Agents Beware – Advise Your Clients About Arbitration of Insurance Disputes

 :: Posted by johnpierson on 03-13-2010

In Florida, most insurance disputes regarding coverage are resolved by a lawsuit. Insurers are requred to pay the attorneys’ fees of a prevaling insured and can be subject to bad faith if their denial of the claim was not in good faith. If an insurer is found liable for bad faith, a Florida jury would then decide the size of the punitive verdict. However, a recent case in Florida has followed the growing national and international trend requiring the arbitration of insurance coverage disputes involving insurance policies with an arbitration provision issued by an international insurer (an insurer with its domicile or place of incorporation outside the United States).

As this issue develops, expect to see more arbitration of coverage disputes particularly in the marine insurance business. It is unclear how this issue will affect claims for bad faith against foreign insurers. See Lloyds Underwriters v. Netterstrom, 17 So.3d 732 (Fla. 1st DCA 2009). A link to the opinion is cited below.

http://opinions.1dca.org/written/opinions2009/07-16-2009/08-5432.pdf

This could have a significant impact on insureds including the location of a lawsuit (London versus Florida), who decides the interpretation of an agreement (three arbitrators or a Florida judge) and the size of any subsequent bad faith determination. Many argue that arbitration is less expensive and a favorable way to resolve disputes but even the most pro-arbitration attorney would be hard pressed to justify that arbitration of an insurance coverage dispute would be more cost effective than a judcial determination in Florida.

A cautious agent should review the policy and point out the arbitration provision if it exists. If there is a claim for coverage, your client will be understandably upset if they have to retain counsel in another country and potentially “foot the bill” of an arbitration proceeding.

195 Comments » | Uncategorized

Claim by Insurance Company against Broker allowed to Proceed

 :: Posted by johnpierson on 03-13-2010

An interesting opinion came down last week related to the liability of an insurance agent for representations to an insurer. In Liberty Surplus Ins. Corp. v. First Indemnity Ins. Svcs., Inc. the court determined that an agent working for an insured could be held liable to the insurance company for negligent or intentional misrepresentations of fact in an application.

The court held that where a broker knew of 14 claims against an insured and only disclosed 3, the agent could be held liable for fraud or negligence. This opinion appears to extend the law of negligence to cover brokers in a way that has not been done before. Make sure your applications are complete! I have attached the opinion below.

http://www.4dca.org/opinions/Mar%202010/03-03-10/4D08-2671.op.pdf

118 Comments » | Insurance Law

Avoiding Insurance Agent Malpractice – Outline of Issues

 :: Posted by johnpierson on 03-13-2010
I. Standard for Judging Agent Malpractice: The Insurance Agent’s conduct fell below that of a reasonable insurance agent in the field
II. Two general ways to have liability to your client:

1) For failing to advise/select proper policy

2) Breach of Implied or Express Promise – for other promises made or apparently made by insurance agent to insured such as keeping coverage in force or advising the insured regarding his or her insurance needs.

 III. When Claims Arise

-Usually a claim is proper only after a Court has determined that there is no coverage under a given Policy.

IV. How are Claims against Insurance Agents Judged?

-What are the standards in the industry for recommending a policy/insurer?

-What are your company’s standards for recommending a policy/insurer?

-Do you deviate from the standards and, if so, why?

-What facts do you have to support your recommendations of a policy/insurer?

-What facts can you show that demonstrate that your Client knew of the potential risks of the type of policy and assumed the risks?

V. Your Best Chance to Avoid Malpractice Claims is by Implementing Best Business Practices

Examples of important considerations:

-Know your Client’s Business

-Know What Your Client is Really Asking For

-Be Able to Support Your Decision to Recommend Policy

-Keep a Record of What your Client Asked For and Why

-Disclose any Incentives to Place Client with a Particular Insurer or Insurance Policy

-Remember Key Deadlines for your Client

-Assist Policyholder with claims but also know when to recommend your client get an attorney involved – As soon as there is a hint of a problem with an insurer, recommend an experienced insurance attorney to assist.

VI. Conclusion

Most claims for insurance agent malpractice arise because the Agent made a quick sale for the lowest price without understanding their client’s business. Unfortunately, fierce price competition in the insurance market makes this scenario more likely. By understanding your clients’ needs and recommending the best policy as well as documenting the clients’ decision to choose one policy over another you can reduce your chance of facing a malpractice claim.

138 Comments » | Insurance Law

Buyers and Agents Be Aware – Disputes with International Insurers are Subject to Arbitration

 :: Posted by johnpierson on 03-13-2010
A recent case in Florida has followed the growing national and international trend requiring the arbitration of insurance coverage disputes involving insurance policies with an arbitration provision issued by an international insurer (an insurer with its domicile or place of incorporation outside the United States).

Specifically, the District Court of Appeal for the First District held that the New York Convention trumps the reverse preemption doctrine of the McCarran-Ferguson Act (“the Act”). Specifically, the Act provides that: “[n]o Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance . . . .” 15 U.S.C. § 1012(b).

Here, however, the analysis was not whether an Act of Congress impaired the regulation of the business of insurance, but rather whether there was a valid arbitration agreement between two parties, one of whom was a resident of a country that was a signatory to The New York Convention on the Recognition of and Enforcement of Foreign Arbitral Awards. The Court also rejected the argument that the service of suit provision in the insurance contract created an ambiguity requiring the parties to litigate in Florida.

As this issue develops, expect to see more arbitration of coverage disputes particularly in the marine insurance business. It is unclear how this issue will affect claims for bad faith against foreign insurers. See Lloyds Underwriters v. Netterstrom, 17 So.3d 732 (Fla. 1st DCA 2009). A link to the opinion is cited below.

http://opinions.1dca.org/written/opinions2009/07-16-2009/08-5432.pdf

104 Comments » | Insurance Law

Unexpected Lessons for Insureds from Chinese Drywall

 :: Posted by admin on 03-13-2010

There are many issues coming to the forefront of insurance law as a result of the Chinese Drywall litigation. Of particular interest to American distributors of Chinese products is the issue that China, which owns a portion of every Chinese manufacturer, has never consented to jurisdiction in the United States for a tort claim. What does this mean as a practical matter? An American distributor can be held liable for distributing a dangerous or defective product in the same way a manufacturer can be. When the manufacturer doesn’t show up for trial, a jury can find the distributor liable.

As a practical matter, most products manufactured in China are made on behalf of American and European companies that could be subject to jurisdiction in the United States. However, a growing percentage of products are manufactured on behalf of Chinese companies. Moreover, some of the products manufactured on behalf of an American or European company are manufactured in China by an affiliated company that contracts with the American or European company.

Many domestic distributors of these products decline to purchase insurance coverage for defective products, reasoning that the manufacturer will step in and pay any damages or indemnify the distributor in the case of a tort suit. When dealing with Chinese manufacturers, however, I am unaware of any cases where a Chinese company has consented to service in the United States, let alone indemnified an American distributor.

In the Chinese drywall litigation, the plaintiffs have had a great deal of difficulty actually serving the Chinese manufacturers. Some of the best firms in the Country have spent thousands upon thousands of dollars to effect service in China, to no avail. Fortunately for the plaintiffs, the manufacturers were manufacturing drywall on behalf of a major German company that was subject to service under the Hague Convention.

This should teach us, however, that a domestic distributor is in no way safe or protected, especially when distributing products from China. A distributor should procure insurance for both manufacturing defects and for product recalls, among others if applicable. To be sure, a distributor should conduct a full review of its insurance policies with the assumption that the distributor will not be able to rely on anyone in the supply chain for indemnification or to answer for a judgment.

We have handled insurance coverage claims related to product recalls as well as product liability claims against foreign manufacturers and distributors as well. If you are faced with a claim and have some concerns about coverage or the merits of the case, feel free to call for an initial consultation. Most importantly you should put any potential insurers on notice of any potential claims. Most jurisdictions allow an insurer to assert an untimely notice defense. Worse, an insured can be out of luck if a claim is asserted during a gap in the policy.

156 Comments » | Insurance Law
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