AIG's National Union Recovers $5M+ For Misclassified Workers

Posted by msch on Jun 20, 2011 11:32:00 AM

Mark Palin and Ed Oster and Jon Mower AttorneysCBC Framing v. National Union Fire Insurance (Los Angeles, California)

One of California's largest residential framing companies, CBC Framing, and AIG's National Union Fire Insurance, which was CBC's workers compensation carrier, sued each other after their eight-year business relationship ended.

According to Mark Palin (Atkinson Andelson) on behalf of CBC, National Union attempted to extort $14M by raising CBC's annual rate from $6.1M to $14M on the date of renewal, without notice and without providing enough time to find an alternative insurer.

Palin explained that CBC nonetheless quickly found another workers compensation carrier for just $7.5M. Palin said that National Union responded to CBC's policy cancellation with "unbridled vengeance" by immediately launching a fraud investigation against CBC, and by inducing the new insurer to cancel its coverage of CBC. Although CBC had misclassified many of its workers as receiving union-level wages, which qualified CBC for a lower insurance rate, Palin said that National Union knew about the misclassifications through its annual audits, and never objected, and even directed some of the misclassifications. Instead, according to CBC, the real fraud was National Union's mishandling claims, and granting claims that should have been denied, which raised CBC's costs and National Union's profits. CBC sought damages of $9M+ for bad claims handling.

"I think the evidence is overwhelming," said Mr. Palin, "that they tried to set up CBC with a $14M quote on the last day, and then when CBC went somewhere else, they tried to torch that relationship...And it's simply staggering that you have an insured that you're trying to get back while you're investigating them for fraud. The timing on this is absolutely incredible."

For National Union, Ed Oster (Barger & Wolen) told the jury that CBC's misclassification of the employees was a deliberate, active fraud designed to improperly decrease its expenses and expose National Union to risk that CBC was not paying for. In addition, Oster told the jury that the insurance agreement required that CBC keep accurate payroll records, and that CBC knew or should have known that the failure to do so would have consequences. Oster characterized CBC as having sales of $167M, and therefore was not small or unsophisticated. National Union requested damages in excess of $30M.

On behalf of CBC's owner and president John Vojtech, Jon Mower (Mower Carreon & Desai) told the jury that his client did not and could not concoct and execute a scheme to defraud the world's largest insurance company for eight years. Why, asked Mower, would AIG's underwriters have renewed CBC's policy for eight years if they were being defrauded of millions and millions of dollars? National Union almost certainly knew about the misrepresentations in the early years, and there was no evidence that they relied on the class codes to price the contract, said Mower. Instead, the insurance contract was intended to be sold as a market-driven policy based on what they expected their losses to be, and nothing else.

On CBC's breach of contract claim against National Union, the jury found that CBC's non-performance under the contract was excused, and National Union breached the contract. The jury awarded CBC damages of $604,002.

On CBC's covenant of good faith and fair dealing claim against National Union, the jury found that National Union breached the implied covenant and awarded CBC additional contract damages of $798,173. However, the jury did not find oppression, fraud, or malice, which would have justified a punitive damages award against National Union.

On National Union's breach of contract claim against CBC, the jury found that CBC breached the contract, and National Union was harmed by CBC's breach, and awarded damages of $5,183,931.

For each of the various remaining causes of action by National Union against CBC and John Vojtech (Intentional Misrepresentation, Negligent Misrepresentation, and Concealment), the jury found either that no false statement was made or important fact concealed, or the error was not reasonably relied upon by National Union.

CVN webcast openings and closings, plus the reading of the verdict, for CBC v. National Union.

Topics: Insurance, Commercial Law