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"A Comprehensive Guide to Avoiding E&O Claims" addresses issues that Insurance Agents & Brokers encounter every day. One of the most important assets an agent has is their reputation; it takes years to build a business and only one mistake to ruin it. "Book One" is a practicable guide and resource that every Insurance Agency should read and use as an effective risk management tool. "Book One" is now available on Barnes & Noble and on Amazon.
This week's edition of AOA E&O Prevention:
Table of Contents
A review of the top stories on World Risk & Insurance News at WRIN.tv.
Here is your opportunity to see the online video news stories you may have missed on WRIN.tv:
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Also available is our most recent edition of "AOA Tips, Views, News & More," including our new feature "Insurance Resources." & "Recommended Reading". Remember that membership in AgentsofAmerica.ORG is FREE! Also if you have any thoughts, comments or suggestions, please email me at email@example.com.
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AOA Tips, Views, News & More
A Change in the Insurance Winds-An Appellate District Split Threatens to Broaden Liability for Insurers
By Marc J. Zimet, Esq. of Jampol Zimet LLP
Larry Golub recently was quoted in the Law360 blog on several high-profile insurance cases to watch in 2013 (subscription required). One case worth further inspection is the upcoming Zhang v. Superior Court of San Bernardino County. With Zhang, the California Supreme Court will decide whether private plaintiffs can use the state's unfair competition law to accuse insurance companies of bad faith business practices.
The Zhang case is a dispute following a fire at the plaintiff's commercial property wherein the uninsured Zhang accuses the defendant-insurer of misconduct. The first two actions in the plaintiff's complaint consist of 88 paragraphs arguing common law allegations of misconduct by the insurance company. Then, in her third cause of action, the plaintiff incorporates these paragraphs and alleges that the defendant engaged in false advertising. That last allegation starts the case down its controversial path.
The Zhang trial court sustained the insurer's demurrer on the grounds that an earlier Court of Appeal case, Trexton Financial Corp. v. National Union Fire Insurance Company of Pittsburgh, precluded suit under Insurance Code section 790.03 (a.k.a. Fair Claims Handling Act, FCHA). On review, the appellate court disapproved of the Textron holding and held that the allegations of false advertising permitted suit under the Business and Professions Code section 17200 et seq (a.k.a. Unfair Competition Law, UCL).
To address the appellate court's ruling in Zhang and the difference between it and Textron, we need to understand the current law. The UCL is a set of statutory codes that allow private persons to sue businesses for five types of conduct: (1) an unlawful business practice; (2) an unfair business practice; (3) a fraudulent business act (4) unfair, deceptive, untrue or misleading advertising; or (5) other acts prohibited by later sections of the code. Insurance companies are businesses within this law. A UCL cause of action requires some "predicate" violation, meaning that the plaintiff must complain of some conduct by a business-defendant in order to bring the claim.
As for the FCHA, it too is a set of statutory codes and it too sets out to stop unfair business practices; acts such as disseminating false insurance statements, making false entries into insurance reports, improperly disclosing private financial information. Unlike the UCL, the Legislature wrote the FCHA to apply specifically to insurance companies-almost exhaustively. The California Supreme Court previously ruled in Moradi-Shalal v. Fireman's Fund Insurance Companies that private plaintiffs cannot bring actions under FCHA. The Supreme Court has not held the same when it comes to the UCL. And that is the issue at the heart of Zhang when it comes before the supreme court this year.
Like in Zhang, in Textron, the plaintiff also alleged that the insurer engaged in misconduct that violated the FCHA and brought a UCL claim. The Textron appellate court upheld the defendant's demurrer dismissing the case and pointed out that the conduct the plaintiff complained of was similar to the conduct covered by the FCHA and therefore the plaintiff could not bring a private cause of action. The appellate court in Textron held that, because in Moradi-Shalal the Supreme Court held that FCHA does not allow a private cause of action, FCHA violations cannot be the predicate violation for a UCL claim.
The differences between Textron and the appellate decision in Zhang is FCHA violations can serve as the predicate for a UCL cause of action. Textron unequivocally disfavored such a practice, holding that a plaintiff cannot use the UCL to avoid the Moradi holding. Zhang is holding otherwise. In Zhang, the UCL claim remained even though it was an FCHA violation. Now that we have two courts of equal standing handing down opposite rulings, the California Supreme Court must make a ruling to determine which way the law goes.
There is no evidence to suggest that the California Supreme Court will alter Moradi as to the holding denying a private right of action for violations of the FCHA. However, good public policy indicates that the Zhang approach-allowing UCL claims for FCHA violations-is the right approach. As a general matter, the UCL acts to empower private citizens to enforce fair business practices when the attorney general cannot or chooses not to do so. By extending the right to cover citizens aggrieved by insurance companies, the system can better protect those that are wronged. Moreover, because a successful plaintiff recovers restitution and not damages, the results will be equitable. Essentially, private citizens will be able to file claims to force an insurer to comply with the FCHA and then recover any money or property wrongfully taken.
For additional information, contact Marc at firstname.lastname@example.org or (213) 689-8500
E&O Loss Prevention Tip
Description of Claim:
Telephone & Documentation Procedures
Allegations against the Agent:
An agent took an application for an auto insurance policy. The agent prepared the quote which included collision coverage. The client stated that the car would just be parked and therefore he would not need collision coverage. Shortly thereafter, the client had an accident. The client claims that he had requested full coverage on the car.
Risk Management Tip:
A follow up letter confirming the insured's desire to have minimal coverage since "the car would just be parked" would have provided a defense of the claim. Or, if the quote had been presented in person, the agent could have had the insured initial and date the refusal of the collision coverage.
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This Week's Poll Question
What coverage options would you like to see added to your E&O?
a) Broad based coverage for insolvency claims.
b) Ability to reduce deductibles for certain loss prevention measures.
c) Automatic coverage for data theft/privacy breach
English Court Upholds Arbitral Award in Which Losses Sustained by Reinsurers Arising Out of World Trade Centre Attacks Were Caused by Two Separate Events
By Tanguy Le Gouellec de Schwarz, Esq. & Daniel W. Gerber, Esq. of Goldberg Segalla LLP
Aioi Nissay Dowa Insurance Company Ltd v. Heraldglen Limited and Others  EWHC 154 (Comm)
This case is an appeal under section 69 of the Arbitration Act 1996 (appeal on a point of law) of an arbitral award dated January 26, 2012 concerning the aggregation of losses sustained by original reinsurers (the respondents in this case) arising out of the September 11, 2001 attacks on the World Trade Center (WTC).
Colorado Joins States That Exclude Insurance Coverage under Pollution
Exclusion Clauses for Traditional and Nontraditional Pollution Events
By Joseph F. Bermudez, Esq. & Jessica C. Collier , Esq. of
Wilson Elser Moskowitz Edelman & Dicker LLP
Pursuant to an opinion issued by the Colorado Supreme Court (the Court) on February 25, 2013, insurance coverage may be excluded under absolute pollution exclusion clauses for both nontraditional as well as "traditional" pollution under Colorado law. Mountain States Mutual Casualty Company v. Christopher Roinestad, et al.,
2013 CO 14 (Colo. Feb. 25, 2013). Agreeing with defense arguments on behalf of Mountain States Mutual Casualty Company (Mountain States), the Court joined other state supreme courts that uphold the broad nature of pollution exclusion clauses.
Beacon Residential Community Assoc. v. Skidmore, Owings & Merrill LLP-Review Granted by California Supreme Court
By Brian K. Stewart, Esq. & Michael B. McDonald, Esq. of Collins Collins Muir & Stewart LLP
Design Professionals (and their insurance companies and attorneys) across the State of California breathed a sigh of relief last week as the California Supreme Court agreed to review the controversial Court of Appeals opinion in the case of Beacon Residential Community Assoc. v. Skidmore, Owings & Merrill LLP (2012) 211 Cal.App.4th 1301. The Beacon opinion recently made waves by potentially opening the door to impose both a common law and statutory duty on behalf of design professionals who provide professional services to Developers with the Appellate Court holding that design professionals owed a duty of care to third party purchasers in a residential context. Effective with the Supreme Court granting review, the case can no longer be cited as the law in California. While there are no guarantees the ruling will be different in the Supreme Court, the fact that they agreed to accept the case for review has sparked some hope that the Court will reverse the holding issued by the Appellate court.
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