| Q&A of the Week |
Settlement for Loss of Cell Phone
A Guam subscriber recently asked the following question:
A cell phone is part of a covered loss in a homeowners policy. The insured obtained the cell phone at a subsidized cost of $99 by agreeing to a two-year service contract with his carrier. When the loss occurred, the insured was midway through the two-year service contract.
To replace the cell phone, the insured will have to pay the unsubsidized price of the replacement phone of $849.
The insurer has offered settlement based on the subsidized, contract price, which is not available to the insured. We and the insured believe that the loss should be valued at the unsubsidized price of $849.
Who is correct?
ANSWER: Personal property is valued at actual cash value. The original cost of the property is immaterial; settlement is at actual cash value at the time of loss, and not more than the cost to repair or replace. The subsidized cost of the phone is not the actual cost of the cellphone—it is a special arrangement as part of the contract. If the phone is not repairable, then the cost of a phone of the same age is what is paid; with actual cash value depreciation is taken into account. A brief internet search shows that phones depreciate rapidly at first: 30-50 percent immediately, then an additional 4-5 percent a month, depending on the type of phone. |
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| Litigation Watch |
Notice-Prejudice Rule to the No-Voluntary-Payments Provision Not Extended
The insured claims the insurer delayed or denied a claim for benefits in bad faith after the insured settled a claim against it without contacting the insurer. The case is Travelers Prop. Cas. Co. of Am. v. Stresscon Corp., 370 P.3d 140 (Colo. 2016).
This case involves a subcontractor who was sued by its general contractor for delay damages caused by the subcontractors work. The subcontractor had an insurance policy through Travelers Property and Casualty Co. of America. The policy included a "no-voluntary-payment" provision among many other provisions. The no-voluntary-payments provision of the policy provides that the insured, except at its own cost, will not voluntarily make a payment, assume any obligation, or incur any expense covered by the policy without the consent of the insurer.
The insurance claim is based on an incident that occurred on a construction site where one construction worker was killed and another was gravely injured when a partially erected building collapsed on them. The building collapsed when a crane hook caught a safety stanchion and pulled a concrete component off of its support beams.
The subcontractor sought coverage from Travelers for the lawsuit for delay damages, and Travelers reserved rights to later deny coverage for the claim. Before suit was filed, and without Travelers approval, the subcontractor settled the claim with the general contractor.
Travelers argued that it owed no duty to indemnify the subcontractor for the settlement with the general contractor because when the subcontractor agreed to settle with the general contractor, it violated the no-voluntary-payment provision of the policy. Both the trial court and the appellate court found that the no-voluntary payments-provision relieved the insurer of its duty to indemnify the subcontractor only if the insurer suffered prejudice from the settlement. The Colorado Supreme Court had previously established the precedent that an insurer had to prove they were prejudiced in order to deny coverage due to a breach of the policy's notice-prejudice rule. The notice-prejudice rule provides that an insurer must demonstrate prejudice in order to deny a claim on grounds of late notice. In the case at hand, the Colorado Supreme Court declined to extend the notice-prejudice rule to the no-voluntary-payments provision.
Editor's Note: When the Colorado Supreme Court declined to extend the notice-prejudice rule to the no-voluntary-payments provision, the decision had the effect of preventing policyholders from being able to force an insured to indemnify it for a settlement when the insured has not consented to the settlement. This decision also keeps insurers from going through the arduous process of proving that they were prejudiced by their insured violating a policy provision. |
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| Fraud of the Week |
Staged Accident Fraud – California
AMOUNT: Unknown
An Oklahoma man has been sentenced to eighteen years in prison after being convicted of nine felony counts of submitting false insurance claims. The man used various aliases and would wait in various parking lots to intentionally cause wrecks that resulted in the other party paying for his false insurance claim. Many of the victims were elderly, and officials suspect he targeted them because of their age. Surveillance video shows that he would drive up and down the rows looking for an opportunity to create an accident when someone was backing out of a parking spot. Many times the damage claimed did not match what would have normally been caused in such accidents. He had already served time in 2009 for the same type of fraud.
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