Breach of Contract & Intentional Act Not Insured
Barry Zalma
Apr 19, 2023
Read the full article at https://lnkd.in/gw_uSvzf and see the full video at https://lnkd.in/gX6T6wGq and at https://lnkd.in/gEGNmZ-z and at https://zalma.com/blog plus more than 4500 posts.
Carl Hemphill asked the Third Circuit to find that his liability insurer, Landmark American Insurance Co., is obligated to defend him in a lawsuit by a former employee. That employee brought a panoply of claims against Hemphill in his original complaint. None is covered by Hemphill’s policy with Landmark. In Carl Hemphill; MJC Labor Solutions, LLC v. Landmark American Insurance Company, No. 20-2544, United States Court of Appeals, Third Circuit (April 5, 2023) applied the four corners rule to resolve the dispute.
FACTS
Carl Hemphill and MJC Labor (together, Hemphill) provide temporary employee placement and visa application processing services to workers from Mexico and Central America. Hemphill is insured by a miscellaneous professional liability (MPL) policy with Landmark, covering claims “arising out of [] negligent act[s], error[s] or omission[s]” “in the rendering or failure to render . . . permanent and/or temporary placement services[.]”
Former MJC client Jose Castillo sued Hemphill (the Castillo Lawsuit), alleging violations of federal human trafficking, wage-and-hour, and unfair trade practices laws, as well as claims for breach of contract and unjust enrichment. When Castillo eventually arrived in the U.S., Hemphill and his wife confiscated his passport; housed him in conditions he described as “filthy,” overcrowded, and vermin-infested; assigned him tasks outside the scope of his employment contract; and considerably underpaid him.
The parties have since settled the Castillo Lawsuit, but the reimbursement of legal defense costs, incurred in the underlying suit, remain in dispute.
ANALYSIS
Landmark declined to defend Hemphill on the grounds that Castillo’s allegations arose from Hemphill’s intentional actions, occurring after Castillo had been placed as an employee, rather than from negligent actions in providing placement services.
If the underlying complaint avers facts that might support recovery under the policy, coverage is triggered, and the insurer has a duty to defend.
Under Pennsylvania law, the question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint. Courts applying Pennsylvania law must not stray from the operative complaint in determining duty-to-defend issues, even when later proceedings reveal the existence of a covered claim.
The District Court Conclusion
The District Court found that:
1 Hemphill could not expect Landmark to cover him for any claim not listed in the Landmark policy, and
2 Castillo’s complaint does not allege a covered claim.
Insured’s Reasonable Expectations
An insured’s reasonable expectations may occasionally prevail over the express terms of a contract, but only in very limited circumstances to protect non-commercial insureds from policy terms not readily apparent and from insurer deception.
Hemphill did not argue that the Landmark policy language is facially unclear or that Landmark engaged in deceptive tactics. Instead, he claims that the mere fact that Landmark defended a different lawsuit created a reasonable expectation that it would defend the Castillo Lawsuit. Landmark subjected its defense of the earlier Lawsuit to a complete reservation of rights.
The Duty to Defend
An insurer’s duty to defend is determined solely from the language of the complaint against the insured. It is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the insurer’s duty to defend.
Castillo’s unfair trade practices claim alleged that Hemphill “deceiv[ed]” Castillo “about rental housing in which he would be living.” But Castillo does not allege that Hemphill or MJC ever represented to him that his housing conditions would be sanitary or not crowded, or that he would not have accepted Hemphill’s employment offer had he known that the housing conditions were subpar.
As for Castillo’s start date, his allegations amount to nothing more than a breach-of-contract claim: he alleges that his contracted-for start date was delayed and that he lost money and employment opportunities as a result. Landmark expressly carved out breach-of-contract claims in its policy with Hemphill. It has no duty to defend this one, or any other claim in Castillo’s suit.
ZALMA OPINION
The four corners rule allowed the insurer to refuse to defend or indemnify its insured because Castillo’s suit was basically for breach of contract and did not meet any of the requirements of the policy which limited its coverages and did not promise to defend a claim of breach of contract.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.
Consider subscribing to my publications at substack at https://barryzalma.substack.com/publish/post/107007808
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
Follow me on LinkedIn: www.linkedin.com/comm/mynetwork/discovery-see-all?usecase=PEOPLE_FOLLOWS&followMember=barry-zalma-esq-cfe-a6b5257
Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; https://creators.newsbreak.com/home/content/post; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library.
Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://lnkd.in/gfFKUaTf.
Consider subscribing to my publications at substack at https://lnkd.in/gcZKhG6g
Barry Zalma, Esq., CFE is available at http://www.zalma.com and [email protected]
Go to the Insurance Claims Library – https://lnkd.in/gWVSBde.
Insurance Expert May Not Testify to Speculative and Contains Unsupported Conclusions.
Posted on September 18, 2026 by Barry Zalma
See the full video at and at https://rumble.com/v7fmifw-expert-may-only-testify-to-what-experience-supports.html
In Michele A. Over, and The Estate Of Paul R. Over v. State Farm Mutual Automobile Insurance Company, and State Farm Fire And Casualty Company, Civil Action No. 23-cv-02243-PAB-STV, United States District Court, D. Colorado (September 14, 2026) Michele and Paul Over sued State Farm Fire and State Farm Auto over hail-damage and stolen-vehicle claims.
The operative dispute concerned State Farm Auto’s motion to exclude or limit opinions from plaintiffs’ insurance-industry expert, Aaron Castillo. Castillo.
Law
The proponent of expert testimony must establish by a preponderance of the evidence that an expert is qualified and that the opinions are helpful, sufficiently grounded, and reliably derived and applied. Experience-based opinions must explain how the...
150 Months in Prison for Tax Fraud
Post 4846
Posted on September 17, 2026 by Barry Zalma
See the full video at https://lnkd.in/g8rh3JBX and https://lnkd.in/gmkdy-9C, In United States Of America v. Thomas Addaquay, Nos. 25-10609, 25-10611, United States Court of Appeals, Eleventh Circuit (September 9, 2026) the Eleventh Circuit affirmed all challenged convictions, the 150-month aggregate sentence, and the challenged $4,123,474.55 restitution award.
FACTS
In United States Of America v. Thomas Addaquay, United States Of America v. Thomas Addaquay, Nos. 25-10609, 25-10611, United States Court of Appeals, Eleventh Circuit (September 9, 2026) the Eleventh Circuit affirmed all challenged convictions, the 150-month aggregate sentence, and the challenged $4,123,474.55 restitution award.
FACTS
Thomas Addaquay controlled United Consolidated Accounting and Business Services (UC), nominally a check-cashing business.
The government proved a three-stage tax-refund scheme that converted the resulting refund checks into usable funds through ...
Major Fraud Perpetrator Asserts Fifth Amendment Privilege to Avoid Prosecution
Post 5489
Posted on September 14, 2026 by Barry Zalma
Fraudster Refuses to Answer Questions About His Alleged Fraud
See the full video at https://lnkd.in/gvicAMDr and at https://lnkd.in/gvicAMDr
In Great American Insurance Co. v. Gemstone Property Management, LLC, et al., No. 23-cv-9100 (LJL), United States District Court, S.D. New York (September 8, 2026) Great American Insurance Company alleged that it was defrauded through a scheme in which Subin Associates, LLP recruited individuals to stage construction-site injuries, arranged unnecessary medical treatment and litigation funding, and pursued fraudulent personal-injury claims.
Luis Manuel Garcia Salcedo, resulted in a $6 million settlement. Non-party Jose Hernandez allegedly worked as an assistant manager at Subin, operated Hernandez Associates, and owned litigation-funding companies that shared office space with Subin and provided services to its clients.
After Great American ...
Plaintiff’s Reading of the Policy is Plaintiff’s Reasonable Allegations
Posted on October 19, 2026 by Barry Zalma
Post 4868
CLASS ACTION THAT STATES A SIMPLE CLEAR AND PLAUSIBLE CAUSE OF ACTION SURVIVES
In Sheila Marino v. Farmers New World Life Insurance Company, No. 2:25-cv-02200-JNW, United States District Court, W.D. Washington, Seattle (October 13, 2026) defendant Farmers New World Life Insurance Company’s (“FNWL”) moved to dismiss Plaintiff Sheila Marino’s putative class action involving flexible universal life insurance.
Marino filed a putative class action in King County Superior Court alleging: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) violation of the Washington Consumer Protection Act (CPA).
She pleaded two theories: an “overcharge” theory and an “underpayment of interest” theory asked the Court to take judicial notice of historical Federal Funds Effective Rates.
THE LAW
Pleading Standard.
To survive a Rule 12(b)(6) motion, a ...
Alleged Defamatory Statements Must be Of and Concerning Plaintiffs
Posted on October 16, 2026 by Barry Zalma
To Prove Defamation the Statement Must be Of and Concerning the Plaintiffs
Post 4867
In Michael Moloney and Sergio Cantu v. United Services Automobile Association, No. 04-25-00519-CV, Court of Appeals of Texas, Fourth District, San Antonio (October 14, 2026) Michael Moloney and Sergio Cantu appealed from the trial court’s granting of a traditional motion for summary judgment in favor of United Services Automobile Association (“USAA”) on their defamation claim.
BACKGROUND
Moloney and Cantu sued USAA for defamation, alleging that they are the principals of Informed Roofing & Restoration, LLC (“Informed Roofing”), which is primarily engaged in the residential roofing repair and replacement business, and that an employee or agent of USAA had made false and defamatory statements to the San Antonio Police Department (“SAPD”) concerning them.
Specifically, Moloney and Cantu alleged that an employee of ...
ZIFL – Volume 30, Issue 20 Subscribe to ZIFL here https://lnkd.in/gfpn78FM
Posted on October 15, 2026 by Barry Zalma
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud.
ZIFL is published 24 times a year is written by Barry Zalma.
It is provided FREE to anyone who visits the site at https://lnkd.in/gVT5G9s
Six Insane Fraud Schemes the Trump Administration Has Uncovered Stealing from the taxpayer has now become a multi-billion-dollar industry in America. Obamacare has been a magnet for scammers.
Florida Insurance Agent Pleads Guilty in $300,000 Premium Finance Scheme
Daniel Raney, 41, who managed Raney Insurance and Raney Ventures in Pensacola, was arrested after AFCO Direct.
RIFE WITH FRAUD ALLOWS DEMANDS TO ESTABLISH RESTITUTION
Six Insane Fraud Schemes the Trump Administration Has Uncovered
Stealing from the taxpayer has now become a multi-billion-dollar industry in America – and the ...