Dallas Fort Worth Insurance Lawyer Blog

Examination Under Oath And 5th Amendment

July 7, 2018 | Mark S. Humphreys

A frequent phone call to insurance law lawyers is someone asking about participating in an examination under oath (EUO).

Most people understand what taking the 5th means. It refers to our right to not be compelled to say anything that may be self-incriminating. It usually is discussed in the context of a criminal proceeding or investigation. However, the privilege against self-incrimination also applies in civil proceedings. Just because you are in a civil case rather than a criminal case does not require a person to surrender this right.

In an insurance situation, an insurance investigation is contractual in nature. Almost all insurance policies are going to contain a cooperation clause that requires the insured to cooperate with the investigation of a claim for which the insured is seeking policy benefits. Courts in interpreting the cooperation clause have universally found that the insured cannot use the 5th Amendment to avoid cooperating with the insurance company yet insist that the insurance company provide the requested coverage.

Life Insurance And Spouses

July 5, 2018 | Mark S. Humphreys

Are spouses entitled to life insurance benefits? That is a normal question in a lot of life insurance cases. Here is some law in that regard.

One spouse can designate his or her estate as the beneficiary of the policy, at the expense of the other spouse, absent any showing of actual or constructive fraud. This was made clear in the 1994, Fort Worth Court of Appeals opinion, Street v. Skipper.

The 1981, Eastland Court of Appeals opinion styled, Pilot Life Insurance Co. v. Koch, says, policies may contain provisions automatically divesting a spouse of any interest in the proceeds, if the parties are “legally separated” or divorced. Also, according to the 1987, 14th District Court of Appeals opinion styled, Novotny v. Wittner, the divorce decree may divest the former spouse of any right to the insurance proceeds. By statute, Texas Family Code, Section 9.301, a divorce invalidates any pre-divorce designation of the former spouse as beneficiary, unless the former spouse is redesignated. If the pre-divorce designation is invalidated, the proceeds go to any alternate beneficiary or to the insured’s estate. If the insurer pays the former spouse based on an invalidated designation, the insurer is liable to pay the proper beneficiary.

Subrogation

July 3, 2018 | Mark S. Humphreys

Many situations involving insurance claims also involve issues dealing with subrogation and liens. Here is a little information for insurance lawyers who might have to deal with subrogation.

Subrogation is an element of insurance law. In 1944, the United States Supreme Court in the case styled, United States v. South-Eastern Underwriters Association, determined that insurance is a form of interstate commerce subject to federal regulation. Shortly thereafter, Congress passed the McCarran-Ferguson Act, which is found in U.S.C.S., Section 1011. The McCarran-Ferguson Act granted authority to the states to regulate the “business of insurance.” Various federal laws continued to govern the “peripherals of the industry” These peripherals included labor, tax, and securities. State laws which regulated the core nature of the insurance business thereafter overrode most federal laws to the contrary. There are numerous papers written designed to analyze the myriad of state and federal statutes and cases on the subject of subrogation, from the standpoint of lawyers and in particular lawyers handling cases involving personal injury.

In an attempt to harmonize the proliferation of insurance policies and laws to protect workers, Congress passed the Employee Retirement and Income Security Act, commonly known as ERISA, in 1974. ERISA did not vitiate the McCarran-Ferguson’s grant of state regulation; it did spawn a spate of lawsuits trying to determine which state laws qualify as state regulation, which is not pre-empted by ERISA, and which laws deal with peripheral issues, which are preempted by ERISA. ERISA also recognized that some health plans are self-funded, not funded by insurance premiums, and those plans are exempt from state regulation.

Negligent Claims Handling

July 1, 2018 | Mark S. Humphreys

This may come as a surprise to many but here goes, — There is no such thing as “negligent claims handling” recognized by Texas courts.

This is re-stated by the U.S. District Court, Western District, Austin Division, in the case styled, Thomas G. Kezar and Sylvia Kezar v. State Farm Lloyds.

The Kezars home was damaged in a fire and they made a claim with their insurer, State Farm. A lawsuit was eventually filed as a result of the claim.

Commercial Insurance Policy And Leased Equipment

June 30, 2018 | Mark S. Humphreys

The 5th Circuit Court of Appeals issued an opinion regarding commercial policies that would be of interest to some businesses. The case is styled, Sierra Equipment, Incorporated v. Lexington Insurance Company.

Lexington insured LWL Management for construction equipment leased from Sierra. Sierra argues that, even though it was not a party to the insurance policy, it has standing to sue Lexington for coverage pursuant to Texas’s equitable lien doctrine. Because the lease agreement between LWL and Sierra did not require LWL to obtain insurance with loss payable to Sierra, this Court determined that the equitable lien doctrine does not apply and thus, Sierra lacks standing to sue Lexington for coverage under Texas law.

The lease agreement between Sierra and LWL required LWL to insure the leased equipment, deliver a copy of the insurance policy to Sierra , and obtain a policy in form, in terms, in amount, and with insurance carriers reasonably believe satisfactory to Sierra. The agreement did not require that the policy list Sierra as an additional insured or contain a loss payable clause listing Sierra.

Umpire’s Decision In Insurance Disputes

June 28, 2018 | Mark S. Humphreys

Insurance cases involving umpire’s are a little different. The Amarillo Court of Appeals issued an opinion on May 14, 2018, styled, Mahmoud Abdalla v. Farmers Insurance Exchange. The case deals with, among other issues, when an umpire’s appraisal award can be challenged.

This case is an appeal by Abdalla from a summary judgment in favor of Farmers. Abdalla sued Farmers over an insurance dispute resulting from water damage. The extent of the damage and insurance proceeds payable was ultimately submitted to appraisers in accordance with policy terms. An umpire appointed by the trial court eventually (1) found the appraisal developed by Farmer’s appraiser (Albright) to be the “more sound and well supported appraisal” ad (2) designated the actual cash value of the loss at $345,664.21. Farmer’s timely paid the umpire’s decision.

Abdalla filed motions to set aside the decision based on the umpire’s decision being a mistake and to appoint a new umpire.

Exclusions In Commercial Auto Policies

June 26, 2018 | Mark S. Humphreys

Here are a few articles for insurance lawyers handling commercial policy cases.

Commercial auto policies often contain business use exclusions that exclude coverage when a scheduled auto is used “in the business” of a lessee. A policy containing such a provision is effectively know as a “bobtail” or “non-trucking use” policy. The business use exclusion is often contained within an endorsement and is intended to exclude coverage from the auto owner’s commercial auto policy when a party with whom the truck owner has entered into an exclusive lease hauling agreement has agreed to provide coverage for that auto. Consequently, when the auto is being operated on behalf of the lessee, the lessee’s liability insurance should be on the risk. Inclusion of the business use exclusion results in the owner’s insurer owing no duties if an accident occurs while the auto is being operated in furtherance of the lessee’s business.

Under the business use analysis, the driver is almost always an independent contractor and the relevant determination usually is whether he or she is “in the business” of the lessee while “bobtailing” or “deadheading.” “Bobtailing” means without trailer, while “deadheading” means operation of the vehicle with an empty trailer. Though similar, a course and scope of employment analysis is not used to determine whether the driver was an employee. Nonetheless, course and scope analyses such as the “coming and going” and “special mission” doctrines are sometimes used to inform a court’s decision. Analyzing coverage in almost any factual scenario pertaining to this exclusion is a sliding scale on which the balance can be tipped by a specific, minute fact.

ERISA – Will It Change?

June 24, 2018 | Mark S. Humphreys

Lawyers who handle Employee Retirement Income Security Act (ERISA) claims will tell that insurance claims made on an individual policy and claims made on an ERISA plan are remarkably different. ERISA requires that the insurer or third-party claims administrator engage in a dialogue with the claimant about the claim and the reasons for denial, allowing the claimant an opportunity to rebut the reasons for denial and compelling a fiduciary review of a denied claim. The downside of that review is that if the claimant asks for judicial review of a denied appeal, the federal court will probably have to defer to the claim fiduciary’s decision and the evidence will be limited to the contents of the claim file.

There is no monetary remedy within ERISA for a violation of claims procedures nor does ERISA allow for consequential damages. The remedies for claims violations are potentially (1) a remand to the claims fiduciary for another try, or (2) forfeiture of deference, i.e. a change in the standard of review from abuse of discretion to a preponderance of the evidence. The 5th Circuit had never awarded an ERISA claimant a change in the standard of review as a result of claims handling violations.

The collective policy of Texas and other states is that deference is harmful because it impairs the rights of insured. The 5th Circuit takes a different view, believing that ERISA deference provides a lubricant to a federal court system. According to the 5th Circuit and many other federal courts, any harm to individual claimants is outweighed by the harm requiring de novo review of each ERISA benefit claim would bring to the court system. The 5th Circuit is also at odds with the Department of Labor (DOL), as the DOL considers deference to be forfeited if the claims procedures are not followed.

ERISA Discretionary Clauses

June 23, 2018 | Mark S. Humphreys

Discretionary Clauses in Employee Retirement Income Security Act (ERISA) policies — In protecting deference in the face of substantial claims procedure violations, the United States 5th Circuit’s position not only conflict with other United States Circuits but with the Texas Department of Insurance and other state insurance commissioners regarding what is fair to an insured. In the balance between an individual insured’s rights and the efficiency of the federal court system, the 5th Circuit has found the latter to be more important, perceiving de novo review to be a threat to the court’s efficiency. The Texas Department of Insurance and Texas legislators perceive deference to be a greater threat.

In 2010, the Texas Commissioner of Insurance wrote as follows regarding discretionary clauses in policies that are meant to bind a court to deferential standard of review:

“Discretionary clauses are unjust, encourage misrepresentation, and are deceptive because they mislead the consumers regarding the terms of coverage. For example, a consumer could reasonably believe that if they are disabled they will be entitled to benefits under the policy and will be able to receive a full hearing to enforce such rights in court. Instead, a discretionary clause permits a carrier to deny disability income benefits even if the insured or enrollee is disabled, provided that the process heading to the denial was not arbitrary or capricious.”

The United States Fifth Circuit And ERISA

June 21, 2018 | Mark S. Humphreys

The United States 5th Circuit Court of Appeals has never found sufficient claims procedure abuse to warrant a change in the standard of review from abuse of discretion to a preponderance of the evidence in an Employee Retirement Income Security Act (ERISA) case. In that regard, the court has noted that “this circuit has rejected arguments to alter the standard of review based upon procedural irregularities in ERISA benefit determinations, such as delays in making the determination …. Absent potential wholesale or fragrant violations that evidence an utter disregard of the underlying purpose of the plan, this court does not heighten the standard of review from abuse of discretion to de novo.

Oddly, the 5th Circuit has protected deference to the factual determinations of the claims fiduciary even when the claims fiduciary did not make any factual determinations. This resulted from the 5th Circuit’s overriding concern that allowing de novo review of ERISA benefit claims will clot the veins of the federal court system. Regarding this, this court has held as follows:

The courts simply cannot supplant plan administrators, through de novo review, as resolvers of mundane and routine fact disputes. Considerations of expediency therefore support reference to factual determinations made in the administration of the plan. Otherwise, federal trials are encouraged in the vast number of claims that are filed in the thousands of ERISA plans throughout this county. . . We therefore conclude that a deferential standard of review for factual determinations is buttressed, if not compelled, by practical considerations.