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Some Claims Proper Some Not
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Post 4929
Vepo Design Corporation and its officers (collectively, “Vepo”) appealed the district court’s grant of summary judgment on their breach of contract and bad faith claims against American Economy Insurance Company (“AEIC”). Vepo’s claims relate to AEIC’s denial of coverage following a fire in a laundromat, known as the “Central Laundromat,” which Vepo was developing.
In Vepo Design Corporation, et al. v. American Economy Insurance Company, No. 23-55634, United States Court of Appeals, Ninth Circuit (November 4, 2024) the issues were resolved serially.
DECISIONS
Business Income
The Ninth Circuit reversed the district court’s grant of summary judgment in favor of AEIC on Vepo’s business income claim, which concerns income Vepo contends it would have earned operating the Central Laundromat if the fire had not occurred. AEIC argued that Vepo’s claim for lost income was too speculative given that the Central Laundromat was still under construction and Vepo had not secured additional financing to own and operate it.
Construing the facts in the light most favorable to Vepo as the non-moving party the Ninth Circuit concluded that there is sufficient evidence to create a genuine dispute of material fact and that Vepo’s claim for lost business income is not unduly speculative.
There is evidence that Vepo was contemplating an arrangement under which it would own and operate the Central Laundromat for a period of time before selling it, and that Vepo later engaged in similar arrangements for other laundromats. Vepo, which was experienced in the laundromat industry, also demonstrated that it had a history of securing financing for its laundromat projects and that it intended to refinance the Central Laundromat once a certificate of occupancy was received. Although Vepo had not secured refinancing for the Central Laundromat as of the time of the fire, Vepo’s Principal Owner stated in her declaration and confirmed at her deposition that it was too early to do so in the project timeline. That Vepo had yet to refinance does not render its claim too speculative as a matter of law and its losses are for a jury to decide.
Extra Expense
The Ninth Circuit affirmed the district court’s grant of summary judgment in favor of AEIC for the extra expenses that Vepo allegedly incurred in storing laundry equipment in a warehouse owned by Vepo’s sister company following the fire. While the policy only required the expense to be incurred, not paid, there was insufficient evidence to create a triable issue over whether the expense was incurred at all. No payment changed hands between the two entities, and there is no accounting record showing that Vepo was liable for the storage amount. When the same person signed as representative of both entities, does not create a genuine dispute of material fact.
Lost Profits
The Ninth Circuit concluded that the district court properly granted summary judgment on Vepo’s claim for lost profits on the prospective sale of the laundromat. Even assuming that such a loss would be covered under the policy, the claim fails because the policy limited coverage to losses that occur within one year of the incident. Vepo’s plan called for it to own and operate the Central Laundromat for at least one year after opening, which would place any hypothetical sale more than a year after the pre-opening fire.
Individual Personal Property Claims
The Ninth Circuit affirmed summary judgment for AEIC on the claims by the individual plaintiffs for their own personal property that was allegedly lost in the fire. As the district court correctly found, Vepo did not identify what individual property was lost or its worth. The individual plaintiffs’ claims were too unsupported to create a triable issue.
Bad Faith
The Ninth Circuit partially reversed the district court’s grant of summary judgment on Vepo’s bad faith claim, to the extent of the single insurance claim it allowed to go forward-the business income claim.
The district court may permit any further motions practice on the bad faith claim as it deems appropriate. However, it affirmed the district court’s grant of summary judgment on the bad faith claim insofar as that claim is premised on any of the other breach of contract claims to which AEIC is entitled to judgment as a matter of law.
There is never a claim for breach of the implied duty of good faith and fair dealing if there was no improper denial of coverage under the policy.
ZALMA OPINION
The importance of this case is the reiteration of the law that there can never be a viable tort of bad faith if there is no improper denial of a claim by breach of the insurance contract. If the one cause of action remaining was breached in bad faith and there was no genuine dispute over coverage, that cause can be brought for bad faith damages. The other decisions of the Ninth Circuit were obvious and well reasoned.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
