NORTH CAROLINA
Umpire Not Immune from Insurer’s Suit for Undisclosed Conflicts
A toilet supply line leak damaged Rike’s home. She submitted a claim to her property insurer and demanded an appraisal. Rike and the insurer selected their appraisers, who picked Robinson as an umpire. Robinson recused himself because he is Rike’s appraiser in a different insurance claim. Rike proposed that O’Leary serve as umpire. Rike and O’Leary never disclosed that O’Leary was “actively serving as a paid consultant to Rike” on a different insurance claim. Rike’s initial damages estimate was $236k, but umpire O’Leary awarded four times as much to Rike—over $1 Million.
The insurer sued the umpire for deceptive trade practices and tortious interference. O’Leary moved for judgment on the pleadings, arguing civil immunity under the North Carolina Uniform Arbitration Act. The trial court denied his motion. The Fourth Circuit affirmed, ruling that “umpires do not enjoy the same immunity as arbitrators.” As such, the insurer’s claims will proceed against the conflicted umpire. Decision.
WASHINGTON
Washington State Considering More Stringent Claim Handling Standards
The Washington State Office of the Insurance Commissioner has circulated proposed amendments to the state’s claims handling standards. If adopted:
- Insurers can be liable for unfair claim practices on individual claims. Currently, an insurer’s conduct must indicate a general business practice;
- Insurers must, within 15 days, provide all claim file materials to first-party claimants upon request, unless privileged;
- Insurers must acknowledge receipt of a claim notice within 10 business days (currently 15);
- An insurer’s time to respond to regulatory complaints will be reduced from 15 business days to 10 business days;
- Notice by a third-party claimant constitutes notice to the insurer — regardless of whether the insured makes a claim;
- Rejection of an insured’s emergency mitigation invoice can constitute an unfair claims practice; and
- Where an insurer disagrees with the insured’s scope of non-emergency mitigation, the insurer must state the reasons it rejects the scope and the undisputed scope of repair within three business days.
The comment period recently closed. We will continue to monitor these proposed regulatory changes. Proposed Regulatory Changes.
ILLINOIS
Insurer Allowed to Use Extrinsic Evidence to Deny Defense
The project owner hired a construction manager (the insured) to oversee a project and pay subcontractors. A hacker gained access to the insured’s email and added a mechanism to divert legitimate messages from the project owner, ensuring the insured would not see them. The hacker spoofed an email that claimed the payment process was changing. The insured verified the change by email and received immediate confirmation. While the emails appeared to come from the project manager’s email, they had been spoofed. The hacker directed the insured to wire $673,000 into a fraudulent bank account. The project owner (claimant) demanded reimbursement of the stolen funds.
The insured reported the theft to his errors and omissions insurer, explicitly stating in the loss notice that his email had been hacked. The insurer denied coverage based on a cyber event exclusion (cyber exclusion) and filed a declaratory judgment action. Months later, the claimant filed the underlying lawsuit, deliberately avoiding alleging email hacking or wire fraud to bypass the cyber exclusion.
On appeal, the Illinois court upheld the insurer’s denial, ruling that the insurer properly considered the insured’s loss notice (extrinsic evidence) to determine whether to provide a defense. The court noted that the claimant tailored its pleadings to avoid the cyber exclusion and emphasized that courts are not required to ignore such pleading tactics. Decision.
MINNESOTA
Innocent Co-Insured Doctrine Does Not Apply to Corporate Entities
A couple bought and operated a bar as a corporation. After their divorce, the man ran the bar, and his ex-wife remained involved in daily operations. The man intentionally burned down the bar and filed a proof of loss (POL) seeking $1.96 million and claiming he did not cause the fire. His ex-wife also signed the POL. Law enforcement determined that the man had committed arson, and he pleaded guilty to arson.
The property insurer denied coverage due to fraud and the intentional acts exclusion. The ex-wife sued, claiming she is entitled to coverage as an innocent co-insured. The insurer argued she was not named on the policy and that her ex-husband’s acts were corporate acts. The trial court granted summary judgment to the insurer. The Fifth Circuit affirmed, ruling that the law did not support “extending the innocent-insured doctrine” to corporate entities because doing so “would insulate businesses from the misconduct of those authorized to act on their behalf.” Decision.
