The Oregon Supreme Court allows insureds to sue for emotional distress from bad faith, a ruling from Florida about collateral damage sources could have significant impacts, and the collapse of regional home insurers in Louisiana is linked to a failed affiliate business model.
SUPREME COURT ALLOWS EMOTIONAL DISTRESS BASED ON BAD FAITH
Oregon concluded an insured in a first-party claim might be able to sue for negligent infliction of emotional distress in certain circumstances. This expands an insurer’s potential liability when adjusting life insurance policies under Oregon law. Whether this expanded liability is limited to life insurance or extends to other types of first-party claims in Oregon remains to be seen. The lawsuit concerned a life insurance claim that was denied because the policy excluded deaths resulting from narcotics or other controlled substances, and the insured had marijuana in his system. The beneficiary sued for bad faith and alleged negligent infliction of emotional distress, alleging the insurer had not conducted a reasonable investigation. The trial court dismissed the negligent infliction of emotional distress. On appeal, a 4-3 majority of Oregon’s Supreme Court concluded the beneficiary had a legally protected interest for a tort claim for negligent infliction of emotional distress and found the beneficiary had alleged facts that could support Oregon’s elements for negligent infliction. —From CLM Member Michael Lowry, Wilson Elser
INSURERS COLLAPSE AFTER HURRICANES
The collapse of 12 regional home insurers in Louisiana between 2021 and 2023 is linked to a business model that directed hundreds of millions of dollars to less-regulated affiliates, reducing the funds available for paying claims and purchasing reinsurance as the state faced a historic level of hurricane activity, according to a report in the New Orleans Times-Picayune/Baton Rouge Advocate. This practice helped drive insurer failures following hurricanes and prompted questions about oversight and the viability of such business models amidst escalating climate-related risks. Failed regional insurers forced 220,000 policyholders to shop for insurance at a time when inflation and supply chain disruption were generating record-level home replacement costs and spiking premiums. Many were placed with the state-backed insurer of last resort. The affiliate model adopted by numerous companies raises questions about the financial stability of these carriers, especially in high-risk markets. The potential to leave insurers underfunded following natural disasters highlights the need for enhanced transparency and tighter state regulation. —From Mark Friedlander, Insurance Information Institute
SUPREME COURT COLLATERAL SOURCE RULING IMPACTS INSURERS
A recent ruling by the Supreme Court of Florida in the case of Alberta S. Ellison v. Randy Willoughby has significant implications for insurance companies. The court determined bad faith settlement proceeds from a plaintiff's uninsured motorist insurer should not be considered a collateral source. Willoughby suffered serious injuries in a car accident and filed suit, settling with his insurer and receiving a $30 million verdict in the trial. The court denied the plaintiff’s request to offset the insurance settlement under Section 768.76(1), which mandates reducing damages awards for sums the plaintiff received from collateral sources. On appeal, the Supreme Court determined a settlement payment made by an uninsured motorist insurer to settle a first-party bad faith claim does not meet the definition of a collateral source, since bad faith damages are a statutory penalty rather than a benefit of the insurance contract. —From CLM Members Kimberly M. Jones and Zachary D. Williams, Wood Smith Henning & Berman
SOVEREIGN IMMUNITY REMAINS THRESHOLD JURISDICTIONAL QUESTION
In a decision that clarifies the jurisdictional nature of the immunity, the Georgia Supreme Court recently upheld sovereign immunity as a threshold determination that must be considered and ruled upon before a court reaches the merits of a claim. The lawsuit was filed by Latoya Bray against sheriff’s lieutenant Stormie Watkins for damages Bray claimed were caused by Watkins’ alleged failure to activate a county tornado warning system. The trial court granted summary judgment in favor of Watkins, finding that the public duty doctrine barred Bray’s claims. The Court of Appeals, in a split decision, affirmed the trial court, finding that the trial court was authorized to grant summary judgment based upon the public duty doctrine without first considering sovereign immunity. The court disagreed, granting Bray’s petition for writ of certiorari, finding that sovereign immunity is a threshold jurisdictional question that must be addressed before a court can reach any issue on the merits. —From CLM Member Amy Cowan, Freeman Mathis & Gary LLP
NIGHTCLUB CLEARED FROM COLLEGE TEEN’S FATAL ACCIDENT
A New Jersey judge dismissed a claim against a nightclub (Perle) after a student (Cory Aufiero) was killed by a car, reasoning that Perle had not served him any alcohol. Aufiero went to Perle, already visibly intoxicated. He drank at a pre-party, but not at Perle. After leaving, he was struck and killed by an Uber vehicle. Aufiero’s parents sued Perle. The Dram Shop Act is the exclusive civil remedy for injuries resulting from negligent alcohol service and liability is established only where alcohol is served to a visibly intoxicated person or minor. Perle moved for summary judgment since it did not serve Aufiero. While plaintiffs conceded they could not pursue any claims relating to alcohol service, they asserted two theories arguing anything that is not “service” may trigger liability, and Perle “voluntarily assumed” a duty to ensure Aufiero’s safe passage. The judge ruled in favor of Perle, but even where liability appears clear, plaintiffs may develop creative liability theories. —From CLM Member Keith Bostwick, Tyson & Mendes
HOCHUL VETOES GENERAL JURISDICTION BILL
New York Gov. Kathy Hochul vetoed Senate Bill S7476, which provided that a foreign corporation’s application to do business in New York constitutes consent to jurisdiction of New York courts. The bill was designed to allow New York residents to sue foreign corporations authorized to do business in New York in state courts. S7476 was introduced on May 30, 2023, a month before the U.S. Supreme Court’s decision in Mallory v. Norfolk Southern Railway Co., which held that states can require foreign corporations to consent to general personal jurisdiction as a condition of registering to do business in that state. Since Mallory, the New York Senate introduced two bills seeking to require foreign corporations to consent to jurisdiction as a requirement for doing business in New York—Hochul has vetoed both. More states may consider “consent-by-jurisdiction” laws. In New York, the legislature is likely to continue its effort to create an express statutory consent-by-registration rule. —From CLM Member Kerry Jones, Goldberg Segalla