Since writing about an insurer who tried to “do right” by his policyholders and was allegedly “done wrong” by his professional liability insurer is a Who’s on First assignment, we begin this story of “no good deed goes unpunished” with an introduction of the cast of characters St Helena v Ungarino & Eckert and Swiss Re:
St. Helena Corporation: “Successor in Interest to Powell Insurance Agency, Inc. (“Powell”)”
Powell: “a Louisiana corporation licensed to do business in Louisiana…
During all times relevant herein, Powell was a licensed insurance agent in Louisiana. When Hurricane Katrina struck Louisiana, it had served its clients in the New Orleans metropolitan area and southern Louisiana for over forty years.
Powell is the primary insured under claims made professional insurance policies provided by Defendants Westport Insurance Corporation and Swiss Reinsurance Company Ltd.
Ungarino & Eckert: “a Louisiana limited liability company with offices located…in Jefferson Parish” (Louisiana)
Westport Insurance Corporation: a Missouri corporation…[and]…wholly-owned subsidiary of Swiss Reinsurance Company.
Swiss Re: ‘a Swiss corporation with main offices in Zurich, Switzerland” and the parent of Westport Insurance Corporation “hereinafter referred to collectively as ‘Swiss Re’ “
Jack Alltmont: “an experienced attorney” retained by Powell “who had previously represented Powell in similar insurance agent disputes”
Prior to Hurricane Katrina, Powell regularly sent a written letter to customers who did not have flood insurance. The letter advised those customers that they did not have flood insurance, and that their hurricane policy would not cover flood insurance. The letter recommended to the customers that they should consider obtaining flood insurance in order to recover if any flood damage were to be inflicted on their house.
In a letter to Powell dated January 24, 2007, Attorney Matthew J. Ungarino of Ungarino & Eckert described Powell’s notice letter as a “model that we have recommended to our insurance agent clients.” In addition, Mr. Ungarino noted that Powell was “the only agent we represent that had mentioned ‘excess flood’ [insurance] being available to their clients.”
In other words, the Complaint represents Powell as a model agency. Customers were informed about the limits of their coverage and encouraged to consider flood insurance on their property. Given all the undocumented “he said – she said” Complaints I’ve read in Katrina litigation with the local agent as a named defendant, Powell’s letters should have been a cause for celebration. However:
Despite Powell’s efforts, the company was nonetheless joined as a defendant in numerous lawsuits filed on behalf of his customers after Hurricane Katrina. The first of these lawsuits was filed on August 24, 2006. Most of these lawsuits were primarily filed against the customers’ insurance company, but Powell was joined as a defendant in the suits.
Many of the suits against Powell asserted that Powell had failed to properly advise the client regarding the availability of insurance coverage that would have covered them for the damages they sustained as a result of Hurricane Katrina and/or failed to procure the appropriate insurance for the client. Many of the suits also involved related insureds/clients.
In response to the initial lawsuits, Powell retained Jack Alltmont, an experienced attorney who had previously represented Powell in similar insurance agent disputes.
There are 27 federal court cases listed for Powell Insurance Agency on the PACER system. Only four of those cases were filed in during the 11-year period prior to Hurricane Katrina and the remaining 23 after the storm. I pulled a few of the dockets and noted a diversity of insurers as co-defendants and also took note of the $350.00 filing fee charged by the federal court.
As one would expect of an agency that alerted its customers to needed insurance, Powell was prepared for the possibility of litigation:
During all times relevant herein, Powell was covered by professional liability insurance policies provided by Swiss Re…
The policies obligate Swiss Re to “pay on behalf of the insured ‘loss’ for which the insured is legally liable caused by a ‘wrongful act’ committed by an insured arising out of ‘professional services’ rendered to others.” The policies further obligate Swiss Re to defend Powell arising from “claims” first made based upon alleged “wrongful acts” of the insured. The policies permit Swiss Re to select the attorney to represent Powell. However, the policies prohibit any claim from being settled without Powell’s consent.
The right to select counsel is not absolute. Moreover, in light of the contractual obligations owed to Powell by Swiss Re, and having availed itself of its right to select counsel, Swiss-Re assumed responsibility for the wrongful conduct of its selection.
The policies obligate Powell to pay a deductible of $50,000 for each “claim.” The policy form defmes the deductible to include “loss” but not “claim expenses.” However, an endorsement attached to each policy redefines the deductible as including both “loss” and “claim expenses” in defense of claims first made against any insured.
The policies state that “[t]wo or more ‘claims’ arising out of a single ‘wrongful act,’ as defined in each of the attached ‘coverage units,’ or a series of related or continuing ‘wrongful acts,’ shall be a single ‘claim.'” The policies define a “wrongful act” as “any negligent act, error, omission, or ‘personal injury’ of an insured or any person for whose acts the insured is legally liable in rendering services for others.”
Reading this description of coverage, one could expect Powell’s cost to be $50,000 regardless of the number of policyholders filing suit to recover Katrina-related damages and his “experienced attorney” and insurer would take care of the cases. No doubt Powell had similar expectations. After all, insurance was his profession and he’d practiced what he preached and made certain he was protected just as he tried to protect the property of his customers with his letter.
“No good deed goes unpunished”, however, particularly in Jefferson Parish.
Powell also notified Swiss Re of the suits. Instead of maintaining Alltmont’s continuing representation of Powell, Swiss Re retained Ungarino & Eckert to represent Powell. Powell objected to this action, but Swiss Re persisted in its decision to retain Ungarino & Eckert. Powell fully cooperated with Ungarino & Eckert immediately and throughout its representation of Powell.
Swiss Re’s objection to allowing Alltmont to represent Powell was arbitrary and capricious given Alltmont’s qualifications and the fact that Alltmont was retained by Swiss Re to represent other brokers insured by Swiss Re.
Swiss Re’s insistence on hiring Ungarino & Eckert was also wrongful because Swiss Re did not unconditionally accept coverage for the claims, but instead issued a reservation of rights in which it reserved the right to deny coverage.
Ungarino & Eckert’s representation of Powell lasted from October 30, 2006 to December 2007. During this period, Ungarino & Eckert unnecessarily billed large amounts of time on a total of thirty nine cases that involved similar or nearly identical factual and legal issues.
In addition, Ungarino & Eckert ignored the wishes and instructions of its client, Powell. For example, against Powell’s wishes, Ungarino & Eckert sought to remove numerous cases to federal court. Ungarino & Eckert did this despite the fact that the Eastern District of Louisiana repeatedly remanded such cases back to state court as improvidently removed. Ungarino & Eckert attempted to remove cases despite the fact that, in some instances, there was no consent from co-defendants to remove or jurisdiction was lacking.
Disputes over state versus federal jurisdiction are a familiar theme in Katrina litigation. Among the many discussed on SLABBED, two particular cases come to mind – O’Keefe versus State Farm and Watson versus Nationwide. O’Keefe introduced SLABBED readers to the additional cost of a case removed to federal court in the first post published on SLABBED about the case:
Since improperly removing this case to Federal Court, Defendants have noticed sixteen (16) Subpoenas Duce Tecum… improper discovery tactics that were never attempted in more than two years of litigation in State Court. Six (6) Notices of Issuance of Subpoena Duces Tecum, two of which are addressed to Plaintiffs’ expert witnesses, were filed on October 1, 2008; three (3) Notices of Issuance of Subpoena Duces Tecum were filed on October 6, 2008; and seven (7) Notices of Issuance of Subpoena Duces Tecum were filed on October 10, 2008. Plaintiffs filed [three (3)]…Motions to Quash…[twelve (12)] on October 9, 2008 and Motions to Quash… and [another] on October 14, 2008…
Plaintiffs submit that the urgent and necessitous relief requested herein is necessary to avoid undue expense and burden on the subpoenaed parties, and to prevent Plaintiffs from suffering irreparable prejudice.
The Watson plaintiffs are represented by former Mississippi Supreme Court Justice Chuck McRae who brought his considerable knowledge and reputation for plain speaking to the case – both evident in the Watson’s Motion to Remand reported in the related post published on SLABBED, On the Other Side – policyholders v Nationwide.
There is an abundance of case law in support of this motion to remand with a large amount of those cases involving Nationwide’s wrongful removal of Katrina state court cases for the purposes of delay to this Court. Nationwide will later take the position that pre-judgment interest should not be allowed, thus saving thousands of dollars. One of the latest remand cases is West v Nationwide, 543F Supp. 2nd 587 (Feb.22, 2009) in which this Court granted the remand on the very same issues presented in this case…
Some other examples where Nationwide has wrongfully removed cases to this Court are Tuepker v. Nationwide Fire and Casualty, Civ. Action No. 1:05-cv-559 (S.D. Miss., May 24, 2006); Dastugue v. Nationwide Fire and Cas. Co. and Felecia Craft-Robinson, Civ. Action No. 1:05-cv-687(S.D.Miss. July 26, 2006); Gurrisi v. Nationwide Fire & Cas. Co. 440 F.Supp.2d 534, 536 (S.D.Miss.,2006); and Mangano v. Nationwide Fire & Cas. Co., Civ. Action No. 1:06-cv-724 (S.D.Miss. Nov. 30, 2006).
To this end, it is clear that the Defendants have removed this action for the sole purpose of delay. The Defendants are well aware of the rule of law on removal, but more specifically the rule of law as it applies to them under these exact circumstances…
Judge Senter granted the Watson’s Motion and remanded the case to the Circuit Court of Jackson County, stating in his Order :
Because the plaintiffs’ claim against the in-state defendants involves the failure to procure flood insurance, rather than the handling of a claim under a Standard Flood Insurance Policy, there is no federal question jurisdiction under the National Flood Insurance Act. Campo v. Allstate Ins. Co., 562 F.3d 751 (5th Cir.2009).
While Judge Senter declined to impose sanctions, St. Helena alleges “Ungarino & Eckert has been sanctioned for its conduct in removing cases to federal court” and devotes 1.5 pages of the 12-page Complaint to a listing of those cases with related comment and cost noted. The Complaint also alleges:
In addition, the overall strategy pursued by Ungarino & Eckert was ill advised and contrary to the express wishes and directions of its client, Powell.
As noted above, the Swiss Re policies contained deductible provisions. Those provisions call for the payment of a single deductible where there are “[t]wo or more ‘claims’ arising out ofa single ‘wrongful act,’ as defmed in each of the attached ‘coverage units,’ or a series of related or continuing ‘wrongful acts’.” Swiss Re made no attempt to determine whether the varioussuits against Powell constituted “(two or more ‘claims’ arising out of a single ‘wrongful act,’ as defined in each of the attached ‘coverage units,’ or a series of related or continuing ‘wrongful acts’.” Instead, Swiss Re instructed Ungarino & Eckert to bill Powell for all legal fees and expenses up to $50,000 per suit without regard to whether the suits arose out of a single wrongful act, or a series of related or continuing wrongful acts.
Powell became concerned early with the overbilling and unnecessary tactics by Ungarino & Eckert. Powell repeatedly voiced these concerns to Swiss Re.
For example, in a letter dated April 26, 2007, Powell informed Ungarino & Eckert that it believed its bills to be too high. In fact, Powell had already been charged over $130,000 in legal fees in the just the first six months Ungarino & Eckert represented Powell. The letter further informed Ungarino & Eckert that Powell had hired a litigation manager in order to manage and minimize those escalating fees. Powell specifically informed Ungarino & Eckert that its strategy of removing cases to federal court was having unsatisfactory results and was hlghly costly.
Powell further identified other concerns it had with Ungarino & Eckert’s handling of the cases. The letter requested that Powell, as the client, be consulted regarding further litigation strategy decisions.
Powell also informed Ungarino & Eckert in the April 2007 letter that it did not need Attorney Suit Reports (“ASR”). ASRs are reports that Swiss Re required from attorneys representing insureds. These reports were required by Swiss Re every 90 days. While these reports were sent to Swiss Re, Powell was charged for the preparation of the ASRs. These ASRs were of little to no value to Powell in its pursuit of litigation. Accordingly, Powell requested that they be ceased, or alternatively that Powell no longer be charged for their preparation.
Despite being notified that it was overbilling, Ungarino & Eckert disregarded Powell’s wishes. On occasion, Ungarino & Eckert would even bill the same legal service to multiple fies, resulting in duplicative billing. The law firm billed in excess 0f $300,000 in legal fees.
After repeated complaints from Powell, Swiss Re eventually allowed Powell to retain Jack Alltmont to take over the cases again. In all, Alltmont charged less than half the total charges by Ungarino & Eckert. This contrast is made even starker considering that AIltmont’s billable rate ($295/hour) was nearly twice that of Ungarino & Eckert’s most expensive attorney ($160/hour).
In addition, Swiss Re wrongfully refused to compensate Powell for the costs incurred in hiring a litigation manager to oversee the claims, notwithstanding that this is a reasonable costcovered under the Policy. Swiss Re’s refusal to pay this cost, totaling $84,272, was arbitrary and capricious.
Swiss Re is jointly and severally liable for Ungarino & Eckert’s conduct Swiss Re has the duty to defend Powell under the Policies. It insisted on the appointment of Ungarino & Eckert to fulfill that duty, and is liable for the actions of its selection. Further, although it has the general right to select counsel, that right is not absolute, and Swiss Re lost that right by issuing a reservation of rights and/or abused that right by insisting that Ungarino & Eckert be appointed and ignoring Powell’s wishes and complaints.
I pulled one document from each of two dockets among the half-dozen or so I opened. In one case, Powell was presented by Alltmont and in the other by Ungarino & Eckert. Alltmont made quick work of Katz & Columbus v Powell and Travelers with a Motion to Dismiss Powell stating:
Removal is proper under 28 U.S.C. §1332 (a) if there is complete diversity between the parties. However, an action is removable is the defendant can show that a non-diverse party was improperly joined. Improper joindermay be established by showing either actual fraud in pleading jurisdictional facts, or the inability of the plaintiff to establish a cause of action against a non-diverse party. The joinder of Powell in this case is improper because Katz cannot establish a cause of action against Powell because its claims against Powell prescribed under Louisiana law.
Much to my amazement and contrary to both the 5th Circuit opinion cited by Judge Senter and Alltmont’s argument of Louisiana law, Ungarino & Eckert attempted to keep Berthelot and Marina Motel v James River Insurance Company, Powell Insurance Agencies [sic] and ABC Insurance in federal court:
The Petition alleges that Plaintiffs’ property was totally destroyed and that Plaintiffs suffered business interruption losses as a result of Hurricane Katrina. The Petition further alleges that Powell failed to advise Plaintiffs as to the availability or need to purchase excess flood insurance. On November 6, 2006, Powell filed a Notice of Removal with this Court. On November 7, 2006, Powell filed an amended Notice of Removal with this Court. Plaintiffs’ Motion to Remand followed.
Powell acknowledges the District Court case law contrary to its position on procurement of insurance as a state issue but respectfully submits that the cases preceding this case have not focused on the decisive basis for conferring federal question jurisdiction. This year, the Eastern District acknowledged that “the Fifth Circuit has not had the occasion to determine whether a state law tort claim for errors and omissions like Plaintiffs’ claims would be considered ‘handling’ and the Fifth Circuit has not determined whether state law claims for improper ‘procurement’ would be preempted by the National Flood Insurance Act (NFIA).”
The cases examining the issue have generally held that when an insurance agent fails to procure flood insurance, the federal government lacks a financial stake to confer federal question jurisdiction. However, as will be shown in this memorandum, whether the federal government has a financial stake should not be the dispositive issue and even if this Court finds that it is, the federal government has a huge financial stake in regulating the procurement of flood insurance policies.
The federal government enacted the National Flood Insurance Act (“NFIA”), 42 U.S.C. §§ 4001 et seq., in part, to ensure uniformity of flood protection. The government controls underwriting and procurement regulations and policies relative to flood insurance. It follows then that the case law governing procurement of flood insurance, which relies necessarily on the insurance agent learning, following, and executing those federal regulations, should be governed by a uniform body of federal law. The alleged failure of a “Write Your Own” (WYO) carrier to procure flood insurance in accordance with the federal guidelines should not be left to the individual decision of each trial court and ultimately each appellate court in each of the 50 states.
Moreover, federal question jurisdiction exists because as a WYO carrier, Powell is a fiscal agent of the federal government. Therefore, Powell respectfully requests this Court to consider the removal/remand issue under the framework presented herein and to find that the Court should retain this matter under 28 U.S.C. § 1331 federal question jurisdiction. (emphasis added)
My previously referenced amazement was based on my reading the first paragraph of the quoted text above. Now, I am simply stunned. Not as stunned, apparently, as co-defendant James River was to find the case in federal court:
On or about October 20, 2006, James River filed its Answer to Petition for Damages and Request for Written Notice in that same Louisiana district court. On or about November 30, 2006, James River attempted to file its First Supplemental and Amending Answer to Petition for Damages. However, on or about January 29, 2007, the Clerk of Court’s office for the 34th Judicial District Court informed counsel for James River that its supplemental answer could not be filed because the matter had been removed.
Judge Africk granted Plaintiffs Motion to Remand.
St. Helena v Swiss Re was filed in Louisiana state court. Somehow I don’t think it will be there long. One read of Berthelot should be enough for Swiss Re to whip out a check book and start writing.