For your interest, Claims compiled a reading list ofsorts, after consulting some knowledgeable lawyers and firmscovering commercial litigation, subrogation, bad-faith, and other areas of interest to theP&C industry.

This sampling includes analysis of important legal developmentsin 2011, with implications for the new year. Be sure to read“EDRsand the Claims Adjuster,” which begins on page 26, along withBarry Zalma’s meditation on bad-faith tort decisions in thecover story to learn more about statutes and trends. You canalso find in-depth analysis about precedent-setting cases, as wellas the online litigation companion to this month’s issue onPropertyCasualty360.com.

Topic: Bad Faith
Case: Texas Mutual Ins. Co. v.Ruttiger

Texas Mutual disputed Ruttiger’s claim for an on-the-job injurybecause his employer said that he was hurt at a non-work relatedevent. They came to a compromise. Later, a trial court found thatthe adjuster acted in “bad faith,” siding with the employer insteadof Ruttiger. He was awarded money in excess of the amounts TexasMutual had already paid.

The First Court of Appeals in Houston agreed, so Texas Mutualappealed to the Supreme Court, which decided that workers’compensation insurers are not subject to “bad faith” claims forunfair claims settlement practice under the Texas Insurance Code.The ground-breaking decision overturned 20 years of established lawwhich allowed claimants’ attorneys to file bad faith claims at thedrop of a hat–including when the carrier became aggressive inprotecting its statutory subrogation rights and/or didn’t reduce oreliminate a workers’ compensation subrogation lien whendemanded.

Topic: Made-Whole Doctrine
Case: Steffens v. BlueCross and BlueShield ofIllinois

The case involved an EmployeeRetirement Income Security Act benefits plan that includeda “reimbursement, subrogation and/or right of reduction”clause. According to the clause, BlueCross was entitled toreimbursement for expenses arising out of an accident when a thirdparty “may be liable” for those expenses and the beneficiaryobtains a settlement. The insurance contract also stated that any“so-called ‘make-whole’ or ‘full compensation’ rule or doctrine ishereby explicitly rejected and disavowed.”

Upon review, a Wisconsin Supreme Court concluded that in matterswhere the made-whole doctrine is expressly disclaimed in a policy,an insurer is entitled to fully recover disbursed funds under asubrogation claim. This occurs against those funds recovered by theinsured and applies even when the remaining recovered funds do notultimately make the injured party “whole” through thesettlement.

Topic: Business Interruption
Case: Dickie Brennan & Company Inc. v. LexingtonInsurance Co.

Lexington Insurance Co. denied coverage for the Brennan’s lossesduring the mandatory evacuation of New Orleans due to HurricaneGustav in 2008. New Orleans suffered only minimal damage, however,and none the Brennan’s three restaurant properties nor theirneighbors’ properties sustained damages.

Brennan’s business interruption (BI) policy covered losses of businessincome related to “action of civil authority that prohibits accessto the described premises due to direct physical loss of or damageto property, other than at the described premises, caused by orresulting from any Covered Cause of Loss.”

Brennan argued that the damage from Hurricane Gustav in theCaribbean qualified as “damage to property, other than at thedescribed premises,” and should trigger coverage. Lexington deniedthe claim, saying there had to be an actual link between the priordamage and the evacuation order, and that the damage must haveoccurred closer to the insured property.

The U.S. Court of Appeals for the Fifth Circuit agreed, statingthat Brennan: “failed to demonstrate a nexus between any priorproperty damage and the evacuation order.” Further, the evacuationorder did not mention the Caribbean property damage, but was basedon potential dangers due to the approaching hurricane.

Sources: Texas Mutual, www.mwl-law.com,wislawjournal.com, www.mblb.com