Around the Nation: November 2012

WASHINGTON

Implications of Regulation Unclear

A new unfair claims practices regulation involving certificates of insurance became effective in May. The regulation, WAC 284.30.355, applies to all certificate holders, policyholders, insurers, insurance producers, and surplus lines brokers. Under this regulation, no person may knowingly issue or circulate and no person may knowingly demand or require an insurer, insurance producer, surplus lines broker, or policyholder to issue a “certificate that contains any false or misleading information or that purports to alter, amend, or extend the coverage provided by the insurance policy.” It also goes on to state that no person may “issue, demand, or require, either in addition to or in lieu of a certificate, a document that contains any false or misleading information or that purports to alter, amend, or extend the coverage provided by the insurance policy.”

It raises the question: What is the implication to a carrier whose agent/producer issues a certificate of insurance that states the certificate holder is an additional insured on a primary and contributory basis under a particular ISO form when that form is not endorsed to the policy and coverage restrictions apply? Watch for further developments. —From Washington State Co-Chair Jacquelyn Beatty

ALASKA

Reasonable Cause for Damages

An insured was injured in an auto accident and recovered her policy liability limits and sought UIM limits. At that time, there was a question about whether UIM in Alaska involved reduction or stacking. In 1998, the Alaska Supreme Court concluded that UIM stacked on liability, and the insured requested UIM limits from her insurer, who then mistakenly said she was not an insured. Two years later, the insured reinitiated contact, and the UIM claim settled within months. She filed suit for bad faith and other counts and went to trial in August 2012. The jury found in favor of the insurer on every count but two—bad faith and unreasonable conduct—finding no causation. The insured argued that because there was a finding of bad faith, there had to be damages. The judge agreed and sent the jury back to deliberate on an advisory verdict. Since nominal damages were required, the jury came back with $2 in damages. The twist? The jury found that the plaintiff was eligible for punitive damages and awarded $450,000. —From Alaska State Lead Chair Rebecca J. Hozubin

MICHIGAN

No Common Law Duty to Warn

In Hill v. Sears Roebuck and Co., a homeowner sued an appliance installer due to an explosion resulting from a gas leak. Hill had purchased an electric dryer and directed the installer to place it in front of an uncapped gas line. Four years later, Hill mistakenly opened the uncapped line and failed to properly close it, despite smelling gas in the home. Later, her daughter lit a candle and the home exploded.

Hill claimed that the installer owed a common law duty to cap the line or warn of its existence. The Michigan Supreme Court held that the parties had a limited relationship, and both agreed that contractual obligations were met. The court refused to extend the duty of care to include acts outside of the contract scope and limited relationship between the parties, including warnings of potential dangers. To hold otherwise would obligate similarly situated defendants to warn of all hazards that might be encountered—such a burden would be onerous and unworkable.

The plaintiff also argued that the installer was liable because he created a new hazard. The court disagreed and held that the installer created no hazard that did not exist before the work was performed. —From Michigan State Lead Chair Robert Marzano

TEXAS

New Requirements Could Bring Hefty Fines

A new Texas law regarding protected health information (PHI) went into effect on Sept. 1, 2012. The Texas Medical Records Privacy Act pertains to any “covered entity,” which includes an individual, business, or organization that possesses, analyzes, stores, or transmits PHI, such as a claimant’s medical records. These covered entities are now required to provide and document employee training for handling PHI, and the failure to do so may subject the entity to civil penalties ranging from $5,000 to $1.5 million a year. The new law also supplements Texas’ data breach notification law with increased penalties. —From Texas State Co-Chair Nichol Bunn

TENNESSEE

Changes in Agent Duty and Insurer Liability

Tennessee law has changed with respect to the duties of insurance agents and the liability of insurers in the state. Public Chapter 913 (2012) was intended by the legislature to alter the holdings in two Tennessee Supreme Court cases: Allstate Insurance Co. v. Tarrant and Morrison v. Allen. In these two cases, agents and insurers were found liable in relation to a claimed failure to procure or maintain the proper insurance. The insurance lobby in Tennessee obtained the introduction and passage of legislation shortly after the Supreme Court opinion in Allstate. The new law creates two presumptions: 1) there is a rebuttable presumption that the applicant has read, understands, and accepts the terms of the document; and 2) there is a rebuttable presumption that the payment of an insurance premium constitutes acceptance by the insured of the coverage provided under the contract. —From Tennessee State Lead Chair Jim Wright

NEW YORK

Social Media and Discovery

New York’s Appellate Division appears to be keeping a lid on social media discovery. In two decisions, New York’s intermediate appellate court disagreed with the trial justices and reversed orders directing disclosure of social media accounts (Abrams v. Pecile and Patterson v. Turner Const. Co.) In a recent decision, Loporcaro v. City of New York, a trial court has again determined “…it is the opinion of this Court, that the moving defendant has sufficiently shown that information contained within plaintiff’s Facebook account may contain information that is relevant to the claims made with regard to the effects of his injuries as alleged in their bill of particulars.” This is an important issue being considered by New York’s appellate courts. In the interim, counsel must make certain that requests for disclosure of social media information are backed up by a strong showing of relevance. —From New York State Co-Chair Howard S. Shafer

MARYLAND

Mold Expert’s Opinion Again Found Unreliable

Maryland’s Court of Special Appeals recently ruled that Dr. Ritchie Shoemaker’s theories about the health effects of mold exposure—specifically, that mold exposure can cause neurocognitive and musculoskeletal problems—are not generally accepted in the relevant scientific community. In Montgomery Mutual Ins. Co. v. Chesson, et al., the appellate court, conducting a de novo review, examined scientific literature on the issue of the potential health effects of exposure to mold, water-damaged buildings, and damp indoor environments and concluded that, although “unanimity is not required” to demonstrate general acceptance under the Frye-Reed standard, “there is a genuine controversy within the scientific community with regard to whether exposure to water-damaged buildings causes the human health effects that Dr. Shoemaker suggests are caused” by such exposure. —From Maryland State Co-Chair Susan E. Smith