| Q&A of the Week |
Loss Payable Clause versus Lender's Loss Payable Clause
A New York subscriber recently asked the following question:
What are the practical differences between a loss payable clause and a lender's loss payable clause?
ANSWER: This answer is based on the loss payable and the lender's loss payable clauses of ISO's CP 12 18 10 12, Loss Payable Provisions endorsement.
The loss payable clause allows the named insured to specify a loss payee, who also has an insurable interest in the property and who will also receive a joint payment of claims with the named insured.
The lender's loss payable clause allows the named insured to specify a creditor as a loss payee. The creditor's interest in the property must be established by warehouse receipts, a contract for deed, bills of lading, financial statements, mortgages, deeds of trust, or security agreements. This clause bestows more rights on the loss payee than the loss payable clause: the right to receive loss payment if foreclosure has started on the covered property; the right to receive payment even if the claim is denied due the named insured's failure to comply with the policy terms (if the loss payee pays the premiums due, submits a signed proof of loss within sixty days, and notifies the insurer of any changes in ownership, occupancy, or other changes in the risk); and notification of policy cancellation or nonrenewal.
Essentially, the lender's loss payable clause has a narrower focus of creditors as loss payees, but with more rights under the policy than the loss payable clause allows. |
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| Litigation Watch |
Longshore and Harbor Workers Compensation Act Preemption Dispute
The employee filed an action against his former employer, the workers comp insurance carrier, and his insurance adjuster, alleging breach of contract, breach of fiduciary duty, fraud, and conspiracy to defraud. This case is Nadheer v. The Insurance Company of the State of Pennsylvania, 506 Fed.Appx. 297 (2013).
Nadheer was hired as an interpreter in Iraq in 2006. With respect to his employment, Nadheer was subject to the Defense Base Act (DBA) that extends the workers compensation scheme set out in the Longshore and Harbor Workers Compensation Act (L&HWCA) to cover employees injured or killed outside the continental United States by an American employer providing welfare or similar services for the benefit of the armed forces.
In 2007, Nadheer was seriously injured in a bomb attack. His medical care was covered by the workers comp insurance. After returning to the United States, Nadheer sued, asserting common law claims for breach of contract, breach of fiduciary duty, fraud, and conspiracy to defraud. The U.S. District Court for the Western District of Texas dismissed the action by asserting that the claims are preempted by the DBA and the L&HWCA. This appeal followed.
The United States Court of Appeals, Fifth Circuit, noted three arguments put forth by Nadheer as to why his claims are not preempted. First, he argued that the exclusivity provisions of the DBA and the L&HWCA do not apply because they do not immunize insurers from damages caused by intentional misrepresentations to insured employees that cause injury outside the scope of the DBS and damages not recoverable under the DBA. Second, Nadheer asserted that the exclusivity provisions do not immunize insurers from breach of contract claims for breaches that occur during the adjustment of a DBA claim when the breach causes consequential damages not recoverable under the DBA. Third, he contended that the court should revisit the long line of cases holding that the exclusivity provision applies to insurers as well as employers.
The court dismissed the first claim and said it saw no meaningful distinction between torts arising from bad faith withholding of benefits and those from the alleged bad faith misadministration of benefits at issue in this case; both are preempted by the comprehensive statutory scheme of the L&HWCA.
As for the second argument advanced by Nadheer, the court disagreed with is logic and said that under Nadheer's theory, contracting to provide benefits under a comprehensive scheme would itself create civil liability in excess of that provided for by the scheme. The court stated that the whole theory of the L&HWCA is to provide the injured worker with certain and absolute benefits in lieu of all common law damages. Allowing plaintiffs to recover separately for breach of contractual provisions invoking the L&HWCA would subvert the very purpose of the act. Therefore, Nadheer's breach of contract claims are preempted by the L&HWCA.
Finally, as to insurers, the court noted that it has long held that claims against insurers, in addition to claims against employers, are implicitly preempted by the exclusivity provisions of the L&HWCA. Numerous provisions of the act and the spirit of the act as a whole, equating the insurer with the employer, negate any intent to hold the insurer liable to lawsuit for damages as a third person.
The decision of the district court was affirmed.
Editor's Note: The U.S. Fifth Circuit Court of Appeals held that both the DBA and the L&HWCA state that the various remedies they provide to injured employees are exclusive of other legal remedies. Claims against employers and insurers are therefore preempted by the provisions in these acts. |
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| Fraud of the Week |
Auto Repair Fraud—California
AMOUNT: Unknown
An individual has been charged with nine felony charges including auto insurance fraud, false billing, grand theft by fraudulent pretenses, and operating a business without a license. The individual set up an auto repair shop and submitted claims to insurance companies for new parts to be installed on damaged vehicles. The individual pocketed the money and made paintless dent repairs. The policyholders were unaware of the fraud; the California Bureau of Automotive Repair investigators with investigators from the District Attorney's office discovered the fraud. Bail was set at $60,000.
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