Federal Judge Dismisses Insurance Lawsuit Against Captive Insurance Company
Oxford welcomes 2022 with some recent news we are certain our readers will be interested to hear.
In 2020, a client of Oxford filed an insurance claim, asserting that an executive order issued in response to the in Covid-19 pandemic had affected their business referrals, and their Oxford policy included coverage for “Loss of Referrals,” which provides coverage for an insured’s actual net losses if a “Key Referral Source” terminates or cancels a business relationship with the insured as a result of several state causes.
Oxford reviewed the claim and determined that it did not meet the basic elements of coverage under the insurance policy. Oxford had explained that the temporary downturn in the number of referrals was not covered by the policy. None of the referral sources had gone out of business, for example, nor did any of the referral sources cancel or terminate their contracts or referral business with the insured. Rather, the referral sources were temporarily shut down and therefore the referrals to the insured were delayed. Moreover, the insured could not have provided services to any referred patients anyhow, because the insured’s business was not considered essential. As Oxford explained, the insured had declined to purchase a business interruption coverage that could have provided coverage for the insured’s own shut-down.
The insured disagreed with this determination and filed a federal lawsuit against Oxford, seeking a declaratory judgment that the claim was covered and seeking damages Oxford by alleging bad faith and other wrongful conduct. A federal judge reviewed the allegations and the policy and dismissed the lawsuit before discovery even started.
See the bottom of the article to read the full case memorandum.
This judgment highlights a few important points about Oxford. (1) We understand that a lot of our clients suffered serious matters during Covid-19. Many of our clients filed claims, and each one was reviewed carefully. Some of those client issues were covered, which we paid, and some were not. This judgment underscores that approach: the improper claims were denied. (2) Oxford takes particular care in handling claims. While it could be easier to approve any claims submitted, particularly when facing a lawsuit alleging bad faith, doing that would not be satisfying Oxford’s obligations to the risk pool that ultimately pays covered claims. (3) The IRS has been scrutinizing the captive industry and expressing concern about whether the policies clients are buying are actually insurance in the first place. Here, the Article III Federal Judge did not even mention the captive and instead relied on insurance law to adjudicate this insurance matter. (Article III refers Federal Judge is appointed by the US President and approved by the US Senate, read more here.)
There are a few additional takeaways Oxford would like to emphasize. We work with our clients to underwrite valuable insurance coverages. If an insured suffers a loss, we investigate and evaluate the claim and determine whether or not it is covered, and if so at what amount. Insureds should review all of their coverages at least annually so they can make well-informed decisions about which coverages to select for their policy. Lastly, even if a claim is not covered, a client who has built up surplus in their captive may be able to utilize that to offset uninsured commercial losses or uninsurable risks. We urge our clients to work with their own advisors and brokers in mapping out a customized risk management approach and determine where Oxford’s bespoke insurance coverages might be valuable. The Oxford Team stands ready to help! ,
To read the full case, please click here.
If you have any questions or wish to speak with an Oxford representative, please call our office at 410.472.6490.