California Insurance Litigation Blog

The Wednesday May 1, 2013 edition of the Los Angeles Daily Journal featured Robert McKennon and Victor Xu’s article entitled:  “Insurance Brokers’ Duties to Third Parties Continue to Shrink.”  In it, Mr. McKennon and Mr. Xu discuss how a new appellate decision- Travelers Property Co. of America v. Superior Court 2013 DJDAR 5005 (Cal. App. 2d Dist. 2013)- clarifies and limits the duties owed by insurance brokers to third-party claimants.  The article discusses how in Travelers, the court specifically addressed the holding in Nowlon v. Koram Insurance Center, Inc., 1 Cal.App.4th 1437 (1991) and limited the holding in that case to the unique circumstances of negligence per se.  The article also discusses how Travelers does not foreclose the possibility of other types of breach of professional duty claims by third-parties against brokers, especially where the harm was reasonably foreseeable.  The article is posted below with the permission of the Daily Journal.

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deals with frequently asked questions in the insurance bad faith and ERISA area of the law.  This is another such article in that series.

Insurance Commissioner Dave Jones last week announced that Governor Jerry Brown has signed AB 1747, authored by Assembly Member Mike Feuer (D-Los Angeles).  The bill was strongly supported by Commissioner Jones and the California Department of Insurance and provides important consumer safeguards for life insurance policyholders.  AB 1747, which will be effective January 1, 2013, adds new Sections 10113.71 and 10113.72 to the Insurance Code and will apply to every individual and group life insurance policy issued or delivered in California after January 1, 2013. 

AB 1747 will require that every life insurance policy issued or delivered in this state contain a provision for a grace period of not less than 60 days from the premium due date and that the policy remains in force during the 60-day grace period.  The law will also require an insurer to give the applicant for an individual life insurance policy the right to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium.  The law will require an insurer to provide each applicant with a form, as specified, to make the designation and to notify the policy owner annually of the right to change the designation.  The law will also prohibit a notice of pending lapse and termination from being effective unless mailed by the insurer to the named policy owner, a named designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy at least 30 days prior to the effective date of termination if termination is for nonpayment of premium.

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deals with frequently asked questions in the insurance bad faith and ERISA area of the law.  This is another such article in that series.

Generally, in order to sue for insurance bad faith there necessarily must be an insurance policy at issue that establishes a concept known as “privity of contract” between an insured and an insurer.  This means that an insured under an insurance policy typically may sue for bad faith if the insured is entitled to benefits under a policy and if those benefits are wrongfully withheld or payment was wrongfully delayed.  This includes the contracting parties (persons named as insureds) as well as others entitled to benefits as “additional insureds” or as express beneficiaries under the policy.  In insurance parlance, this means that the “named insured” and any “additional insureds” may sue.  For example, an auto liability insurance policy covering a vehicle may extend coverage to permissive users as additional insureds.

The insurance industry is unique in California and in most states: unlike other industries, it is required to act in good faith (known as the covenant of good faith and fair dealing) with its insured customers.  The California courts have long held that insurers have a special relationship, in the nature of a fiduciary relationship, that requires them to act with regards to their interests in a manner equal to the interests of their policyholders.

The Huffington Post, in a very interesting article entitled, “Insurance Claim Delays Deliver Massive Profits To Industry By Shorting Customers” reports that since the mid-1990s, “a new profit-hungry model, combined with weak regulation, has upended that ancient social contract” between insurers and claimants. 

On October 12, 2011, the McKennon Law Group PC law firm won a complete defense verdict on a $2 million successor liability claim against their client, Elephant Talk Communications Corp., in a case called Chong Hing Bank Limited v. Elephant Talk Communications, Inc., Orange County Superior Court Case No. 30-2009-00328467. 

Chong Hing Bank Limited (Bank), a Hong Kong financial services company, began making loans to Elephant Talk Limited (ETL), a Hong Kong telecommunications company, beginning in 1996.  In 2002 ETL reverse acquired a California public shell company called Staruni Corp. in a stock-for-stock exchange in which Staruni became the parent company and ETL became its wholly-owned subsidiary.  Staruni changed its name to “Elephant Talk Communications, Inc.” (Elephant Talk) in connection with the reverse acquisition.

It will not be surprising to many readers of this blog that insurance companies often deny life insurance, health insurance and disability insurance claims.  Many times, insurance companies are wrong in their decisions.   And, sometimes they acknowledge their mistakes.  The question becomes: what are the odds of an insurance company changing its mind and reversing the decision?  Our firm knows firsthand that the odds are extremely good when a reputable and respected law firm is involved in representing the policyholder’s interests.  But that is just our experience.  What is the overall experience when a health insurance claim is denied and a subsequent appeal is filed?  We now have our answer. 

In his article entitled “Don’t take a health insurer’s rejection as the final word on your medical claim,” Tom Murphy of the Associated Press cites a recent report from the Government Accountability Office which found that overall, appeals have an approximately 50% success rate.  The article lists a number of actions policyholders can take to increase the likelihood of success on appeal.  Murphy mentions obtaining and submitting copies of the entire medical file, enlisting a treating doctor to write letters explaining the policyholder’s relevant medical history, understanding policy language, writing a detailed letter with supporting records and information and complying with all deadlines.