In a recent decision, the Court of Special Appeals of Maryland considered an issue of first impression regarding the doctrine of spoliation. Maryland appellate courts had “not established how to apply the spoliation doctrine in the context of a situation” “where the physical object . . . that was destroyed [was] itself the subject of the case.” Cumberland Ins. Grp. v. Delmarva Power, No. 72, 2016 Md. App. LEXIS 12, at *10 (Md. Ct. Spec. App. Feb. 1, 2016). The court held that “it is appropriate to balance the degree of fault . . . on the part of the spoliator, on the one hand, with the level of prejudice that injures to the defense because the evidence has been destroyed on the other.” Id. at 11. The court explained that if this balance favors imposing a sanction, “the question then becomes what remedy is appropriate and whether a remedy less drastic then dismissal can cure the prejudice to the defendant.” Id.
CCAI was recently contacted by CBS (San Francisco) News Investigative Reporter, Julie Watts, regarding fire retardant chemicals in child car seats, and was looking for footage of burning vehicles. We were happy to help.
SAN FRANCISCO (KPIX 5) — Car seats are the only consumer product that parents are legally required to purchase in every state, though they are also commonly used outside of the car as strollers seats, swing inserts and as a place for babies to sleep inside the home.
A recent KPIX investigation repeatedly uncovered concerning, even cancer-causing, chemicals in a majority of the car seats tested. Then, using biomonitoring, we linked high levels of cancer-causing flame retardants in a child’s body to the flame retardants in her car seat.
The alleged culprit: the National Highway Traffic Safety Administration’s (NHTSA) 44-year old Federal Motor Vehicle Flammability Standard, FMVSS No. 302.
Click here for the video
Click on the link to see the full investigation.
Toxic Safety: Investigating Car Seat Chemicals
From Out of the Abyss
This weeks article is written by Dr. Ruth Alexander. It is from the May 1956 VOL II No.4 issue ofthe California Conference of Arson Investigators' newsletter.
Our America: Treatment "Coddles" Juvenile Delinquents
This recall involves clear acrylic Hanukkah menorahs in a pyramid design that are 10.5 inches long, 1.2 inches wide and 2.3 inches high. Model number 240-14-0169 and bar code can be found on a round white label on the side of the menorah.
Get all the details at CPSC.
AUSTIN (KXAN) — When you have three small boys running around your house, you also have a slew of electronic toys and gadgets that come along with it. To make sure she was always prepared for long road trips and car pools, Jennifer Buaas kept extra AA and AAA batteries in her vehicle, just in case one of her boys needed to power one of their toys.
Early Halloween morning, Jennifer heard a car horn going off in her driveway.
“My husband grabbed the keys, went to the garage, opened the garage door and the Suburban was completely on fire,” said Jennifer.
This recall involves Bosch 1380 Slim small, 4.5-inch angle grinders with date codes 502 through 511. The model number and date codes are located on the name plate affixed to the underside of the grinder. The grinders are blue and silver with a black label and black and red control buttons. “BOSCH” is printed in red on the side of the product.
See full details at CPSC.
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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