Edwards Wildman posted a 50 state survey of "bad faith" law applicable to insurers. The phrase "bad faith" actually a misnomer. The real issue instead is failure to act in good faith. In any event, the survey is potentially useful.
Unfortunately, this news is anything but shocking - banks allegedly making money off of forced placed insurance via financial engineering. Other banks are alleged to have used old fashioned kickbacks QBE and Wells Fargo were some of the first firms caught at using forced placed insurance to make money.
Hat tip to LAW 360.
Law360, New York (April 06, 2012, 6:31 PM ET) -- Fifth Third Bank NA was hit with a putative class action Friday alleging it reaped millions of dollars in illegal referrals from private mortgage insurers, one day after homeowners brought similar kickback claims against fellow lending giant Bank of America NA.
The nearly identical complaints, filed in Pennsylvania federal court by the same collection of law firms, target an alleged widespread pay-to-play scheme in which top national banks referred homeowners to insurers in exchange for a cut of those customers' reinsurance premium payments.
From 2004 through 2011, Fifth Third and BofA received a hefty cut of insurance premiums while assuming relatively little risk under the policies, the suits claim. Fifth Third raked in $54 million in purported premiums but paid out less than $5 million in claims, while BofA received $285 million and paid out $39 million, the suits allege.
The banks reduced their risk by making the so-called captive reinsurance arrangements self-capitalizing, the suits claim. That meant the banks had to initially place only small amounts of capital into the trusts backing the reinsurance contracts while leaving the insurers to take on essentially all of the risk, according to the suits.
The filings come as HSBC USA Inc. faces a similar proposed class action alleging it collected at least $77 million through a captive reinsurance scheme while paying only $7.5 million in claims over a six-year period. That suit, filed March 12, named the same insurers as defendants.
The plaintiffs in the Fifth Third and BofA cases are represented by Kessler Topaz Meltzer & Check LLP, Bramson Plutzik Mahler & Birkhaeuser LLP and Berke Berke & Berke. The plaintiffs in the Fifth Third case are also represented by Stephen J. O’Brien of Stephen J. O’Brien & Associates.
The cases are Manners et al. v. Fifth Third Bank et al., case number 12-cv-00442, in the U.S. District Court for the Western District of Pennsylvania, and Riddle v. Bank of America Corp. et al., case number 12-cv-01740, in the U.S. District Court for the Eastern District of Pennsylvania.
I'm headed out for a conference at Rutgers on "bad faith" litigation against insurers, so it seems a good time for a war story.
To begin with, as I was taught by others, bad faith is a misnomer. Instead, the issue is that too many insurers too often fail to act in good faith.
Now, here's the war story. In a past legal life as a trial lawyer for insureds, I confronted several not good faith arguments by QBE in cases involving condominium buildings hit by hurricanes. For example, QBE argued that windows in Florida condominium buildings were not part of the building. Really - they argued that - in lots of cases. Happily, in one case, I was able to take the issue to outcome. QBE lost (opinion here), and the trial judge's oral argument comments made it plain he too thought the argument lacked good faith. QBE then wrote a large check.
Here is the link to juror comments on the $ 37 million bad faith verdict for rescission of a health care policy. Some excerpts are pasted below:
"In the case of Jennifer Latham, who was badly injured in 2005 when her car was broadsided by a meth dealer fleeing cops, Assurant denied her claim because ambiguous information about a uterine condition and an ER visit for a panic attack wasn't disclosed in the application she submitted months earlier.
As first reported here, the jury decided after six hours to award Latham and her two youngest children $37.3 million, including economic and punitive damages -- the largest bad-faith judgment against an insurance company in Colorado history.
But some jurors wanted to award even more.
Jury foreman Dan Vela says he was in favor of awarding Latham $150 million as a way of punishing the insurance company. "They didn't have a leg to stand on," says Vela, a general manager for a seamless gutter company. "I hope we sent a message back to them that this was wrong."
Jurors contacted by Westword say that Assurant failed to prove that Latham deliberately misrepresented her health on her application or that the company had conducted a reasonable investigation before revoking her coverage. Testimony indicated that the company's "rescission panel" reviewed more than a hundred cases in two hours -- "68 seconds apiece," as Latham attorney Marc Levy put it in his closing argument.
"We had to determine who was lying," says juror Denise Kaatz, a production manager for a Louisville apparel company. "Most of their witnesses seemed dishonest, defensive and just showed a basic lack of humanity. It was kind of frightening."
"I was blown away by just how much they acted like robots," adds Vela.
A bit of shameless self-promotion today for my new law firm. One of my new partners, Mike Childress, had an interesting interview this past week with Larry Smith on the BulletProof Blog. The blog is written by the Levick Strategic Communications firm that focuses on crisis management issues, usually for corporations. As part of the work, the principals of Levick continually reach out to and ask questions of firms that do significant amounts of plaintiff's work. CDG fits that model because we represent so many corporation and associations in battles with insurers. Mike has spent 30 years suing insurers in a variety of cases, so he brings tremendous experience and insight to the topic.
The interview is online here, and provides Mike's insights on some of the current behavior of insurers. Here's my favorite part of the interview:
"We tried a seven-figure case last year after the insurance lawyer said that, if he could not win that particular trial, he should just return the rest of the files involving claims against that insurer. We have twelve cases against that same insurer, all of which involve the same type of loss. Our client won full damages at trial, but the insurer is still refusing to settle the remaining cases. In fact, it is the second case we have tried against this insurer and won. So, we will try the rest of the cases."