No Duty to Inform Insureds of Benefit
Don't ask and the insurance company doesn't have to tell. That was the ruling of the Pennsylvania Superior Court in March, which found that Erie Insurance Exchange did not have an obligation to inform policyholders they are entitled to reimbursement of costs incurred while litigating claims.
Cathy L. Albert had been covered by an automobile insurance policy issued by Erie Insurance Exchange when she was involved in an accident in 2009, according to the Superior Court of Pennsylvania opinion issued March 20, 2013.
She claimed Erie failed to reimburse her for lost wages and travel expenses when helping the insurer investigate or defend a claim or suit, but never made a claim to Erie for reimbursement, according to the opinion, which noted that Albert wanted the court to rule that Erie had "an affirmative obligation to notify policyholders of the provisions related to lost wages and expenses."
The trial court disagreed that Erie was required to "take the initiative," and instead held that the insurance contract imposed on the policy holder "a duty to come forward with his or her claim." The appeals court agreed, dismissing the class-action lawsuit against Erie.
Scorecard: Although the plaintiff was only seeking lost wages of $114 and travel costs, the potential expense to Erie if the lawsuit was certified as a class action could have been enormous.
Takeaway: There is no fiduciary responsibility in Pennsylvania law between an insurer and insured that requires the insurance company to inform insureds of benefits and no duty to pay reimbursement benefits in the absence of a request.
Bottling Company Wins a Defense
A Chubb Group unit must defend one of its insureds as the water-bottling company fights a class-action lawsuit alleging it recorded customer calls without consent, according to a federal judge in the United States District Court, Northern District of Georgia.
Underlying this lawsuit filed by DS Waters of America Inc. against Federal Insurance Co. and other insurers is a class-action lawsuit against DS Waters, which is accused of "eavesdropping and invasion of privacy rights when class members contacted the plaintiff (DS Waters) in response to advertising materials disseminated by the plaintiff," according to the ruling.
Zurich American Insurance Co. and Safety National Casualty Corp. have also been sued by DS Waters as part of the class-action litigation, which seeks damages in excess of $75,000.
Federal issued an errors and omissions liability policy, MediaGuard by Chubb, that provided coverage for claims arising from "media activities, invasion, or infringement of the right of privacy, or eavesdropping, up to its limit of liability," according to court documents.
Federal argued the allegations against DS Waters "do not trigger the policy's insuring clause" because the policy covered only "advertising materials produced and disseminated by the insured."
In the ruling, the judge wrote that the policy could be covered by the policy and therefore, the lawsuit should not be dismissed.
Federal, he said, "confuses the duty to defend with the duty to indemnify," noting that the duty to indemnify "is triggered only when the insured is determined to be liable for damages within the policy's coverage."
Thus, the court focused only on the duty to defend, as arguments related to indemnification are "premature."
In addition to Federal, Zurich issued DS Waters a commercial general liability policy, effective November 2010 to November 2011, while Safety National was the bottling company's CGL primary carrier beginning about October 2012, according to court documents.
Scorecard: The underlying class-action litigation seeks damages in excess of $75,000.
Takeaway: An insurer's duty to defend must be determined separately from an insurer's duty to indemnify.
Damages Permitted for Emotional Distress
A police officer who was served a spit-drenched burger will be permitted to collect damages for emotional distress in the absence of any physical injury, according to a recent ruling by the Washington Supreme Court
Edward J. Bylsma, a Clark County (Washington) sheriff's deputy, had an "uneasy feeling" after receiving a Whopper with cheese from a Burger King restaurant in Vancouver, Wash. He had recognized one of the employees as having a criminal record. In fact, both of the workers had records, according to court documents.
Before eating the burger, he lifted the bun and saw a "slimy, clear and white phlegm glob" on the patty. DNA testing revealed it was from one the employees, who later pleaded guilty to assault and was sentenced to 90 days in jail.
Bylsma, who said he now suffers ongoing emotional trauma from the incident, filed suit against Burger King for product liability, negligence and various liability. A district court dismissed the lawsuit, but the state Supreme Court ruled that the lawsuit for emotional distress damages in the absence of physical injury could continue under the Washington Product Liability Act.
In light of that ruling, the U.S. 9th Circuit Court of Appeals reversed the district court ruling and remanded the case to that court, allowing Bylsma to amend his complaint and the court to determine whether the facts support the claim.
Scorecard: If the deputy's lawsuit against Burger King for product liability, negligence and vicarious liability is successful, the company would owe damages for emotional distress.
Takeaway: The ruling may extend to a variety of claims for emotional distress in the absence of physical injury, increasing the risk that more lawsuits will be filed.
'Like' Gets Warning
The U.S. Food and Drug Administration sent a warning letter to Amarc Enterprises that its marketing of a dietary supplement, PolyMVA, was in violation of federal law concerning the marketing of drugs.
Some "customer experiences" listed on the company's website included claims that the drug helped cure cancer, in addition to a company information packet that discusses "research evidence" and "testimonials" claiming the supplement had been successful for many patients suffering a variety of cancers.
The company also markets Poly-MVW for Pets, and its website included similar information about the drug's impact on pets.
In addition, the FDA noted that claims on the company's Facebook page made by users were "liked" by the company.
One such "liked" claim was: "PolyMVA has done wonders for me. I take it intravenously 2x a week and it has helped me tremendously. It enabled me to keep cancer at bay without the use of chemo and radiation... Thank you AMARC"
In its letter, the FDA wrote that Amarc's "products are not generally recognized as safe and effective for the above referenced conditions ... " and that new drugs may not be legally marketed in the United States without FDA approval.
Scorecard: The company removed its Facebook page and sent the FDA a response to its warning letter, according to published reports.
Takeaway: The FDA's warnings about the use of social media offer some guidance to other pharmaceutical companies and medical device manufacturers.
$1 Million Cap on Damages Upheld in Court
Mississippi's $1 million cap on damages for pain and suffering was upheld by the U.S. 5th Circuit Court of Appeals in a case involving a woman injured by a company van.
A federal jury had found Sears Roebuck and Co. liable for its employee's actions in a collision that caused serious injuries to Lisa Learmonth, who was awarded $4 million in compensatory damages.
The district court interpreted that award to include $2.2 million in noneconomic damages, then reduced that award to $1 million pursuant to the state's statutory cap, according to court documents.
Learmonth appealed, arguing that the cap violated the state constitution's jury trial guarantee and separation of powers provisions.
The federal court ruled Learmonth, who suffered brain injuries and bone fractures, failed to satisfy her burden of establishing a violation of the constitution because of the conflict with the state statute. It found the statute did not invade the jury's fact-finding role and that other state rulings that struck down caps on damages did not apply to Mississippi.
Scorecard: The $4 million in damages awarded to Lisa Learmonth, of which $2.2 million was noneconomic, was reduced by $1.2 million in light of the state's $1 million cap on damages for pain and suffering.
If the cap on damages had been lifted, some state officials and other experts feared a revival of the state's reputation as a destination for lawsuits.
--Compiled by ANNE FREEDMAN. Please feel free to send tips about legal decisions that impact the insurance industry to email@example.com.
May 1, 2013
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