Thursday, April 30, 2009

Confusing Facts, Not so Confusing Law

It's been said that bad facts make bad law. It can also be said that confusing facts make confusing law. Or at least hard-to-read law.

Darrell Prindle shot and killed his estranged wife Angela in May 2002. He also shot and injured several others, including Angela's sister Jessica. Angela's mother Earline opened a probate in July 2002. In May 2003, Jessica sued Darrell and Earline (as administrator for Angela's estate) for negligence in failing to warn her that Darrell would return to the residence. Earline notified Traveler's insurance of the lawsuit and asked them to defend the estate. Jessica made a policy limits demand against Traveler's for $100,000. Travelers rejected the claim and refused to defend the estate. Jessica did not make a claim against the estate before the exipration of the deadline.

The matter went to trial, and the judge found the estate liable to Jessica for $7 million. The estate assigned their insurance bad faith claim against Travelers for failing to defend and indemnify to Jessica in exchange for Jessica's agreement not to execute the judgment against the estate. Jessica and the estate then sued Travelers for bad faith (which if successful would open Travelers to liability in excess of the policy limits of $100,000). Jessica finally made a late creditor's claim against the estate for the $7 million, and also filed a petition to allow the late claim. The estate asked the court to approve the late filing of the claim, or at least to acknowledge that the estate's actions constitute a waiver of the claim filing requirement.

Some background is in order. Typically, a creditor has four months from being notified of a probate to file a claim against the estate. If they fail to meet that deadline, they can file a petition for the court to approve a late claim. The court here held that the estate did not have the power to allow the filing of a late claim, but also found that the estate's actions constituted a waiver.

This case is all about insurance. The estate had only about $16,000 in it, so there was no way they would be able to pay the $7 million judgment. Travelers argued that because Jessica's claim was not timely filed, they were off the hook. The court disagreed. Because Travelers refused to indemnify and defend the estate, Travelers is on the hook for the $7 million judgment just as much as Earline is as administrator of the estate. The court held that the estate waived the right to refuse a late claim by Jessica (because they were aware of the claim before the deadline expired), so Travelers, as the insurer of the estate, cannot use the late filing as a defense to their obligation to pay.

I suppose the rule here is that when an estate waives the claim filing deadline, that waiver can extend to others who might benefit from the claim filing deadline, such as an insurer.

The other lesson is that Travelers could have gotten out of this for $100 grand, but is now on the hook for $7 million.