Judge Kirsten Kelly and Court of Appeals approves settlement based on Zurich American Insurance Company's "knowing concealment" of audit facts

Controversy first arose between SPE Utility Contractors and Zurich American Insurance when SPE chose not to renew a policy that required SPE to pay the first $75,000.00 of any workers compensation claim.  It deemed the premium excessive.  The workers compensation carrier then charged a premium increase of $88,000.00 for "first dollar" coverage, and SPE decided to pull all of its policies from Zurich.  Zurich then charged SPE cancellation fees of approximately $150,000.00 and withdrew the fees from a letter of credit it had required SPE to create.  SPE sued, alleging a breach of contract.

The parties exchanged discovery, including audits of Zurich's fees, credits and payments that theoretically allowed them to evaluate the reasonableness of the fees charged and premium owed.  They then attended mediation and eventually Zurich agreed to return $45,000.00 in over-charged premium to settle the lawsuit.  Before the final settlement agreement could be reduced to writing, however, SPE's lawyers learned that Zurich had not disclosed a final audit, which was in Zurich's  possession, and which granted $22,000.00 in premium reduction credits received by Zurich from the National Council of Compensation Insurance.  {The opinion doesn't say, but NCCI was most likely the "re-insurer" who participated in underwriting the risks covered.]

SPE's attoneys accused Zurich of fraud and material misrepresentation, based on its failure to disclose the audit results and the NCCI credits, and attempted to back out of the settlement.  The Court denied SPE's argument and SPE appealed.  It drew a Court of Appeals panel that included very insurance-friendly judges, particularly Kirsten Frank Kelly, and the panel gave short shrift to SPE's arguments.  Indeed, the panel ruled that even assuming Zurich's conduct constituted a material misrepresentation and "knowing concelament" with regard to the final audit figures, SPE's "reliance" on the audit figures Zurich misrepresented was "unreasonable." 

We assume that reliance on the facts and materials provided by an insurer was deemed "unreasonable" because the insurer was an adversary---not simply because insurance company numbers are never trustworthy.