Benecard Services, Inc. is a company that handles prescription drug benefits. In 2015, it was sued by its one-time partner, another company that sponsors such plans under Medicare Part D. The lawsuit included allegations of breach of contract and fraudulent misconception. In 2016, the trial was resolved. I Benecard Services, Inc. v. Allied World Specialty Insurance Company, f / k / a Darwin National Assurance Company; Atlantic Specialty Insurance Company; Rsui damages companies; Travelers Property Casualty Company Of America; Ace Property & Casualty Insurance Company, Allied World Assurance Company (US) Inc. v. Benecard Services, Inc., Nos. 20-2359, 20-2360, United States Court of Appeals, Third Circuit (September 8, 2021) coverage for its defense and settlement costs under various corporate insurances that it held. Denials of coverage, and then disputes, followed. In 2020, the district court granted a summary judgment to the insurers in both cases, which consists of a civil case — one case involving Benecard's directors and executives and general liability policies, and another involving its policy of error and omission of liability.
Benecard contested the district court's granting of summary judgment for its errors and omissions to insurers, the Allied World Specialty Insurance Company. Allied World paid Benecard's defense costs of approximately $ 3.8 million, but declined to make any part of the settlement because Benecard decided the underlying lawsuit against it without obtaining Allied World's written consent in advance – an express condition for coverage under the policy's consent clause.  The district court only pointed to the clear language of insurance, which links exhaustion to "payment" by the insurer — rather than the insured insuring the costs. The court then referred to the undisputed facts and concluded that Benecard had not exhausted its coverage limit. That conclusion is strongly supported by Benecard's explicit acknowledgment that Allied World only paid defenders $ 3.8 million – rather than the $ 5 million limits.
Benecard then tried to argue that New Jersey's noticeable prejudice applies to its claims. The district court disagreed and noted that the noticeable doctrine of prejudice only applied to "occurrence" policies. The third party agreed that the doctrine has no application whatsoever to a "requirements issue" policy that meets the insured's reasonable expectations as to the extent of coverage. This is because insurance policies are generally held by knowledgeable insured persons who purchase their insurance claims through sophisticated brokers. Benecard's policy of errors and omissions is a policy of "claims".
The consent clause is a clear term for Benecard's policy of claim. Consequently, Allied World does not have to show significant prejudice to enforce it.
Benecard also claimed that Allied World operated with less than sincerity and engaged in "gotcha" claims handling, knowing that Benecard was considering (and then actively negotiating) a settlement, but failed to remind Benecard of E&O policies consent clause when it was a clear and unambiguous condition for the policy. Although Allied World was informed that conciliation negotiations were a possibility only five to six weeks before the settlement was completed. There was no evidence that Allied World led Benecard to believe that the consent clause had been complied with.
Benecard also failed to show that the district court made an incorrect assessment of Allied World in the error and omission. The operative policy consent clause states that “[n] o coverage is available under this policy for. . . all settlements or settlement offers made  without [Allied World’s] prior written consent. "It is common ground that Benecard failed to obtain that consent. Consequently, the district court correctly held that Allied World is not obliged to make amends for the settlement.
Benecard subsequently questioned the district court's granting of a summary judgment to Allied World in the actions involving its board members and civil servant liability policy. There, the court ruled that Benecard's claims fall within the policy of exceptions from "third parties" and "professional services". The third circle concluded that exclusions of insurance coverage are presumptively valid and are enforced if they are specific, clear, distinct, prominent and not contrary to public policy. The current exceptions meet this standard. The exclusion of "third parties" excludes unequivocal coverage of claims that include, inter alia, "alleged… Misleading statement [s] or breach [es] of duty in connection with the transfer of… Services to a third party." Exclusion "Professional services "unequivocally exclude the coverage" regarding the reproduction [of] or failure to provide any professional services. "These exclusions sweep and overlap to some extent, with each other and with a third exclusion mentions Benecard.
Benecard argues that enforcing the exemptions as written makes the coverage illusory and that the policy should instead be interpreted to honor Benecard's objectively reasonable expectations. acting in their executives-the typical the area for board members and managers. The exceptions were therefore enforceable as written.
Benecard also contested the district court's granting of a summary judgment to another of its board members and officers, the Atlantic Specialty Insurance Company. The court concluded that Benecard's policy with Atlantic Specialty did not cover the underlying lawsuit against Benecard, as that skill falls within the policy of excluding "Managed Care Activities". The district court correctly stated that the exclusion "unambiguously" prevents coverage of Benecard's claim.
Benecard then contested the district court's summary judgment for Travelers Property Casualty Company of America, again in the board and executive document. New Jersey law provides that if the terms of an insurance policy are clear, courts should interpret the insurance policy as written and affirmed the denial of the travelers.
Finally, Benecard claimed that the district court made an erroneous assessment that it could not uphold allegations of bad faith against insurers. Under New Jersey law, a creditor who could not legally establish a right to a summary assessment of the material coverage claim would not have the right to claim an insurer's infidelity to refuse to pay the claim.
Similarly, for allegations of bad faith based on alleged processing delays, the test is essentially the same. Such claims of bad faith are valid only when the material requirement of coverage is "valid" and "undisputed". Here, however, Benecard could not establish the right to coverage. In addition, Benecard's reference to the New Jersey Unfair Claim Settlement Practices Act was inaccessible because that charter does not create a private right of appeal.
Insurance protects the insured against many risks of loss – not all possible losses. It is the insured's obligation to prove that the loss was due to a risk that is insured against and that it fulfilled the conditions in the insurance. One of these conditions required the insurer to approve any settlement. Because Benecard entered into a settlement without seeking the consent of the insurer, it violated the terms of the agreement and was not entitled to any benefits. Its other claims for coverage against three different insurers were not viable and they now have to use their own funds to pay the settlement. It is imperative that every insured reads, understands and applies the terms of the insurance and acts fairly and in good faith in their contacts with his insurers. Not doing so in this case was very expensive for Benecard.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to employment as an insurance consultant specializing in insurance coverage, insurance claims management. , bad faith insurance and insurance fraud almost equally for insurers and policyholders.
He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance and claims management attorney and more than 54 years in the insurance industry.
He is available at http://www.zalma.com and email@example.com. Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award. For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurance companies and their indemnity staff to become insurance professionals.
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