July 21, 2019

Tenth Circuit: Insurance Policy’s Restriction on Assignment Did Not Forbid Assignment of Postloss Claim

The Tenth Circuit Court of Appeals published its opinion in City Center West v. American Modern Home Insurance Company on Thursday, February 6, 2014.

City Center West LP (City Center) owned a commercial property in Greeley, Colorado, subject to a mortgage held by Summit Bank & Trust (Summit Bank). When Summit Bank learned that City Center had failed to insure the property, the bank’s parent company, Heartland Financial USA, Inc. (Heartland Financial), obtained coverage for the property through its blanket insurance policy (the Policy) with American Modern Home Insurance Company (American Modern). The Policy identified Heartland Financial and its branches, including Summit Bank, as the “Named Insured Mortgagee.” It provided that losses be paid to the Named Insured Mortgagee to the extent of its interest and that any benefits payable in excess of that interest “shall be paid to the mortgagor” (which was City Center). Liability was limited to the interest in the property of the mortgagee and the mortgagor. The Policy was excess insurance—that is, it paid out only if there was no other insurance policy that would cover the claim. It included a nonassignment provision that stated: “Assignment of this Policy shall not be valid unless we [American Modern] give our written consent.

On September 23, 2011, the property was damaged by vandalism and a burglary. City Center estimated that the cost of repair would exceed $3.5 million. City Center notified American Modern of the loss and four months later it requested payment. American Modern refused to pay the amount requested, but tendered a $321,069 check to Summit Bank. Heartland Financial and Summit Bank assigned to City Center all their rights with respect to the claim. American Modern never consented to the assignment.

City Center filed its complaint against American Modern in the United States District Court for the District of Colorado. It asserted claims for bad-faith breach of insurance contract, breach of contract, and violations of Colorado insurance statutes. American Modern filed a motion to dismiss on the grounds that the assignment to City Center was prohibited by the Policy’s nonassignment provision and City Center was not a third-party beneficiary. The district court granted the motion. City Center appealed.

The issue on appeal was whether the Policy’s restriction on assignment of this Policy forbade the assignment of a postloss claim under the Policy. The weight of authority is that assignment of a postloss claim under an insurance policy is not an assignment of the policy. The majority of courts adhere to the rule that general stipulations in policies prohibiting assignments of the policy, except with the consent of the insurer, apply only to assignments before loss, and do not prevent an assignment after loss. American Modern’s policy could have barred assignment of postloss claims by simply saying that such assignments were barred. It did not.

The Tenth Circuit REVERSED the judgment of the district court and REMANDED for further proceedings consistent with this opinion.

Tenth Circuit: Federal Agency Did Not Err in Denying Insurance Coverage to Appellants Who Planted Corn on Newly Broken, Non-Irrigated Acraege

The Tenth Circuit Court of Appeals published its opinion in Jagers v. Federal Crop Insurance Corp. on Tuesday, January 13, 2014.

In this appeal, the Tenth Circuit considered whether Appellee Federal Crop Insurance Corporation acted arbitrarily or capriciously in denying federal crop insurance coverage for corn that Appellants planted in 2008 on newly broken, non-irrigated acreage in Baca County, Colorado. The agency determined that coverage should be denied because Appellants failed to follow good farming practices by planting on this newly broken land without first allowing a fallow period. After they each received an unfavorable good farming practices determination, Appellants filed the instant action in the district court. The district court affirmed the agency’s unfavorable GFP determinations as to Appellants, and this appeal followed.

Appellants argued that the Court should overturn the agency’s determination as arbitrary and capricious because (1) the agency predetermined this result and made its decision based on bias and other improper motivations, and (2) the agency failed to follow its own procedures relating to the issuance of GFP determinations.  Specifically, appellants argued the agency’s good farming practices (“GFP”) determination should be overturned as arbitrary and capricious because (1) “issuance of the GFP Determinations at issue was predetermined” as early as June 2008 (2) the Risk Management Agency (“RMA”) was biased in favor of minimizing the number of non-irrigated acres that would receive insurance coverage; (3) the RMA “was motivated by its own pecuniary interests” to limit its own insurance liability; (4) the RMA was also motivated by “political pressures; and (5) the agency’s consideration of these improper financial and pecuniary motivations proved that the agency acted in bad faith and violated Appellants’ due process rights.

The court was not persuaded by any of these arguments. First, the record did not support Appellants’ assertion that the negative GFP determination was predetermined. As for Appellants’ argument that the negative GFP determination must be overturned because the agency was improperly motivated by financial concerns, Appellants cited to no authority for the proposition that an agency acts arbitrarily and capriciously by making a decision that is partially motivated by the desire to limit the expenditure of government funds. Similarly, Appellants cited to no authority for the proposition that an agency’s decision should be overturned if a critical internal report by an investigative arm of the same government department could potentially have pressured the agency into taking some type of responsive action. Nor was the court persuaded it was required to overturn the RMA’s GFP determination based on whatever internal political pressure resulted from the Office of Inspector General’s report. The court was also not persuaded the agency’s possible motivations to reach a particular result proved that the agency acted in bad faith or violated Appellants’ due process rights. The agency relied on objective scientific evidence to conclude that planting nonirrigated corn on newly broken lands in eastern Colorado without a fallow period was not a good farming practice.

Finally, the court turned to Appellants’ argument that the RMA’s GFP determination should be reversed under the Accardi doctrine, which requires an agency to adhere to the policy and regulations it promulgates. The Tenth Circuit found this argument unpersuasive for two reasons. First, the only policies Appellants cited were contained within RMA manuals and handbooks, not promulgated regulations. The Tenth Circuit was also unpersuaded by Appellants’ argument that the agency failed to follow its own procedures when it alluded to allegations of program abuse and fraud in the district court proceedings without having followed the established procedures for imposing sanctions for fraud. The agency’s GFP determination did not depend on these allegations, and there was no evidence the agency attempted to impose a sanction for fraud or program abuse. The agency examined the relevant data and articulated a satisfactory explanation for its decision, including a rational connection between the facts found and the decision made. Under its deferential standard of review, the court saw no error in the agency’s analysis, and it was not persuaded there was any other valid reason for overturning the agency’s GFP determination.

AFFIRMED.

SB 13-077: Amending Certain Provisions of the Colorado Probate Code

On Tuesday, January 22, 2013, Sen. Ellen Roberts introduced SB 13-077 – Concerning Certain Provisions of the Colorado Probate Code.  This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill clarifies provisions concerning the circumstances under which each party and person in interest with a party shall be allowed to testify regarding an oral statement of a person incapable of testifying when such statement is sought to be admitted into evidence.

The bill clarifies that, subject to certain limitations, a personal representative, a person with priority for appointment as personal representative, and a court-appointed fiduciary:

  • May ascertain the testator’s probable intent or estate planning purpose on issues involving the decedent’s estate; and
  • Shall have standing to prosecute or defend that intent or purpose, at the expense of the estate, in probate proceedings.

Under current law, a personal representative must give certain information concerning his or her appointment to the heirs and devisees of the estate not later than 30 days after his or her appointment. The bill adds a requirement that this information must include a notice that any individual who has knowledge that there is a valid, unrevoked designated beneficiary agreement in which the decedent granted the right of intestate succession should give written notice of such knowledge to the personal representative of the decedent’s estate. The bill also makes changes to this law to align it with a provision of the Colorado rules of probate procedure.

The bill amends the probate code to grant a higher statutory priority to payment of child support claims in decedent’s estates. The bill gives a trustee of an intentionally defective grantor trust the discretionary authority to reimburse the grantor for payment of the income taxes attributable to the trust. This authority does not subject the trust to the grantor’s creditors or cause the trust to be included in the grantor’s estate.

The bill allows a trustee to acquire or retain a life insurance policy on the life of a person for whom the trustee has an insurable interest as a trust asset; however, a trust may expressly provide that this provision does not apply to the trust. A trustee is not relieved of liability with respect to any life insurance policy purchased from an affiliated company, or with respect to which the trustee or any affiliated company of the trustee receives any commission, unless either:

  • The trustee has given written notice of such intended purchase to all qualified beneficiaries of the trust or their legal representatives, and receives written consent to such purchase; or
  • The trust agreement contains a provision that permits purchases of life insurance from an affiliate; however, consent shall be conclusively presumed by any qualified beneficiary who has not responded to written notice by the trustee within 30 days after the mailing of such notice to the qualified beneficiary at his or her last known address.

The bill clarifies the applicability of the effective date of the Colorado probate code to conform Colorado law to the Uniform Probate Code’s effective date provisions. The bill is assigned to the Judiciary Committee; the committee will take the bill up on Wednesday, Feb. 13 at 1:30 p.m.