Nationwide Class Action Notice – 2nd Quarter 2014
Enclosed please find the Nationwide Class Action Notices from the Second Quarter of 2014. This is a bit off schedule due to summer vacation. The following four cases represent significant class action trends and developments in the insurance industry. Please click the links throughout to read the complete decision cited.
1. Romero v. Allstate Ins. Co., CIV.A. 01-3894, 2014 WL 796005 (E.D. Pa. Feb. 27, 2014), opinion clarified on denial of reconsideration (Apr. 7, 2014).
“Hobson’s Choice” Releases Converting Captive Agent Employees To Independent Contractors Present Factual Questions As To Whether Releases Were Signed Voluntarily And Knowingly Or Were Unconscionable
. This case involves releases signed in conjunction with Allstate’s November 1999 employee reorganization program to convert all captive agents who were employees to independent contractors. In doing so, Allstate offered employee agents four options: the first two offered conversion with various benefits and the latter two offered severance. Option 4, the only option not requiring employees to sign a release of all claims, provided up to thirteen weeks of pay, debt forgiveness (as taxable income), and additional non-compete and non-solicitation obligations. These four options replaced existing contractual severance benefits, which included up to one-year’s pay with pension and other benefits.
The parties filed cross motions for summary judgment on plaintiffs’ claim for declaratory judgment that the releases under Options 1-3 were invalid under ERISA, ADEA, and common law (90% of employee agents were over forty years old). The court first determined the broad releases covered all of plaintiffs’ claims. Next, though the releases did not precisely meet the requirements of the Older Workers Benefit Protection Act, the court found they were sufficient to meet the spirit of the OWBPA.
Factual issues remained as to whether the releases were signed voluntarily and knowingly: the releases were in a “take-it-or leave it” form and releases with modifications were rejected. Indeed, they presented a “Hobson’s choice,” as employees were advised that absent the releases, employees would face suit for selling insurance from the offices they had leased in their own names with their own funds, could not use their agency phone number for which they paid, and could not initiate contact with former customers for any
business purpose ever
. These were problematic options for employee agents, many of whom had invested life savings into their agencies, signed family and friends as customers, and would be forced into unemployment by the non-compete agreement. Though the releases were supported by consideration, the totality of the circumstances, including several misrepresentations Allstate made to employees, presented numerous factual issues more appropriate for a jury. Because a determination that procedural and substantive unconscionability would rely on these same issues, the court found this was also inappropriate for summary judgment.
On reconsideration, the court clarified that plaintiffs could still argue they were not employees at will. It also confirmed that Allstate’s state law defenses to the releases were preempted by the OWBPA. Accordingly, the releases had to be considered under the federal totality of the circumstances standard, rather than the lesser state standard requiring only an alternative legal remedy and ability to consult an attorney. A copy of the decision is available here
2. G.M. Sign, Inc. v. State Farm and Fire Cas. Co., 2014 IL App (2d) 130593, --- N.E.3d ---- (May 2, 2014).
Insurers Are Not Required To Defend/Indemnify A Multi-Claim Suit Where Allegations Are Identical To A Claim Excluded From Coverage.
This is the first Illinois Appellate decision to address Telephone Consumer Protection Act (TCPA) insurance exclusions and provides an example of language sufficient to defeat coverage on summary judgment. Further, it prevents plaintiffs from simply pleading in the alternative to skirt insurance exclusions.
Plaintiffs filed a class action against an insured alleging a violation of the TCPA, conversion, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. Because the initial complaint incorporated the same factual allegations into each claim, State Farm refused to defend the action based on its TCPA exclusion:
This insurance does not apply to: [injuries] arising directly or indirectly
out of any action or omission that violates or is alleged to violate:
a. The Telephone Consumer Protection Act (TCPA). . . or
c. Any statute, ordinance or regulation . . . that prohibits or limits the sending, transmitting, communicating or distribution of material or information (emphasis added).
The parties settled all claims for $4.9 million. Plaintiffs agreed to only execute the judgment against insurance proceeds and filed an amended complaint that specifically did not incorporate the TCPA claims into the conversion and Deceptive Practices Act claims.
In a separate declaratory judgment action, the trial court granted the insured summary judgment, finding State Farm had a duty to defend and indemnify the non-TCPA claims alleged in the second complaint. The appellate court reversed, finding reference to the differing elements of the claims was not appropriate. An insurer can refuse to defend where it is “clear from the face of the underlying complaint” that the plaintiff cannot “prove the insured liable without also proving facts that show that the loss” is not covered. The court interpreted the exclusion’s “arising out of” language as “but for” the conduct underlying the TCPA claim- sending faxes- the plaintiff would not have suffered injury. The decision is available here
for your review.
This decision contrasts Standard Mut. Ins. Co. v. Lay
, 2 N.E.3d 1253 (Ill. Ct. App. 4th
Jan. 23, 2014), a 4th
district opinion reported in Q1 2014
. In that case, the appellate court found that TCPA settlements could be covered by a commercial general liability policy where there was no specific TCPA exclusion. For more information about TCPA class actions, a copy of Ice Miller’s Memo “Recent Developments in TCPA Class Actions,” which was provided to Nationwide in summer 2013, is available here
3. Jacobsen v. Allstate Ins. Co., 2013 MT 244, 371 Mont. 393, 310 P.3d 452, reh'g denied (Oct. 8, 2013), cert. denied, 134 S. Ct. 2135 (May 5, 2014).
Supreme Court Declines Certiorari To Settle Whether State Class Actions Must Comply With Federal Due Process Requirements.
We previously reported this long running Montana class action in July 2013
and Q1 2014
. The U.S. Supreme Court denied certiorari without opinion, leaving as final the Montana Supreme Court’s ruling that a jury could determine punitive damages on a class-wide basis regarding Allstate’s purportedly malicious claim adjustment policies, followed by individual trials to determine the amount of such damages awardable to any particular class member.
This leaves insurers open to inconsistent class action rulings throughout the country under federal and state class action statutes. It also solidifies that, at least in Montana, insurers can presumably be held liable for class-wide punitive damages without the benefit of individual defenses or a showing of malice or ill will towards any particular insured.
4. Feingold v. John Hancock Life Ins. Co., 753 F.3d 55 (1st Cir. May 27, 2014).
Insurers Are Not Required To Search Death Records Before Receiving A Death Notice Or Escheating Property To The State.
We previously reported the District Court of Massachusetts’ decision in this case in September 2013
. This First Circuit decision affirms that state unclaimed property statutes and agreements between insurers and states do not provide beneficiaries with additional notice rights beyond insurance contracts.
Prior to this suit, John Hancock entered a Global Resolution Agreement (GRA) with several states, including Illinois, which altered the insurer’s procedure for handling unclaimed property, and in some cases required John Hancock to search the Death Master File (DMF) at the Social Security Administration. Feingold asserted that John Hancock failed to identify when insureds passed away through the DMF in an effort to retain premiums and death proceeds as long as possible. The trial court dismissed the complaint, finding lawful John Hancock’s practice of requiring beneficiaries to present a death notice prior to releasing funds.
The First Circuit affirmed the trial court’s decision, finding no contractual or statutory requirement that insurers search the DMF. Additionally, in finding that Feingold could not enforce the GRA against John Hancock as a third party beneficiary, the court noted that “government contracts often benefit the public, but individual members of the public are treated as incidental
beneficiaries unless a different intention is manifested.” (emphasis added, citations omitted). A copy of the First Circuit decision is available here
for your review.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.