Our 2011 Legal Year in Review
accident when a third party “may be li- able” for those expenses and the benefi-
ciary obtains a settlement. The insurance
contract also stated that any “so-called
‘make-whole’ or ‘full compensation’ rule
or doctrine is hereby explicitly rejected
Upon review, a Wisconsin Supreme
Court concluded that in matters where
the made-whole doctrine is expressly dis-
claimed in a policy, an insurer is entitled to
fully recover disbursed funds under a sub-
rogation claim. This occurs against those
funds recovered by the insured and applies
even when the remaining recovered funds
do not ultimately make the injured party
“whole” through the settlement.
For your interest, Claims compiled a reading list of sorts, after consulting some very knowledgeable lawyers and firms covering commercial litiga- tion, subrogation, bad-faith, and other areas of interest to the P&C indus- try. This sampling includes analysis of important legal developments in
2011, with implications for the new year. Be sure to read “EDRs and the Claims Adjuster,” which begins on page 26, along with Barry Zalma’s meditation on bad-faith tort
decisions in the cover story to learn more about statutes and trends. You can also find
in-depth analysis about precedent-setting cases, as well as the online litigation companion to this month’s issue on PropertyCasualty360.com.
Case: Texas Mutual Ins. Co. v. Ruttiger
Topic: Bad Faith
Texas Mutual disputed Ruttiger’s claim for an on-the-job injury because his employer
said that he was hurt at a non-work related event. They came to a compromise. Later, a
trial court found that the adjuster acted in “bad faith,” siding with the employer instead
of Ruttiger. He was awarded money in excess of the amounts Texas Mutual had already
The First Court of Appeals in Houston agreed, so Texas Mutual appealed to the Supreme Court, which decided that workers’ compensation insurers are not subject to
“bad faith” claims for unfair claims settlement practice under the Texas Insurance Code.
The ground-breaking decision overturned 20 years of established law which allowed
claimants’ attorneys to file bad faith claims at the drop of a hat–including when the carrier became aggressive in protecting its statutory subrogation rights and/or didn’t reduce
or eliminate a workers’ compensation subrogation lien when demanded.
Case: Steffens v. BlueCross and BlueShield of Illinois
Topic: Made-Whole Doctrine
The case involved an Employee Retirement Income Security Act benefits plan that
included a “reimbursement, subrogation and/or right of reduction” clause. According
to the clause, BlueCross was entitled to reimbursement for expenses arising out of an
Case: Dickie Brennan & Company Inc. v.
Lexington Insurance Co.
Topic: Business Interruption
Lexington Insurance Co. denied coverage for the Brennan’s losses during the
mandatory evacuation of New Orleans
due to Hurricane Gustav in 2008. New
Orleans suffered only minimal damage,
however, and none the Brennan’s three
restaurant properties nor their neighbors’
properties sustained damages.
Brennan’s business interruption (BI)
policy covered losses of business income
related to “action of civil authority that
prohibits access to the described premis-
es due to direct physical loss of or damage
to property, other than at the described
premises, caused by or resulting from any
Covered Cause of Loss.”
Brennan argued that the damage from
Hurricane Gustav in the Caribbean quali-
fied as “damage to property, other than at
the described premises,” and should trig-
ger coverage. Lexington denied the claim,
saying there had to be an actual link be-
tween the prior damage and the evacua-
tion order, and that the damage must have
occurred closer to the insured property.
The U.S. Court of Appeals for the Fifth
Circuit agreed, stating that Brennan:
“failed to demonstrate a nexus between
any prior property damage and the evacuation order.” Further, the evacuation
order did not mention the Caribbean
property damage, but was based on potential dangers due to the approaching
Sources: Texas Mutual, www.mwl-law.
com, wislawjournal.com, www.mblb.com