Are courts beginning to restrict the use of summary judgment?
Justice Brown took the opportunity to comment on summary judgment in a decision encompassing two cases, George Weston Limited v. Domtar Inc and 1318214 Ontario Limited v. Sobeys Capital Inc., 2012 ONSC 5001 (S.C.J.). These were two cases from the Commerical List in Toronto where counsel sought to schedule summary judgment motions. In George Weston, the plaintiff sought to schedule a summary judgment motion prior to examinations for discovery. In 1318214 Ontario, discoveries were mostly complete and when the plaintiff sought to set the matter down for trial, the defendant advised it intended to bring a motion for partial summary judgment to limit the issues for trial.
Justice Brown laments the motion culture in Toronto and what he sees as a reluctance of counsel, especially counsel who have practiced for less than 15 years, to bring cases to trial. He suggests that instead of bringing summary judgment motions, counsel should take more cases to trial and that courts should facilitate the process by approving innovative ways of proceeding to trial; for example, evidence could be a hybrid of written and viva voce evidence.
It will be interesting to see if other judges share Justice Brown's concerns and if courts will start restricting the use of summary judgment motions. Defence counsel and insurers will need to carefully assess each case to determine whether the appropriate way is to proceed by way of summary judgment or whether it might be more beneficial to simply proceed to trial.
Wednesday, October 31, 2012
Tuesday, October 30, 2012
Just what you need for Halloween
Tired of handing out candy? The older kids scoff at stickers and playdough.
How about zombie insurance? As Horrance.com points out, car insurance is useless if a zombie has eaten you.
How about zombie insurance? As Horrance.com points out, car insurance is useless if a zombie has eaten you.
Wednesday, October 24, 2012
Second Independent Medical Examination - Evidence
What evidence is necessary on a motion to compel the plaintiff to attend a second independent medical examination?
In Nasir v. Kochmanski, 2012 ONSC 4088 (S.C.J.), the plaintiff was a minor who was injured in a motor vehicle accident. The claim alleged the plaintiff was struck while a pedestrian and sustained a head injury and various psychological impairments. He had been assessed by a number of medical doctors and psychologists, both treating and arranged by plaintiff`s counsel. He had been assessed by a paediatric neurologist on behalf of the defendant, although no report had been prepared. The defendant sought to have the plaintiff assessed by a psychologist. The proposed assessor wrote a letter to defence counsel outlining the assessment, its length, information she would require from the plaintiff`s parents, and test results from other assessments she required.
Justice Daley permitted the assessment. The proposed assessment was outside the scope of expertise of the neurologist, according to the psychologist`s letter. There was no evidence the assessment would delay trial or prejudice the plaintiff. Since the plaintiff was very young, his evidence would be of limited evidentiary value, and the most probative and reliable evidence would have to come from experts. Trial fairness favoured the second examination.
It should be noted that the evidence in support of the motion appears to come from a letter from the proposed assessor. Justice Daley stated that it would have been preferable to have an affidavit or report from the neurologist outlining the need for a further examination, but accepted that there was enough evidence to support the motion. There is some inconsistency in the case law as to the form of evidence needed on a motion for a further examination, and counsel should carefully consider whether it would be beneficial to have affidavit evidence.
In Nasir v. Kochmanski, 2012 ONSC 4088 (S.C.J.), the plaintiff was a minor who was injured in a motor vehicle accident. The claim alleged the plaintiff was struck while a pedestrian and sustained a head injury and various psychological impairments. He had been assessed by a number of medical doctors and psychologists, both treating and arranged by plaintiff`s counsel. He had been assessed by a paediatric neurologist on behalf of the defendant, although no report had been prepared. The defendant sought to have the plaintiff assessed by a psychologist. The proposed assessor wrote a letter to defence counsel outlining the assessment, its length, information she would require from the plaintiff`s parents, and test results from other assessments she required.
Justice Daley permitted the assessment. The proposed assessment was outside the scope of expertise of the neurologist, according to the psychologist`s letter. There was no evidence the assessment would delay trial or prejudice the plaintiff. Since the plaintiff was very young, his evidence would be of limited evidentiary value, and the most probative and reliable evidence would have to come from experts. Trial fairness favoured the second examination.
It should be noted that the evidence in support of the motion appears to come from a letter from the proposed assessor. Justice Daley stated that it would have been preferable to have an affidavit or report from the neurologist outlining the need for a further examination, but accepted that there was enough evidence to support the motion. There is some inconsistency in the case law as to the form of evidence needed on a motion for a further examination, and counsel should carefully consider whether it would be beneficial to have affidavit evidence.
Monday, October 22, 2012
New Cavalcade of Risk is up
For a roundup of risk-related blog posts from around the web, take a look here. Special thanks to My Personal Finance Journey for including my post on insurance as a kind of tax as one of the top three posts for this Cavalcade.
Thursday, October 18, 2012
Great article on certificates of insurance
Virginia Business has an excellent article by Collin Hite on the uselessness of certificates of insurance. I wholeheartedly agree with his analysis.
The article discusses a new law in Virginia that attempts to prevent certificates of insurance from containing misleading language about what rights the certificate gives a certificate-holder. While that may be occasionally helpful, in my view the real problem with certificates of insurance is that they exist at all. As they cannot be used as proof of coverage, why issue them? The safer practice would be for an entity seeking proof that it is an additional insured on someone else's policy to require that the primary insured provide a copy of the coverage selection page. If the coverage selection page does not list additional insureds by name, that part of the policy that does name or define additional insureds should be provided. Although that won't prevent the problem of a policy being canceled by the primary insured without notice to the additional insured, it would be a step in the right direction.
The article discusses a new law in Virginia that attempts to prevent certificates of insurance from containing misleading language about what rights the certificate gives a certificate-holder. While that may be occasionally helpful, in my view the real problem with certificates of insurance is that they exist at all. As they cannot be used as proof of coverage, why issue them? The safer practice would be for an entity seeking proof that it is an additional insured on someone else's policy to require that the primary insured provide a copy of the coverage selection page. If the coverage selection page does not list additional insureds by name, that part of the policy that does name or define additional insureds should be provided. Although that won't prevent the problem of a policy being canceled by the primary insured without notice to the additional insured, it would be a step in the right direction.
Wednesday, October 17, 2012
Catastrophic Impairment: Aviva v. Pastore
The Court of Appeal has released an important decision relating to catastrophic impairment:
Aviva Canada Inc. v. Pastore, 2012 ONCA 642 (C.A.)
The insured was injured in a 2002 motor vehicle accident as a pedestrian and sustained an ankle injury. She alleged her gait had been altered and was diagnosed with a pain disorder. A DAC found her to be catastrophically impaired in 2005 due to a marked mental or behavioural impairment under s. 2(1.1)(g) of the SABS. An assessment under s. 2(1.1)(g) is carried out with reference to the AMA Guides, which provide for an assessment of function in four categories:
Pastore was diagnosed with a number of psychological disorders and the DAC concluded that she had a class 4 marked impairment in activities of daily living. The DAC concluded she was catastrophically impaired on the basis of the one class 4 impairment. The insurer did not agree with the assessment and the matter proceeded to mediation then arbitration.
At arbitration, the arbitrator agreed with the DAC assessors and held that one marked impairment was enough to comply with the Guides approach to impairment. In addition, it was appropriate to consider physical pain in assessing mental disorder, as it was not possible to factor out all physically based pain since it was intertwined with mentally based pain. The Director's Delegate upheld the decision, but the Divisional Court overturned the arbitrator.
The Court of Appeal allowed the appeal and reinstated the arbitrator`s decision. The conclusion that only one marked impairment is sufficient to meet the definition of catastrophic impairment was a reasonable one. In addition, it was not an error for the DAC assessors to consider both physical and mental pain.
Pastore appears to have lowered the bar for catastrophic impairment based on a mental disorder and more claimants may be able to fit themselves into a catastrophic designation than prior to this decision.
Aviva Canada Inc. v. Pastore, 2012 ONCA 642 (C.A.)
The insured was injured in a 2002 motor vehicle accident as a pedestrian and sustained an ankle injury. She alleged her gait had been altered and was diagnosed with a pain disorder. A DAC found her to be catastrophically impaired in 2005 due to a marked mental or behavioural impairment under s. 2(1.1)(g) of the SABS. An assessment under s. 2(1.1)(g) is carried out with reference to the AMA Guides, which provide for an assessment of function in four categories:
(1) Activities of daily living (ADL);
(2) Social functioning;
(3) Concentration, persistence and pace; and
(4) Deterioration or decompensation in work or work-like settings.
Pastore was diagnosed with a number of psychological disorders and the DAC concluded that she had a class 4 marked impairment in activities of daily living. The DAC concluded she was catastrophically impaired on the basis of the one class 4 impairment. The insurer did not agree with the assessment and the matter proceeded to mediation then arbitration.
At arbitration, the arbitrator agreed with the DAC assessors and held that one marked impairment was enough to comply with the Guides approach to impairment. In addition, it was appropriate to consider physical pain in assessing mental disorder, as it was not possible to factor out all physically based pain since it was intertwined with mentally based pain. The Director's Delegate upheld the decision, but the Divisional Court overturned the arbitrator.
The Court of Appeal allowed the appeal and reinstated the arbitrator`s decision. The conclusion that only one marked impairment is sufficient to meet the definition of catastrophic impairment was a reasonable one. In addition, it was not an error for the DAC assessors to consider both physical and mental pain.
Pastore appears to have lowered the bar for catastrophic impairment based on a mental disorder and more claimants may be able to fit themselves into a catastrophic designation than prior to this decision.
Tuesday, October 16, 2012
Representing an insurance company does not make you a bad person
In the Massachusetts Senate race between Scott Brown and Elizabeth Warren, Brown has attacked Warren for representing Travelers Insurance in asbestos litigation. Warren has responded with ads in which family-members of people who died from asbestos-related illnesses defend her, asserting that she fought to increase and protect settlement money available to the victims and their families.
What if that wasn't Warren's role? What if she had been hired to simply defend Travelers from asbestos claims, to argue that the claims were excluded by the policies, or that the insured was not liable? Would that mean she is in the pocket of corporations and therefore should not be elected as a Democrat?
Without going into a Democrat/Republican/all politicians are sellouts tirade, no. I spend the first six years of my legal career as an insurance defense attorney, and I still represent insurers both directly and indirectly through subcontract work. There have been times when, given my personal views, I felt somewhat uncomfortable with the cases I was given. A low point came when I represented as insurance defense counsel a used car dealer that was being sued for allegedly charging customers illegal fees. I've represented insured defendants who discovery showed were clearly liable.
In all of my cases, no matter which side I'm on, I zealously represent my clients. Sometimes zealous representation means advising the insurer to settle. Sometimes it means advising the insurer not to settle even though liability is clear, because the plaintiff is asking too much in damages.
There are plaintiffs attorneys who are incompetent and don't give their clients good advice about a case, and there are insurance defense attorneys who are incompetent and don't give their clients good advice about a case. In my experience, those attorneys are relatively rare. Competent representation -- an ability to analyze the law, the facts, and the risks -- on both sides leads to fair outcomes.
I don't know enough about Warren's role in the asbestos litigation to judge it. But I do know that the mere fact that she represented an insurer in asbestos litigation does not, in and of itself, tell us anything about her character or her worthiness to hold office.
What if that wasn't Warren's role? What if she had been hired to simply defend Travelers from asbestos claims, to argue that the claims were excluded by the policies, or that the insured was not liable? Would that mean she is in the pocket of corporations and therefore should not be elected as a Democrat?
Without going into a Democrat/Republican/all politicians are sellouts tirade, no. I spend the first six years of my legal career as an insurance defense attorney, and I still represent insurers both directly and indirectly through subcontract work. There have been times when, given my personal views, I felt somewhat uncomfortable with the cases I was given. A low point came when I represented as insurance defense counsel a used car dealer that was being sued for allegedly charging customers illegal fees. I've represented insured defendants who discovery showed were clearly liable.
In all of my cases, no matter which side I'm on, I zealously represent my clients. Sometimes zealous representation means advising the insurer to settle. Sometimes it means advising the insurer not to settle even though liability is clear, because the plaintiff is asking too much in damages.
There are plaintiffs attorneys who are incompetent and don't give their clients good advice about a case, and there are insurance defense attorneys who are incompetent and don't give their clients good advice about a case. In my experience, those attorneys are relatively rare. Competent representation -- an ability to analyze the law, the facts, and the risks -- on both sides leads to fair outcomes.
I don't know enough about Warren's role in the asbestos litigation to judge it. But I do know that the mere fact that she represented an insurer in asbestos litigation does not, in and of itself, tell us anything about her character or her worthiness to hold office.
Friday, October 12, 2012
Another side to insurance coverage litigation
Over at FMG Law's BlogLine, Seth Kirby has posted an interesting article on the marketing risk to insurers of insurance coverage litigation. I agree with his points. On the one hand, insurers have an absolute right -- perhaps even a duty as public corporations -- to determine both liability and damages before settling, even in cases that initially seem obvious. Bad faith comes in when the insurer takes an unreasonable amount of time to do so, or when it continues to deny a claim or it fails to make a reasonable settlement offer after it has determined that its insured is liable and the claimant suffered damages.
Kirby points out that in this age of blogs and social media, an insurer runs a risk of appearing to act in bad faith even when it is reasonably investigating or litigating a claim. The case he discusses is that of a woman who was killed in a car accident. Her family sought coverage under the uninsured motorist coverage of her policy and the insurer litigated rather than paying immediately. This is a case I have heard of before -- thanks to publicity the case has gained on the internet. I haven't seen enough to convince me one way or another about whether the insurer is acting in bad faith in its investigation and litigation of the claim. But, as Kirby states in the article, insurers now need to be aware of how easy it is to paint them as a bad actor in such a situation.
Kirby points out that in this age of blogs and social media, an insurer runs a risk of appearing to act in bad faith even when it is reasonably investigating or litigating a claim. The case he discusses is that of a woman who was killed in a car accident. Her family sought coverage under the uninsured motorist coverage of her policy and the insurer litigated rather than paying immediately. This is a case I have heard of before -- thanks to publicity the case has gained on the internet. I haven't seen enough to convince me one way or another about whether the insurer is acting in bad faith in its investigation and litigation of the claim. But, as Kirby states in the article, insurers now need to be aware of how easy it is to paint them as a bad actor in such a situation.
Wednesday, October 10, 2012
Motion to Add Municipal Defendant Dismissed
A motion to add a municipality as a defendant was recently dismissed.
In Temporin v. DiVincenzo, 2012 ONSC 5213 (S.C.J.), the plaintiff was injured in a 2007 motor vehicle accident. Although the City of Burlington had been named as a third party, the plaintiff did not move to add it as a defendant until 2012. The plaintiff ordered the police report in 2007, but did not receive officer's notes as counsel had inadvertently neglected to send payment. The notes were ultimately received in 2010 when a follow up request was made. They referred to road conditions consisting of "fierce" black ice. The plaintiff argued that the two year limitation period for adding the municipality began in 2010.
Parayeski J. dismissed the motion. The failure to follow up for police notes until 2010 did not give rise to a discoverability issue. The plaintiff had not exercised reasonable diligence and even though there was no prejudice to the municipality, this did not justify it being added as a defendant post-limitation.
This decision is a good example of the maxim that limitation periods are not enacted to be ignored. The burden is on plaintiffs to act diligently to identify defendants within the appropriate limitation period.
In Temporin v. DiVincenzo, 2012 ONSC 5213 (S.C.J.), the plaintiff was injured in a 2007 motor vehicle accident. Although the City of Burlington had been named as a third party, the plaintiff did not move to add it as a defendant until 2012. The plaintiff ordered the police report in 2007, but did not receive officer's notes as counsel had inadvertently neglected to send payment. The notes were ultimately received in 2010 when a follow up request was made. They referred to road conditions consisting of "fierce" black ice. The plaintiff argued that the two year limitation period for adding the municipality began in 2010.
Parayeski J. dismissed the motion. The failure to follow up for police notes until 2010 did not give rise to a discoverability issue. The plaintiff had not exercised reasonable diligence and even though there was no prejudice to the municipality, this did not justify it being added as a defendant post-limitation.
This decision is a good example of the maxim that limitation periods are not enacted to be ignored. The burden is on plaintiffs to act diligently to identify defendants within the appropriate limitation period.
Insurance as a kind of tax, and a foray into socialism and outside my area of expertise
My recent posts here and here on cases addressing flood insurance under the National Flood Insurance Program got me thinking about the similarities and differences between insurance and taxes.
As we all know, taxes are one of the two things in life that are certain, and insurance is not the other thing. But -- sometimes insurance is required by the government. Flood insurance, for one, if you have a mortgage and live in a flood zone. Health insurance, in Massachusetts and soon nationally for the most part. (Don't start calling me with health insurance disputes -- I don't do those. They are different from liability insurance disputes.) Worker's comp insurance, generally. Car insurance. A fee the government requires you to pay sounds like a tax to me.
Insurance is a for-profit private-sector business. But in the case of flood insurance, the insurers are merely the plan administrators, with the losses paid by the government. In other words, the government itself is the insurer.
Taxpayers are a larger risk pool than insureds. Even if only 53 percent of Americans pay income taxes (I take no position on that), that's a whole lot of people and it makes it pretty easy to spread the risk. Then again, according to my Google search 95 percent of Americans own cars, and therefore buy car insurance in states where it is required. The insurance risk pool is subdivided, however, into insureds of each insurer.
My taxes are based, more or less, on my income. My insurance premiums may or may not be based on my level of risk. My auto premiums are based on where I live, the kind of car I drive, and my driving record. But my health insurance premiums are not based on the likelihood that I'll get sick -- everyone with my plan pays the same. That means that, like with taxes, healthy people are subsidizing health care for people who need more of it. It seems to me that, given that reality, it would make more sense to spread the risk more broadly -- among all taxpayers. That way who is subsidizing who is not based on the almost accidental decision of what health plan you happen to have, but on what you can afford to pay. (And, yeah, I know, that's socialism.)
As we all know, taxes are one of the two things in life that are certain, and insurance is not the other thing. But -- sometimes insurance is required by the government. Flood insurance, for one, if you have a mortgage and live in a flood zone. Health insurance, in Massachusetts and soon nationally for the most part. (Don't start calling me with health insurance disputes -- I don't do those. They are different from liability insurance disputes.) Worker's comp insurance, generally. Car insurance. A fee the government requires you to pay sounds like a tax to me.
Insurance is a for-profit private-sector business. But in the case of flood insurance, the insurers are merely the plan administrators, with the losses paid by the government. In other words, the government itself is the insurer.
Taxpayers are a larger risk pool than insureds. Even if only 53 percent of Americans pay income taxes (I take no position on that), that's a whole lot of people and it makes it pretty easy to spread the risk. Then again, according to my Google search 95 percent of Americans own cars, and therefore buy car insurance in states where it is required. The insurance risk pool is subdivided, however, into insureds of each insurer.
My taxes are based, more or less, on my income. My insurance premiums may or may not be based on my level of risk. My auto premiums are based on where I live, the kind of car I drive, and my driving record. But my health insurance premiums are not based on the likelihood that I'll get sick -- everyone with my plan pays the same. That means that, like with taxes, healthy people are subsidizing health care for people who need more of it. It seems to me that, given that reality, it would make more sense to spread the risk more broadly -- among all taxpayers. That way who is subsidizing who is not based on the almost accidental decision of what health plan you happen to have, but on what you can afford to pay. (And, yeah, I know, that's socialism.)
Saturday, October 6, 2012
What they're offering across the pond, now that the Olympics are over
Over at Insureblog Hank Stern writes about insurance now being offered in England for risks from social media use, such as account jacking.
Thursday, October 4, 2012
Not related to insurance coverage directly
But, hey, it's my blog.
Here's me on HuffpostLive talking about what makes a good argument:
http://live.huffingtonpost.com/#r/segment/5065f32e2b8c2a45be00011e
Here's me on HuffpostLive talking about what makes a good argument:
http://live.huffingtonpost.com/#r/segment/5065f32e2b8c2a45be00011e
Wednesday, October 3, 2012
Election of Arbitration or Court Proceeding
Gordyukova v. Certas Direct Insurance Company, 2012 ONCA 563 (C.A.)
The subject of this appeal is s. 281.1(1) of the Insurance Act, which provides that an insured shall commence a court proceeding or arbitration within two years of the insurer's refusal to pay benefits.
The plaintiff was in a motor vehicle accident in 2001. She applied for accident benefits and a dispute arose over certain medical benefits. After mediation failed, she issued a Statement of Claim in 2002. In 2005, the insurer advised her she had exhausted her non-catastrophic limits for medical and rehabilitation benefits. Her application for a catastrophic designation was rejected so she commenced an arbitration at FSCO in 2008. Certas brought a motion to stay the arbitration on the grounds that the CAT dispute should be added to the court action. The arbitrator ruled the plaintiff could not proceed with both the court action and the arbitration, but could proceed with arbitration if she discontinued the court action. The arbitrator ruled he was not ruling on the limitation issue. The plaintiff gave notice of her intention to discontinue the court action and proceed with arbitration, and the insurer brought a motion seeking a ruling on the limitation issue. The arbitrator ruled the plaintiff could add all of the matters pending before the Superior Court to the arbitration.
Certas appealed, arguing that the plaintiff could not re-elect the method of proceeding eight years after the court action was commenced. The matter was appealed to the Director 's Delegate then the Divisional Court.
The Court of Appeal held that the arbitration should be stayed. Section 281.1(1) of the Insurance Act requires an election between a court action and an arbitration. It provides that a proceeding shall be brought within two years. The insured has the choice of forum, but cannot switch forums after the expiry of the limitation period. Since the court proceeding included a claim for "continued accident benefits", it would necessarily include a determination of the CAT issue.
The subject of this appeal is s. 281.1(1) of the Insurance Act, which provides that an insured shall commence a court proceeding or arbitration within two years of the insurer's refusal to pay benefits.
The plaintiff was in a motor vehicle accident in 2001. She applied for accident benefits and a dispute arose over certain medical benefits. After mediation failed, she issued a Statement of Claim in 2002. In 2005, the insurer advised her she had exhausted her non-catastrophic limits for medical and rehabilitation benefits. Her application for a catastrophic designation was rejected so she commenced an arbitration at FSCO in 2008. Certas brought a motion to stay the arbitration on the grounds that the CAT dispute should be added to the court action. The arbitrator ruled the plaintiff could not proceed with both the court action and the arbitration, but could proceed with arbitration if she discontinued the court action. The arbitrator ruled he was not ruling on the limitation issue. The plaintiff gave notice of her intention to discontinue the court action and proceed with arbitration, and the insurer brought a motion seeking a ruling on the limitation issue. The arbitrator ruled the plaintiff could add all of the matters pending before the Superior Court to the arbitration.
Certas appealed, arguing that the plaintiff could not re-elect the method of proceeding eight years after the court action was commenced. The matter was appealed to the Director 's Delegate then the Divisional Court.
The Court of Appeal held that the arbitration should be stayed. Section 281.1(1) of the Insurance Act requires an election between a court action and an arbitration. It provides that a proceeding shall be brought within two years. The insured has the choice of forum, but cannot switch forums after the expiry of the limitation period. Since the court proceeding included a claim for "continued accident benefits", it would necessarily include a determination of the CAT issue.
Tuesday, October 2, 2012
Another First Circuit case on whether mortgage lender can increase flood insurance requirement
Last week I posted about Lass v. Bank of America, __ F.3d __, 2012 WL 4240504 (1st Cir.), in which the United States Court of Appeals for the First Circuit held that, taken as a whole, mortgage documents were ambiguous as to whether the lender could demand that the borrower increase her flood insurance coverage.
The First Circuit issued a companion opinion in the case of Kolbe v. BAC Home Loans Servicing, LP, __ F.3d __, 2012 WL 4240298 (1st Cir.).
As in Lass, Kolbe, a mortgage borrower, asserted that Bank of America's demand that he increase his flood coverage breached the terms of his mortgage contract.
The mortgage contract required that Kolbe "insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards . . . for which the Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected against loss by floods to the extent required by the Secretary [of HUD]."
Kolbe was required by federal law to obtain flood insurance because his property is located in a special flood hazard zone under the National Flood Insurance Act. The minimum amount mandated by the law is coverage at least equal to the outstanding principal balance of the loan, or $250,000, whichever is less.
An aside: I find this provision shocking. I believe everyone should have adequate insurance, and I support the government regulating flood insurance to the extent that such flood insurance might not be affordable, or available at all, in flood hazard zones without such regulation. But I can see no reason why the government should mandate that homeowners are required to have insurance to protect the interests of the lenders but not of the homeowners. The lenders can protect their interests by including a flood insurance requirement in the loan contract.
Moreover, as the court noted in Kolbe, the National Flood Insurance Act was passed because major floods had required "unforeseen disaster relief measures and placed an increasing burden on the Nation's resources." By requiring insurance only to the extent of the lender's interests, the law demonstrates that the government is interested in protecting financial institutions but not homeowners.
Getting back to the decision, Kolbe purchased more than the minimum required amount of flood insurance. Bank of America subsequently sent notice to Kolbe that he was required to increase his flood insurance coverage to the total replacement cost of his property as identified in his homeowner's policy. (Everyone: if you are in a flood plain you should have flood insurance to the replacement cost of your property, regardless of what your mortgage lender says.)
The court held that the insurance provision in the contract was ambiguous, and therefore turned to extrinsic evidence to interpret it. It noted that HUD treats hazard insurance and flood insurance separately, but also that FEMA recommends replacement value flood insurance.
The court concluded that the extrinsic evidence was also, therefore, ambiguous. It held that the District Court erred when it dismissed Kolbe's complaint on the ground that the mortgage unambiguously permitted the lender to demand additional coverage.
The First Circuit issued a companion opinion in the case of Kolbe v. BAC Home Loans Servicing, LP, __ F.3d __, 2012 WL 4240298 (1st Cir.).
As in Lass, Kolbe, a mortgage borrower, asserted that Bank of America's demand that he increase his flood coverage breached the terms of his mortgage contract.
The mortgage contract required that Kolbe "insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards . . . for which the Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected against loss by floods to the extent required by the Secretary [of HUD]."
Kolbe was required by federal law to obtain flood insurance because his property is located in a special flood hazard zone under the National Flood Insurance Act. The minimum amount mandated by the law is coverage at least equal to the outstanding principal balance of the loan, or $250,000, whichever is less.
An aside: I find this provision shocking. I believe everyone should have adequate insurance, and I support the government regulating flood insurance to the extent that such flood insurance might not be affordable, or available at all, in flood hazard zones without such regulation. But I can see no reason why the government should mandate that homeowners are required to have insurance to protect the interests of the lenders but not of the homeowners. The lenders can protect their interests by including a flood insurance requirement in the loan contract.
Moreover, as the court noted in Kolbe, the National Flood Insurance Act was passed because major floods had required "unforeseen disaster relief measures and placed an increasing burden on the Nation's resources." By requiring insurance only to the extent of the lender's interests, the law demonstrates that the government is interested in protecting financial institutions but not homeowners.
Getting back to the decision, Kolbe purchased more than the minimum required amount of flood insurance. Bank of America subsequently sent notice to Kolbe that he was required to increase his flood insurance coverage to the total replacement cost of his property as identified in his homeowner's policy. (Everyone: if you are in a flood plain you should have flood insurance to the replacement cost of your property, regardless of what your mortgage lender says.)
The court held that the insurance provision in the contract was ambiguous, and therefore turned to extrinsic evidence to interpret it. It noted that HUD treats hazard insurance and flood insurance separately, but also that FEMA recommends replacement value flood insurance.
The court concluded that the extrinsic evidence was also, therefore, ambiguous. It held that the District Court erred when it dismissed Kolbe's complaint on the ground that the mortgage unambiguously permitted the lender to demand additional coverage.
Subscribe to:
Posts (Atom)