| Q&A of the Week |
Claim Made Years after Death of Insured
A Pennsylvania subscriber recently asked the following question:
I am handling a claim for a daughter who lost her mother multiple years ago. The daughter informed her mother's agent of her mother's passing and has since kept up with the premiums. She had a covered loss happen and now the insurance company is trying to deny the claim because she never had the policy put in her name. Shouldn't coverage still be provided since the premiums were still being paid?
ANSWER: You have a few different things working here. The ISO HO 00 03 05 11 insures the legal representative or those in custody of the property until the legal representative is appointed. Was the estate settled and the house put in the daughter's name? Who was the executor of the estate? Technically the legal representative is covered for the premises and property. Did the agent notify the company of the death of the first named insured? You may have an agent's E&O issue if he did not notify the company. Technically notification to the agent is notification to the company, but he still has to do his duty and advise the carrier of the change and advise the insured to follow through on titling the property. The policy does not state that the coverage upon the death of the insured terminates at the end of the policy term, although in most cases the estate is settled and names changed on property and the like.
Without the property being in her name, unless she is the appointed legal representative, they can deny the claim, although they have been collecting premium on this for years; if they deny the claim, they should at least refund the premium. It really sounds like there is an E&O issue here with the agent not advising his insured or the carrier. |
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| Litigation Watch |
Duties of the Insurer
The insured dump truck owner brought an action against its excess liability insurer, alleging that the insurer breached its policy and duty of good faith and fair dealing by not proactively investigating claims against the insured and by refusing to tender its policy limits to spur settlement negotiations in an underlying action. This case is SRM v. Great American Insurance Company, 798 F.3d 1322 (2015).
At a rail crossing in Oklahoma, a Union Pacific Railroad train hit an SRM dump truck as the truck crossed the tracks. The collision killed the truck driver and derailed the train causing extensive damage to the train and injuring three of its workers. The three injured train workers sued SRM.
SRM was insured by Bituminous (the primary insurer) and Great American (the excess insurer). Bituminous offered its policy limits to SRM and Great American for use in negotiating a settlement. Great American rejected the offer and urged an aggressive defense. The case eventually settled for $6.5 million with the parties agreeing to pay as follows: Bituminous, $1 million; Great American, $5 million; and SRM, $500,000.
After the dust settled on the underlying litigation, SRM sued Great American, alleging that the insurer breached its excess liability insurance contract and failed in its duty of good faith and fair dealing. The district court granted Great American's summary judgment motion and this appeal followed.
SRM blamed Great American for forcing SRM to pay $500,000 out-of-pocket to settle the claim. SRM argued that if Great American had investigated the claims and initiated settlement negotiations by tendering its policy limits earlier in the litigation, the case would have been settled with the policy limits. The United States Court of Appeals, Tenth Circuit noted that Oklahoma courts had not yet decided how the duty to initiate settlement negotiations in a case such as this applies to an excess insurer. The court said its task is to predict how the Oklahoma Supreme Court would decide this issue.
The court noted that the Great American policy limited its responsibility for damages to that portion of damages in excess of the retained limit. Also, the policy specifically reiterated that unless the primary insurance limits were exhausted or SRM faced a claim not covered by a primary insurance policy, Great American would not be obligated to assume charge of the investigation, settlement, or defense of any claim or lawsuit. The court found that the policy was unambiguous; that is, Great American's duties did not kick in until SRM's primary insurer exhausted its policy limits by actually paying claims. This did not happen until Bituminous and Great American simultaneously paid their respective policy limits to settle the claims against SRM. Thus, said the court, at the same time Great American's contractual duties to SRM took effect, Great American fully discharged its contractual obligations by contributing its policy limits toward settling the case.
The court agreed that an excess insurer owes its insured a duty to act reasonably when evaluating a settlement offer or a settlement agreement negotiated by the primary insurer. But in this case, the railroad and its workers made no settlement offers or demands until the mediation, which was just a week before Great American paid its policy limits to settle the case. And, the primary insurer did not negotiate a settlement that Great American refused to join.
The Circuit Court affirmed the district court's grant of summary judgment in favor of Great American.
Editor's Note: The U.S. Court of Appeals, Tenth Circuit, rules that an excess insurer has no duty to proactively investigate claims or to initiate settlement negotiations. The excess insurer's duties, in accordance with the policy language, kicks in when the primary insurer exhausts its policy limits by actually paying claims. |
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| Fraud of the Week |
Arson Staged Accident—Spain
AMOUNT: $377,021
Insurance fraud is not limited to the United States. A farmer in Spain completely sliced off his right hand; he then applied a tourniquet and drove to a curve in the road where he drove off the road, landing in an orange grove. He then placed the severed hand in the vehicle and set it on fire. He then filed claims with eight different insurance companies and received a total of $366,021. He has been sentenced to four years in jail, repayment to the companies, and a fine of $3,278.
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