Law of the Case Defeats Bad Faith Suit
It Takes a Great Deal of “Chutzpah” to Sue for a Defense After an Appellate Court Declares the Policy Void
Yusuf Murad appealed from an order of the Jefferson Circuit Court granting summary judgment in favor of GEICO Indemnity Insurance Company (“GEICO”). Murad argued that the circuit court erred in failing to conclude that Appellee had a duty to defend Appellant in a third-party subrogation claim, that the duty to defend was not dependent on Appellant’s ownership of the vehicle involved in a collision, and that the court must construe the policy language in favor of Appellant. As a prior panel of this Court determined that the insurance policy between was void ab initio as a matter of law, there was no error in the Jefferson Circuit Court’s conclusion that Appellee had no duty to defend Appellant. In Yusuf Murad v. Geico Indemnity Insurance Co., NO. 2020-CA-0518-MR, Commonwealth of Kentucky Court of Appeals (May 28, 2021) Murad sought defense and bad faith damages because GEICO refused to defend.
FACTS
On September 14, 2008, Abdalla Suleiman was operating a Mitsubishi Eclipse when it collided with a motor vehicle operated by Abdullahi Said. At the time of the alleged collision, the Mitsubishi Eclipse was listed as a covered vehicle upon a motor vehicle insurance policy issued to Murad by GEICO in April of 2008. Murad is Suleiman’s father. The motor vehicle driven by Said was insured by Liberty Mutual Fire Insurance Company. The police were not summoned to the accident; rather, a civilian traffic collision report was completed by Said.
Liberty Mutual paid a total of $39,776.94 to its insured as a result of the accident. It ultimately sought subrogation from GEICO. GEICO informed Liberty Mutual that the claim was “denied” due to issues of fraud and uncooperativeness of Murad and Suleiman.
Liberty Mutual, thereafter, sued Suleiman and Murad. Neither Suleiman nor Murad filed an answer and eventually the circuit court granted Liberty Mutual’s motion for default judgment and determined that Suleiman and Murad were jointly and severally liable for the sum of $39,776.94.
Suleiman and Murad then retained private counsel and sued GEICO alleging that on Liberty Mutual’s subrogation claim, asserting negligence on the part of Mr. Suleiman in causing the Accident and in addition, Liberty Mutual asserted a claim against Mr. Murad on a theory of vicarious liability, claiming Mr. Murad did not have motor vehicle insurance covering the Mitsubishi Eclipse.
GEICO retained attorney Todd Page to represent Suleiman and Murad in the action filed by Liberty Mutual. On January 27, 2012, Page entered an appearance as co-counsel for Suleiman and Murad. Suleiman and Murad also continued to retain privately hired counsel. The circuit court then granted, in part, Suleiman and Murad’s motion for summary judgment against Liberty Mutual and dismissed all claims asserted by Liberty Mutual except one claim asserted against Suleiman.
GEICO sued its insureds for declaratory judgment. GEICO asserted that the motor vehicle policy issued to Murad did not provide coverage for the motor vehicle accident that occurred on September 14, 2008. Specifically, GEICO asserted that Murad made material misrepresentations on the application for insurance coverage and that Suleiman made false statements concerning the accident and concealed facts from GEICO.
After a jury returned a verdict against GEICO it appealed the adverse judgment on the coverage portion of the bifurcated claim. A panel the Court of Appeal reversed the circuit court’s judgment as to the coverage portion of the bifurcated claim. The panel determined that the policy of insurance could be valid and enforceable only if Murad had an insurable interest in the vehicle at the time of the accident. Having found no insurable interest by virtue of the fact that Murad did not own the vehicle at the time of the accident, the panel concluded that the policy purporting to insure the vehicle was void ab initio.
ARGUMENTS AND ANALYSIS
GEICO argued that as there was no valid insurance policy by virtue of the holding in GEICO Indemnity Co. v. Murad, supra, GEICO had no duty to defend. The Jefferson Circuit Court found this argument persuasive, and rendered an opinion and order on March 13, 2020, sustaining GEICO’s motion.
The Jefferson Circuit Court sustained GEICO’s motion for summary judgment based on its recognition that a panel of this Court previously found no enforceable policy of insurance to exist as between Murad and GEICO. When the Kentucky Supreme Court denied discretionary review, it became the law of the case.
A final decision of an appellate court, whether right or wrong, is the law of the case and is conclusive of the questions therein resolved. The law of the case doctrine is an “iron rule, universally recognized,” and holds appellate decisions as binding on subsequent trials and appeals however erroneous the opinion or decision may have been.
Murad forwards several arguments in support of his claim that GEICO engaged in bad faith by failing to defend him in the subrogation claim. He argues that the “duty to defend” clause in the insurance policy entitled him to a defense; that GEICO’s duty to defend was not dependent on his ownership of the Mitsubishi Eclipse; that the policy language must be construed in favor of the insured; that he had a reasonable expectation of coverage; and that GEICO is estopped from denying the obligation to defend. Murad did not tender proof of a second, insured vehicle, and it is clear that said vehicle, if any, was not involved in the subject accident. Ultimately, the court of appeal was constrained by the holding in GEICO Indemnity Co. v. Murad, supra.
When viewing the record in a light most favorable to Murad and resolving all doubts in his favor, the court of appeal concluded that GEICO was entitled to summary judgment. The purported insurance coverage of the Mitsubishi Eclipse was determined to be void. This ruling is the law of the case. As no valid policy of insurance existed at the time of the accident, it follows that GEICO had no duty to defend Liberty Mutual’s subrogation claim.
Regardless of the lack of coverage GEICO retained attorney Todd Page to defend Murad in Liberty Mutual’s subrogation claim, and the defense was successful. The summary judgment stands since there was no policy and no duty to defend or indemnify existed.
ZALMA OPINION
Some people seem to believe that when an insurance company refuses to defend or indemnify an insured they automatically will get rich by suing the insurance company for bad faith. The plaintiffs in this case, with “chutzpah” (unmitigated gall), sued an insurer for bad faith after a court of appeal concluded the policy was void from its inception and the Supreme Court refused to consider the case, making the decision the law of the case. The only weakness of the decision is that the court did not punish the plaintiffs and their lawyers for bringing a frivolous suit since the issue of coverage was always the law of the case.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 53 years Barry Zalma has dedicated 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 make it possible for insurers and their claims staff to become insurance claims professionals.
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