by 12 inches tall.
Details can be found at CPSC
In the Matter of THE COMPLAINT OF WILLIAM and MYO SHEARS, owners of the M/V SHEAR JOY, Washington Registration No. WN6268JC for Exoneration from or Limitation of Liability.
Case No. C14-1296RSM.
United States District Court, W.D. Washington, Seattle.
January 4, 2016.
ORDER GRANTING PETITIONERS' MOTION FOR SUMMARY JUDGMENT.
RICARDO S. MARTINEZ, District Judge.
This admiralty matter comes before the Court on Petitioners' Motion for Summary Judgment. Dkt. #33. Petitioners seek an Order finding that the claimants cannot meet their burden of proving that either negligence or unseaworthiness of the SHEAR JOY caused their damages. Id. Claimants Falvey Yacht Insurance, LLC, and Shelter Bay Marina (hereinafter "claimants") respond that they have evidence demonstrating issues of material fact that preclude summary judgment in favor of the Petitioners. Dkt. #41. Having reviewed the record before it, and having determined that oral argument is not necessary, the Court now GRANTS Plaintiff's motion for the reasons set forth herein.
In National Fire Insurance Company of Hartford a/s/o RX Plus Pharmacy Corp. v. Fair Only Real Estate Corp., Index No., 157143, Judge Nancy M. Bannon of the Supreme Court of the State of New York, New York County, denied defendant’s motion pursuant to CPLR 3126 to dismiss the plaintiff’s claim for damages for injury to plaintiff’s insured’s property and to preclude it from offering evidence in support of its damages claim at the time of trial, based upon the plaintiff’s alleged spoliation of evidence.
Iconic American motorcycle maker Indian Motorcycle has initiated a voluntary recall involving 18,637 bikes over a potential fire hazard caused due to an issue with the ignition system. The recall involves Indian's range-topping motorcycles including the Chief Classic, Dark Horse, Chieftain, Roadmaster, and Chief Vintage, which were manufactured between April 15, 2013, to June 16, 2015. The new Indian Springfield as well as entry-level Scout and Scout Sixty are not part of the recall.
ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND TO PRECLUDE EXPERT TESTIMONY
THOMAS O. RICE, District Judge.
BEFORE THE COURT is Defendant's Motion for Summary Judgment and to Preclude the Testimony of Plaintiff's Expert Witnesses (ECF No. 27). The motion was heard with oral argument on September 28, 2015. James Jason Marquoit appeared on behalf of Plaintiff State Farm Fire & Casualty Co. ("State Farm"). Christopher G. Betke and William F. Etter appeared on behalf of Defendant Hewlett-Packard Company ("Hewlett-Packard").
Register now for the upcoming CCAI Training Seminar - October 17 - 19, 2016
Click below to access the form
by: Larry Arnold
Faced with growing losses, insurance companies are focusing on fraud management and implementing risk mitigation controls, while at the same time remaining cognizant of their duty of good faith to policyholders. So what happens when an insurer makes good faith payments on legitimate elements of an insurance claim but subsequently uncovers fraud in other elements of the claim? Is the insurer entitled to recover all monies paid as part of the claim? Or only the amount paid in reliance on the insured's misrepresentations?
Previously, there was no clear answer. It was safe to assume that an insurer could recover monies paid on a claim under the right circumstances – the difficulty occurred when trying to recover payments made prior to the established fraud date. For example, in California, the insurance code states, “If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false.”
Recent trial court rulings in favor of insurance companies, however, are changing the claims landscape. These rulings will impact the way insurance companies handle genuine claims that are subsequently tainted by fraud, encouraging them to be proactive in recouping good faith payments.
Steps for Recouping
What options do insurance companies have to recoup these payments? There are several avenues available.
Deny the Claim. When the SIU has completed a claims investigation and determined that an insured has breached the policy by materially misrepresenting facts, the claim can be denied – even the legitimate part. Appropriate cases should be referred to law enforcement for prosecution. In addition, the insured has a duty to present and prove the merits of the claim. Failure to cooperate with insurance company representatives can independently result in denial of the claim. This includes an examination under oath (EUO), which plays a key role in obtaining information. Typically, the named insured (or others, as dictated by the policy) is required to submit to an EUO as a precondition for claims settlement. Failure to do so can result in denial of the claim.
Void the Policy. An insurer may void or cancel its policy in the event of material misrepresentation or concealment of facts by the insured. This includes fraudulent claims.
Litigation. If a policy is voided for fraudulent claims, insurers must then decide whether to sue the insured to recoup payments - even legitimate ones. One advantage with litigation is that it allows for pretrial discovery process, including depositions and the ability to subpoena documents previously unavailable during the claims process.
A Case in Point
A recent case illustrates that insurance companies are entitled to recoup good faith payments when fraud is uncovered. Here is some background on the case.
An insurer issued a fire insurance policy to the owner of a dry cleaning business located in Southern California. A fire destroyed the business, so the owner submitted claims for replacement equipment, debris removal, damage to customer goods and loss of business income. Based on these claims, the insurance company paid the owner $527,000.
However, during the insurance company’s investigation of additional claims, a forensic accountant uncovered inconsistencies in a laundry services contract submitted as part of the owner’s claim for loss of business income. As a result, the owner was asked to sit for an EUO. The owner declined and withdrew his pending claim. The insurer then declined the claim, rescinded the policy and sued the business owner to recoup all loss payments.
At trial, evidence and witness testimony was presented that showed the owner had falsified the laundry contract and also inflated amounts paid for replacement equipment, debris removal, and payroll, among other items. Attorneys argued that the insurer was entitled to full recovery (payments made before the fraud occurred) for several novel reasons, including:
Though portions of the claim were legitimate, the judge ruled in favor of the insurer and its decision to rescind the fire insurance policy. The insured was ordered to repay $452,064, which represented all payments less monies paid to customers who lost clothing in the fire and the policy premium.
Implications for Insurers
This decision is important as it reinforces the rights of insurance companies not only to decline a claim when fraud is uncovered but also to rescind a policy and sue the insured to collect good faith payments. Previously, the law was not clear about what happens to monies paid as part of a legitimate claim, when fraud is discovered in a separate area. It is now clear that fraud in part of a claim translates to fraud in the entire claim.
Claims managers should have an open discussion with claims adjusters and SIU team members, with the goal of establishing a claims review protocol that outlines what to look for and what to do if fraud is suspected. This is critical, as claim adjusters are the first line of defense against fraud. Once fraud is uncovered, insurance companies should not hesitate to consult with an attorney and pursue the insured in order to recover monies already paid. In the end, both insurance companies and policyholders will benefit by reducing the high cost of fraud.
Larry M. Arnold, P.C., is a senior partner at Cummins & White, LLP. He can be reached at (949) 852-1800,
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