Archive for August, 2014

District Courts Reviewing ERISA Cases Under the Arbitrary and Capricious Review Standard Serve Only in an Appellate Role

Wednesday, August 27th, 2014

In McCorkle v. Metro. Life Ins. Co., 13-30745, 2014 WL 2983360 (5th Cir. 2014), the Fifth Circuit reversed the district court’s holding that MetLife’s adverse determination regarding the plaintiff’s claim for benefits due to the death of her husband (the “decedent”) under his employer’s Accidental Death and Dismemberment Plan (the “Plan”) was arbitrary and capricious. MetLife funded benefits and administered claims under the Plan pursuant to a full grant of discretionary authority. In her motion for summary judgment, the plaintiff challenged MetLife’s finding that the decedent’s death was both not “accidental” and subject to the Plan’s exclusions for self-inflicted injuries and suicide. The district court granted plaintiff summary judgment finding that her explanation of the decedent’s death was “more reasonable” than MetLife’s final determination that his death was the result of suicide.

The Fifth Circuit criticized the district court’s application of the arbitrary and capricious review standard, holding that in reviewing denied claims for benefits under this deferential standard, district courts:

are not sitting, as they usually are, as courts of first impression. Rather, they are serving in an appellate role.  And, their latitude in that capacity is very narrowly restricted by ERISA and its regulations, as interpreted by the courts of appeals and the Supreme Court, including the oft-repeated admonition to affirm the determination of the plan administrator unless it is “arbitrary” or is not supported by at least “substantial evidence”—even if that determination is not supported by a preponderance.

The Fifth Circuit also held that MetLife was only required to base its determination on substantial evidence, which means “more than a scintilla, less than preponderance, and such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Based on its review of the plaintiff’s claim under the appropriate standard of review, the Fifth Circuit reversed the district court’s decision finding that MetLife’s determination was, in fact, based on substantial evidence. In addition, the Fifth Circuit held that the district court erred in holding that plaintiff’s explanation of the decedent’s death  was “more reasonable” because this type of analysis improperly “constitutes finding the “‘preponderance,’ which has no place in this ERISA review.” Lastly, the Fifth Circuit held that the district court erred in disregarding MetLife’s deference by improperly substituting its own narrow interpretation of the term “suicide” for MetLife’s reasonable interpretation of that term.

 

You May Have Stolen the Advertising Database, But You Still Have No Advertising Idea

Thursday, August 21st, 2014

In Liberty Corporate Capital Ltd. v. Security Safe Outlet, 2014 WL 3973726 (6th Cir. August 15, 2014), the Sixth Circuit Court of Appeals held that where a stolen customer database is used as the basis of an advertising campaign, a claim arising from the misappropriation of that database does not constitute an advertising injury.

The case arose from an action brought by BudsGunShop.com, LLC (“BGS”) against a competitor, Security Safe Outlet, Inc. (“SSO”), and its former employee Matthew Denninghoff. While still a BGS employee, Denninghoff conspired with his sister, who was SSO’s Vice President, to open an internet firearms sales operation for SSO, in competition with BGS.  When Denninghoff left BGS, he secretly took a number of backup copies of BGS’s customer database with him. These were used by SSO to send mass promotional emails to BGS’s Kentucky customers. Although BGS directed SSO to desist in its use of the customer information, SSO refused to do so. BGS then sued SSO.

SSO sought a defense from its insurer, Liberty Corporate Capital Limited (“Liberty”), under a series of commercial general liability policies. SSO argued that coverage for BGS’s misappropriation of trade secrets claim fell within the policies’ adverting injury coverage, because the mass promotional emails were “advertisements,” and BGS’s claim constituted an allegation that SSO improperly used BGS’s “advertising idea” in its advertisements.  Liberty denied coverage arguing that, although the emails may have been “advertisements,” BGS’s misappropriation claim was not covered because BGS did not allege that SSO or Denninghoff used any of its “advertising ideas” in the emails, and the customer database itself was not an “advertising idea.”

The Sixth Circuit agreed with Liberty.  BGS’s allegations regarding misappropriation and use of the customer database did not involve the use of an “advertising idea,”  which was “reasonably understood to encompass a company’s plan, scheme, or design for calling its products or services to the attention of the public.”   BGS had not alleged that SSO used any of its advertising plans, schemes, or designs in the emails, only that customer information was used as a basis for the advertising campaign.

The Sixth Circuit affirmed the district’s court’s holding that Liberty had no duty to defend or indemnify SSO.

Insured Not Justified in Ignoring Claims-Made-and-Reporting Requirements

Friday, August 8th, 2014

By Beth Yoffie, Sedgwick Los Angeles

An insured’s attempt to circumvent the claims-made-and-reporting requirements of its professional liabilty policy, by arguing that the doctrine of promissory estoppel applied, was thwarted when a court ordered summary judgment in favor of the insurer on grounds that there was no clear and unambiguous promise by the insurer, and no justifiable reliance by the insured.  Hamman-Miller-Beauchamp-Deeble, Inc. v. Liberty Mutual Agency Corp., United States District Court, C.D. California, No. CV 13-07129-RGK (VBKx) (July 7, 2014).

Plaintiff Hamman-Miller-Beauchamp-Deeble, Inc. (HMBD), an insurance broker, received two letters in 2010 from an attorney claiming that his client had sustained damages as a result of HMBD’s negligence.  The attorney asserted that HMBD improperly advised the client that a health insurance policy it sold her would cover treatment from a non-contracted provider.  HMBD waited until it was served with a lawsuit two years later to provide notice of the claim to its Insurance Professionals Errors and Omissions Liability insurer.  General Insurance Company of America (General) denied coverage on the basis that (1) HMBD was aware of the accusation of negligent services prior to the inception of the policy; and (2) the claim was not both made against and reported by HMBD while the policy was in effect. HMBD sued General for breach of contract, bad faith and promissory estoppel.

In opposing General’s summary judgment motion, HMBD argued that the demand letters did not constitute a “Claim” triggering its duty to report.  The Court disagreed. First, the letter informed HMBD that it was “legally responsible for … damages” and thus contained a demand for damages. It also informed HMBD that the damages were the result of “negligence” and, therefore, alleged a wrongful act arising out of HMBD’s services.  The Court further found that, even if the letters were not “Claims,” the Policy would not provide coverage because HMBD knew of the wrongful act giving rise to the lawsuit and/or had a basis to reasonably anticipate that the lawsuit would be filed before the policy incepted. 

In its promissory estoppel claim, HMBD asserted that, in handling a different HMBD claim in 2008,  General’s claim representative told HMBD’s president that “he probably didn’t have to put General on notice of the Temple matter unless and until a lawsuit was filed.”   The Court found the alleged statement did not constitute a clear and unambiguous promise supporting promissory estoppel.  It also found that HMBD’s reliance on the alleged statement was unjustified as a matter of law when the parties entered a new insurance contract with contrary terms.

Sedgwick Attorneys
Sedgwick’s insurance attorneys regularly present to clients and other industry professionals on a wide range of topics. For a complete list of our attorneys, click here.
Our Firm
The most complex and high-stakes legal challenges facing the insurance industry demand the highest level of expertise and commitment, delivered by a coordinated team across all areas of insurance law. We deliver a personal, partner-led service to achieve the resolution of international and domestic liability and insurance business issues that are sensitive to the relationship between insurers, insureds and brokers, read more.

Search
Subscribe
Subscribe via RSS Feed
Receive email updates: