Insurance Policies For Self-Employed Individuals

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As a self-employed individual, you are your own business. And in the same manner that a traditional organization compensates its members for their work in terms of wages and benefits, you will likewise ensure that you, and any individual in your employ, receive proper remuneration.

Foremost to this is an appropriate insurance policy. Accidents and untoward incidents can happen at any given time to you, your employees, or your place of work, and as the person in charge, it is only prudent that you protect your assets. For the self-employed individual, below are the three primary types of insurance you should get.

Health Insurance

American law mandates that its citizens have access to basic health insurance, and penalizes individuals who do not acquire one. Employees who work for a company will generally have a health insurance subsidized by their employers, but the self-employed, unemployed, or underemployed will have to get their own policy.

For the self-employed worker, a high deductible health plan (HDHP) is an excellent choice for insurance policy because of its affordable but wide-ranged structure. Under the HDHP, individuals will initially have a higher upfront cost of health services before the insurance plan formally takes effect, but will eventually enjoy lower monthly premiums, and easier access to a wide range of medical services. In such case, it is prudent to have an emergency fund in place to mitigate the initial expenses. If you have not yet started an emergency fund for you and your dependents, it is highly recommended that you open one immediately.

Disability Insurance

For the self-employed, no work means no pay, and such a system could prove debilitating in the unfortunate event of an injury, sickness, or similar incapacitating circumstances. Protect yourself and your loved ones from such situation by getting a top-quality disability insurance plan.

This type of insurance comes in two forms: a short-term policy, and a long-term plan. The former covers a brief period of time, for a specific number of reasons, which can include a three-to-six month compensation for an individual involved in a minor accident but is expected to fully recover, a period of maternity leave for a mother who just gave birth, and other similar cases where the insured is unable to return to work only for a short, specific period of time.

On the other hand, long-term disability insurance plans have less-rigid terms, and are designed to protect its holders in worst-case scenarios, where the disability, defined as the general failure to earn a living, can last longer, or even permanently. Common examples would be a grievous injury, whether incurred at work or elsewhere, crippling sickness, or other debilitating personal circumstances. In such case, a long-term insurance plan will ensure that your basic needs, especially medical and rehabilitation expenses, will still be met, and your beneficiaries will not suffer because of your inability to provide for them.

It is important to note that because disabilities vary on a case-by-case basis, insurance companies will have strict policies and requirements as to who qualifies for compensation. In places like California where health care policies are continuously evolving and becoming more nuanced, it is your responsibility to exercise due diligence and thoroughly research your local and state policies. Get in touch with your provider, or have a consultation with legal professionals to learn more about this. L.A. residents in particular can contact our Los Angeles disability insurance lawyers to have a better understanding of Californian insurance policies, as well as to assist with claims should the need arise.

Business Insurance

Lastly, you must likewise secure your actual livelihood against risks inherent to the industry. There are four main types of business insurance necessary for the self-employed.

General Liability Insurance

This form of business insurance covers generally physical incidents that are taken to court. Examples of such would be a customer injured in your establishment, or a client’s property damaged because of your direct or indirect actions. This is especially important for self-employed workers who handle physical products and services, like repairs, transportation, warehousing, etc.

Professional Liability Insurance

This second type covers untoward incidents directly related to or as a consequence of your work, primarily of the financial nature. For example, a developer who mistakenly codes a faulty software that ended up costing his client money in operations losses will be protected by this form of insurance, provided that it is proven the damage is entirely accidental.

Business Owner’s Policy (BOP)

Similar to the previous insurance type, the BOP has a wider and more generic range of coverage, which can include financial liabilities, property damage, and other similar incidents within your place of work. Because of its more generic nature, BOP is also generally a cheaper alternative to the professional liability insurance.

Worker’s Compensation

A mandatory insurance policy that any employer must have, this business insurance must be one of the first policies you acquire when you begin to hire people for your company. This is a protection for your employees, generally covering a loss of income as a direct result of incidents at work, which may include lost wages and medical expenses.

As a self-employed individual, you are responsible for your own compensation, as well as the remuneration of any who might work under you. Protect yourself, your stakeholders, and your business with the right insurance policies. Secure your health insurance, disability insurance, and business insurance now.

California Insurers May Not Rescind a Policy Based on an Ambiguous Question in the Application

California Insurers May Not Rescind a Policy Based on an Ambiguous Question in the Application

In California, under certain circumstances, an insurer is entitled to rescind a policy—even after the insured has suffered a loss and made a claim for policy benefits—if there was a material misrepresentation in the application. A rescission, if successful, “renders the policy totally unenforceable from the outset,” so that no benefits are payable. (Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 182.)

When an insurer attempts to rescind based on an alleged misstatement on an application, questions often arise regarding whether the answer given by the insured was, in fact, false. A recently decided California case holds that an insurer may not seek to rescind a policy based on a purportedly false answer on an insurance application if the question was ambiguous. This is an important ruling for insureds seeking to fight rescission of a policy.

In Duarte v. Pacific Specialty Ins. Co. (2017) — – Cal.Rptr.3d. — -, 2017 WL 2834131, a case which was decided on June 12, 2017, the Court of Appeal analyzed an insurer’s attempt to rescind a policy insuring a rental property. The insured was sued by tenants he had rented a property to, and he made a claim to his insurance company for defense and indemnity. The insurance company denied the claim, and the insured sued for breach of contract, bad faith, and declaratory relief regarding the existence of coverage.

The insured had answered “no” in the insurance application to questions relating to prior claims and the existence of a business on the property. The insurer argued that these answers were false because the insured had attempted to evict the tenants prior to applying for insurance and also knew that the tenants were selling motorcycle parts and conducting welding activities on the premises. (Id. at *10.) The trial court had granted summary judgment to the insurer, holding that it was entitled to rescind the policy based on material misrepresentations.

The Court of Appeal reversed the trial court’s decision, holding that there were, at a minimum, disputed factual issues regarding the insurer’s right to rescind. The Duarte decision focused on the ambiguity in the questions in the application. It was undisputed that the tenants had filed a complaint with a government agency against the insured prior to his filling out the insurance application. (Id. at *8.)

It was also undisputed that the insured answered “no” to a question on the application which read “Has damage remained unrepaired from previous claim and/or pending claims, and/or known potential (a) defects, (b) claim disputes, (c) property disputes, and/or lawsuits?” (Id.) Nevertheless, the Duarte Court ruled that this answer was not false and did not warrant rescission because it was “utterly ambiguous as to how it should be read.” (Id. at *9.) Duarte stated a “logical way to read this inconsistently worded sentence is to tie everything back to the existence of unrepaired damage.” (Id.)

Because of the ambiguity, the Court ruled the insured’s interpretation that the question was asking about unrepaired damage relating to an insurance claim was reasonable. (Id.) Therefore, the answer to the question was not false, and could not be relied upon to rescind the policy. (Id.)

With respect to business operations, the insured stated that he had interpreted the question as asking about “regular and ongoing business activity.” (Id.) Because there was only the “occasional sale” and there was not a regular and ongoing business, the insured argued this answer was not false. (Id.) The Court of Appeal in Duarte agreed, holding that the insured’s interpretation of the question was reasonable. (Id.)

The Duarte decision illustrates that insurers attempting to rescind an insurance policy in California cannot rely on answers to ambiguous questions. Insureds faced with a post-loss effort to rescind an insurance policy should carefully scrutinize the questions that the insurer claims were falsely answered for potential ambiguities.

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California Court Reigns In The Genuine Dispute Defense

California Court Reigns In The Genuine Dispute Defense

When insurance companies are sued for insurance bad faith, also known as breach of the implied covenant of good faith and fair dealing, they often defend against the bad faith claim by arguing that, even if they were mistaken in their handling of a claim, they were not unreasonable. Because “reasonableness” is the standard an insurer is judged by in determining bad faith, this argument, while not negating a breach of contract claim, can defeat that an insurance bad faith claim. Defeating a bad faith claim can be critical because bad faith claims are what allow policyholders to recover extra-contractual damages.

One of the tools insurance companies use to defend against claims of bad faith, is to argue there was a “genuine dispute” about an aspect of the claim that was reasonable. This would defeat a bad faith cause of action because a reasonable and good faith dispute in not bad faith. The California Supreme Court has stated “a genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 723 (italics in original).) Often the asserted genuine dispute is based on an opinion of an expert the insurance company has hired.

On June 19, 2017, in Zubillaga v. Allstate Indemnity Co. (2017) DJDAR 5863, the Court of Appeal addressed an insurance company’s assertion of the genuine dispute doctrine as a defense to a bad faith claim. The case arose out of a car accident and an underinsured motorist claim. The policyholder’s injuries included back pain, for which her doctor recommended, among other things, epidural steroid injections. The insurer rejected the steroid injection, relying on its expert’s report. The insurer only offered a little over $15,000 to settle, although the policy limits provided for $35,000 of available coverage. After the policyholder was awarded the full $35,000 in arbitration, she brought a claim for insurance bad faith.

Allstate argued that, based on its expert’s report, there was a genuine dispute regarding whether plaintiff needed “expensive epidural steroid injections.” The Court rejected that argument, noting that the insurer’s expert opinions were from 2012, and the insurer continued to rely on them for the next year without consulting the expert again. The Court noted that, after the insurer obtained its expert’s opinion, “plaintiff had received one lumbar steroidal epidural injection.” The Court ruled that because the insurer “never asked” its expert about this subsequent treatment, it was unreasonable to continue to rely on those reports.

Case law has previously held that an insurance company cannot “insulate itself from liability for bad faith conduct” simply by hiring an expert to manufacture a “genuine dispute.” (Chateau Chamberay Homeowners Ass’n v. Associated Intern. Ins. Co. (2001) 90 Cal.App.4th 335, 349, n.3.) The decision in Zubillaga reinforces that principal, and reflects that California courts will closely scrutinize a genuine dispute defense. Where the insurer is relying on an outdated expert report, under Zubillaga, the genuine dispute defense is unavailable.

Going After The Insurance When A Defendant Goes Bankrupt

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The automatic stay associated with a bankruptcy filing is a powerful tool for defendants and will bring any litigation to a screeching halt.  But while the automatic stay presents an obstacle for continuing litigation in almost any case, there is strong grounds to obtain relief from the stay where a plaintiff’s claim is covered by defendant’s insurance.

United States Bankruptcy Code section 362 automatically imposes a stay on all actions against a debtor who files for bankruptcy.  This means that any and all lawsuits against the person or entity filing, even those that are unrelated to the bankruptcy, are put on hold.  The stay is immediately effective whether or not a creditor, such as a plaintiff in a personal injury case, receives notice of the stay and regardless of whether the court makes an order entering it.

However, Bankruptcy Code Section 362 also provides a means to escape the automatic stay.  Section 362(d)(1) provides that on the request of a party and after notice and a hearing, the court shall grant relief from the stay for “cause, including the lack of adequate protection of an interest in property of such party in interest.”  Although the grounds for relief from a bankruptcy stay for cause includes lack of adequate protection of an interest in property, relief from a stay  is not limited to that reason.

Indeed, “cause” for relief from a bankruptcy litigation stay is not defined in the Bankruptcy Code and is handled on a case by case basis.  (In re Fernstrom Storage and Van Co. (7th Cir. 1991) 938 F.2d 731, 735 (C.A 7 1991).)  The moving party is only required to make an initial showing that he is entitled to relief from the stay, the burden then moves to the debtor to overcome that showing.  (In re Sonnax Industries, Inc. (2nd Cir. 1990) 907 F.2d 1280, 1285.)

When determining if cause exists for relief from a bankruptcy stay, courts look at a number of factors:

  1. Whether relief would result in partial or complete resolution of the issues;
  2. The lack of any connection with or interference with the bankruptcy case;
  3. Whether other proceeding involved the Debtor as a fiduciary;
  4. Whether the Debtor has applicable insurance coverage and said insurer has assumed full responsibility for defending it;
  5. Whether the action primarily involves third parties;
  6. Whether litigation in another forum would prejudice the interests of other creditors;
  7. Whether the Movant’s success in the other proceeding would result in a judicial lien available by the Debtor;
  8. The interests of judicial economy and the expeditious and economical resolution of the litigation;
  9. Whether the parties are ready for trial in the other proceeding;
  10. Th impact of the stay on the parties and the balance of harm.

(In re New York Medical Group, P.C. (S.D.N.Y. 2001) 265 B.R. 408, 413.)

However, in weighing these factors, courts only consider those that are relevant to the circumstances of the case at hand and factors are not weighed evenly.   (In re Mezzeo (2nd Cir. 1999) 167 F.3d 139, 143.)  Thus, a moving party need not show a majority of these factors, nor even a majority relevant factors favor lifting the stay.

When the automatic stay is applied to litigation in which debtor has insurance covering the claim, several of these factors weigh strongly in favor of granting the movant relief from the stay, most obviously that the debtor has insurance and the insurer has assumed full coverage. However, other factors associated with the existence of insurance are also likely to weigh in favor of lifting the stay, such as the interests of judicial economy, the lack of prejudice to creditors due to the potential recovery being paid by insurance, and the lack of connection to or interference with the bankruptcy.

Indeed, the core policy behind a bankruptcy stay was to prevent prejudicial dissipation of the debtor’s assets.  When a judgment is or would be entirely covered by insurance from an insurance carrier, there is no possibility of prejudicial dissipation of debtor assets.  (See In re Bock Laundry Mach. Co. (N.D. OH 1984) 37 B.R. 557, 566 (“where…the pending action is neither connected with nor interfering with the bankruptcy proceeding, the automatic stay in no way fosters Code policy”).)

Where a defendant goes bankrupt during litigation, but insurance exists covering the plaintiff’s claims, there is a strong basis to obtain relief from the bankruptcy stay, and continue the litigation for the insurance proceeds.

When Someone Dies With A Life Insurance Application Pending In California

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It sometimes occurs that a person applies for life insurance, but dies before a policy is issued or the application is approved by the insurance company.  In those situations, questions arise regarding whether the insurance company is obligated to pay the death benefit.  California has both case law and a statute which provide avenues for recovery when an insured has applied for a life insurance policy, but dies prior to its issuance.

The case law addressing this issue goes back many decades.  In 1954, the California Supreme Court, in Ransom v. Penn Mutual Life Ins. Co. (1954) 43 Cal.2d 420, addressed a case where an insured applied for life insurance, made his first premium payment, but had not yet submitted to a second medical examination requested by the insurance company, when he was killed in a car accident.  (Id. at 422.)  Ransom stated that the “understanding of an ordinary person” upon completion of a life insurance application and advance payment of the premium, is that “he would secure the benefit of immediate coverage.”  (Id. at 425)  Ransom held that, although coverage had not yet been approved by the insurer, “it would be unconscionable” to allow the insurer to avoid coverage when the premium was paid at the time of application.  (Id.Ransom held that “a contract of insurance arose upon defendant’s receipt of the completed application and the first premium payment.”  (Id. at 425.)

Case law has since stated that Ransom established “the basic rule . . . that temporary insurance protection arises when an insurance company receives and accepts an insurance premium with a policy application.”  (Hodgson v. Banner Life Ins. Co. (2004) 124 Cal.App.4th 1358, 1368.)  Temporary insurance can be terminated only by rejection of the application and notice to the applicant before the applicant’s death and refund of any premium.  (Smith v. Westland Life Ins. Co. (1975) 15 Cal.3d 111, 123-124.)

In addition to this case law regarding temporary life insurance, California Insurance Code §10115 also addresses payment of life insurance benefits when an insured dies before issuance of the policy.  It provides that when a first premium payment is made at the time an application is signed, and the insurer provides receipt for or actually receives the payment, and thereafter approves the application, but the insured dies before the policy is actually issued, “the insurer shall pay” as if the policy has been issued.  (California Insurance Code §10115.)  Unlike temporary insurance, section 10115 requires coverage when coverage conditions have been met, “but the formalities of issuance and deliverance have not occurred.”  (Hodgson, supra, 124 Cal.App.4th at 1372-1373.)  Once the conditions for coverage have been met under section 10115, returning the premium check does not avoid liability under the policy.  (Id. at 1373.)

Where an insured has applied for life insurance, made a premium payment, but dies prior to issuance of the policy, California law provides legal avenues and theories for potential recovery.  If an insurance company fails to pay policy benefits on the grounds it was not in effect at the time of death, the beneficiaries of the life insurance policy in question should scrutinize the circumstances surrounding the application and payment of premiums.  There may be a basis to obtain recovery under California law.