| Q&A of the Week |
Recorded Statements and Transcripts
A Pennsylvania subscriber recently asked the following question:
We recently had a homeowners claim wherein the insurance company requested a recorded statement from the insured regarding a loss. The insured complied per their policy after which SIU was brought in to do an investigation.
The insurance company is now requesting another recorded statement from the insured. The insured is requesting a transcribed copy of the first recorded statement prior to giving another statement.
The insurance company is refusing to give a transcribed copy of the first recorded statement to the homeowner before the second scheduled recorded statement takes place.
Is it within the insured's rights to first have a copy of the original recorded statement before giving another one? Is the insurance company allowed to withhold this transcribed copy of their recorded statement from the homeowner?
ANSWER: The policy does not discuss giving copies of transcripts to the insured. However, a carrier may not want to give an insured a transcript before the recorded statement is taken. If the insured is telling the truth, he will not need to see the transcript to remember what he said the first time. The insured has a duty to cooperate and submit to an examination under oath as often as the insurer reasonably requires, and two recorded statements are not excessive or unreasonable. The carrier is within its rights to withhold the documentation until the investigation is concluded. The insured can have an attorney present if he desires. |
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| Litigation Watch |
The Insurer and the Right to Control Defense
The insured moves for reconsideration of a court order pertaining to whether an insurer loses its right to control the defense of its insured if it fails to provide the defense immediately after its duty to defend has been triggered. This case is Travelers Indemnity Company of Connecticut v. Centex Homes, 2015 WL 5836947.
Centex participates in the development of residential communities, though it does not perform any actual construction work. Centex hires subcontractors to build the homes that it sells. This case arises from a number of underlying construction defect lawsuits against Centex. Centex was insured by Travelers Indemnity and tendered each of the actions against it to the insurer.
It was undisputed that some time elapsed between the tender of defense and Traveler's decision to provide defense subject to a reservation of rights. In the interim, Centex retained a law firm to defend it in the underlying actions. When Travelers finally agreed to provide a defense, it insisted on appointing its own counsel, but Centex insisted on retaining its chosen law firm, arguing that Travelers lost its right to control the defense by waiting too long to provide one.
Travelers filed an action seeking a declaration that it had the right to control the defense. The United States District Court for the Northern District of California found that since the duty to defend is immediate, Travelers lost its right to control the defense. The court also ruled that Centex did not need to show that Travelers intended to waive its right to control, holding that a delay is evidence enough. However later on, the court reconsidered its decision and reversed its own ruling. Centex then asked the court for a reconsideration.
The court noted that a party moving for reconsideration must generally show the following: an intervening change in controlling law; the emergence of new material facts; or, a manifest failure by the court to consider material facts or dispositive legal arguments. The court also noted that an insurer loses its right to control the insured's defense upon breach of its duty to defend. Moreover, the court said that a holding that an insurer can lose its right to control the defense solely through waiver, forfeiture, or estoppel is not correct.
In this instance, the court found that Travelers' response took over four months during which time Centex hired its own counsel and incurred legal expenses. Travelers argued that it did not breach its duty to defend because it had a right to conduct a reasonable investigation before accepting Centex's tender and it did reimburse Centex for legal costs incurred prior to accepting the tender. The court answered that a failure to provide counsel or to guarantee the payment of legal fees immediately after an insurer's duty to defend has been triggered constitutes a breach of the duty to defend, even if the insurer later reimburses the insured. The court noted that an insurer is free to conduct an investigation beyond the point at which its duty to defend has been triggered, but an insurer may not deprive an insured of the security implicit in the duty to defend, specifically, the right to immediately call on the insurer's superior resources as opposed to having to marshal its own resources to mount a defense against a claim that possibly falls within the policy's coverage.
Accordingly, the court found that Travelers breached its duty to defend by failing to provide Centex with a defense at least 30 days after the complaints were filed. Upon breaching its duty to defend, Travelers also lost its right to control the defense. The court granted Centex's motion for reconsideration and finds that Travelers lost its right to control the defense.
Editor's Note: The U.S. District Court, N.D. California, rules that an insurer has the right to control the defense it provides to its insurer in general, but when an insurer breaches its duty to defend, the insurer forfeits its right to control the defense. In this instance, Travelers' delay in providing a defense to the insured did breach its duty and so, the insurer lost its right to control the defense. |
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| Fraud of the Week |
Hole-in-One Scam – Washington
AMOUNT: Unknown
A Washington man is facing a total of seven felony charges, six for engaging in unauthorized insurance transactions in Washington. He has a long history of scamming individuals through hole-in-one insurance and failing to pay out the awards ranging from $10,000 to $50,000. In 2014 he was sentenced to eight-six days with credit for time served and ordered to pay $15,000 restitution. In 2004 he ignored an order to cease and desist selling insurance; in 2008 a $125,000 fine was levied for his continued selling insurance without a license. He has been investigated or prosecuted in twelve states.
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