| Q&A of the Week |
Actual Loss Sustained Coverage
A California subscriber recently asked the following question:
Our insured owns a high end antique store, which is 80 percent retail sales and 20 percent furniture restoration and manufacturing of antique replicas. The business income exposure is covered under form CP 00 30 04 02. An alternate proposal has been received offering coverage under a businessowners form, which places the loss of income coverage on actual loss sustained for twelve months. The insured is satisfied with the twelve-month limitation. Completing the annual business interruption worksheet has always been difficult for the insured, and adequate insurance limits are always a concern. The actual loss sustained form would eliminate coinsurance issues and determining adequate limits. We are concerned about the suitability of the form for the restoration and manufacturing operations. Can you point out advantages or disadvantages of the actual loss sustained form for this operation?
ANSWER: The main advantage to the actual loss sustained coverage is that there is generally no maximum; as long as the operations can be resumed within twelve months, the coverage is adequate. However, if the operations cannot be resumed within the time limit, there would not be any business income coverage for loss beyond twelve months. |
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| Litigation Watch |
Bad Faith Accrual
The auto accident victim, as the insured's assignee, brought an action against the auto liability insurer to recover for bad faith failure to settle the claim within policy limits. This case is Connelly v. State Farm Mutual Automobile Insurance Company, 2016 WL 836983.
Brown rear-ended Connelly's car. Brown was insured with State Farm with auto liability limits of $100,000 per person and $300,000 per occurrence. Connelly offered to settle the case against Brown for $35,000 but State Farm rejected the offer. The case went to trial and the jury awarded Connelly $224,271. State Farm paid part of this amount and no more.
Connelly then brought a claim against State Farm and Brown, alleging that State Farm acted in bad faith, maliciously and without any reasonable justification refusing to settle her claim against Brown. State Farm moved to dismiss the complaint on the ground that it was barred by the three-year statute of limitations under Delaware law. According to State Farm, the statute of limitations began to run either on May 10, 2011 when Connelly made her settlement offer or on June 9, 2011 when the offer expired, and Connelly's lawsuit against State Farm was filed on April 8, 2015.
The Superior Court granted State Farm's motion to dismiss and this appeal followed.
The Supreme Court of Delaware noted that the sole issue on appeal is when the bad faith failure-to-settle claim against State Farm accrued for purposes of the three-year statute of limitations. Connelly argued that State Farm breached its duty to Brown and acted in bad faith by refusing a $35,000 settlement offer, and this bad faith failure to settle accrues only once there is a judgment in excess of policy limits and that judgment can no longer be appealed. State Farm contended that the claim accrued either on May 10, 2011 when it refused to accept the settlement offer, or thirty days later when the offer expired.
The court said that although it has never addressed the issue of when a claim that the insurer acted in bad faith by rejecting a settlement offer accrues, decisions by other states convinced the court that a bad faith failure to settle claim accrues when the excess judgment becomes final and non-appealable. The court found that leading insurance law treatises and practice guides also reflect this position.
In its reasoning, the court noted that this was a majority position and that it reduces the possibility of a conflict of interest between the insured and the insurer. Moreover, the majority rule protects insurers from bad faith claims for failing to settle even the most frivolous claims if the third-part claimant was willing to settle within the policy limits. And, the court continued, the rule saves the insured litigation costs that may turn out to be unnecessary if the court does not order an excess judgment.
The court ruled that a claim that an insurer acted in bad faith when it refused to settle a third-party insurance claim accrues when an excess judgment against an insured becomes final and non-appealable. The ruling of the Superior Court was reversed.
Editor's Note: The Supreme Court of Delaware rules that bad faith claims accrue when an excess judgment against the insured becomes final and non-appealable. This ruling conforms with the majority opinion in the country. |
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| Fraud of the Week |
Claim Fraud – North Carolina
AMOUNT: $649,506.15
A North Carolina man was sentenced to thirty months in prison and ordered to pay $649,506.15 in restitution for mail and wire fraud and filing false tax returns. The man filed multiple false claims to multiple insurance companies, claiming that neon signs were damaged and his film processing equipment was damaged by power surges from lightning. The total of the claims was $649,506.15 and involved five insurance companies over five or six years. He filed false claims claiming he replaced the equipment and failed to report the insurance proceeds as taxable income.
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