Sanctioned insurance company petitions Arkansas Supreme Court

Michelle Massey, East Texas Bureau Dec. 29, 2009, 3:55pm

Judge Kirk Johnson

TEXARKANA, Ark. – Shortly after an order for $315,000 in sanctions, Foremost Insurance Co. may have the opportunity to be dismissed from a pending Arkansas class action.

Foremost Insurance filed a petition for writ of prohibition with the Arkansas Supreme Court to prevent the Miller County Circuit Court from exercising jurisdiction over them in a class action lawsuit involving allegations against insurance companies of fraud and conspiracy to defraud.

The original lawsuit filed Sept. 8, 2004, in the Circuit Court of Miller County, Ark., accuses insurance companies of not paying the general contractors' overhead and profit or not accounting for the services of a general contractor when estimating the repair costs under their homeowners' policies.

Although the insurance companies paid previous damages claims, the lawsuit argues that plaintiffs are entitled to the additional payment.

The class action alleges claims of civil conspiracy, unjust enrichment, fraud and constructive fraud.

Foremost has appealed an April order in which the circuit court deferred ruling on motions to dismiss until after the resolution of the plaintiffs' motion for class certification.

Since shortly after the initiation of the lawsuit, the insurance company has filed a series of motions to dismiss.

Foremost argues that the claims of the only plaintiff with whom they had a contractual relationship have been dismissed, therefore the remaining plaintiffs lack standing to bring a lawsuit against them.

However, the remaining plaintiffs argue that the do not need a direct relationship with the defendant, if the defendant is guilty of conspiring with the other defendants to defraud.

Miller County Circuit Court Judge Kirk Johnson deferred ruling on the issue in April 2009. The circuit court wrote that the standing is not a jurisdictional issue and to determine whether the plaintiffs have standing to sue would involve delving into the merits of the case.

Under Arkansas law, the lower court is not permitted to delve into the merits of the case or conduct a rigorous analysis until after class certification.

The Arkansas Supreme Court took up the issue in an opinion released on Dec. 17.

The higher court found that while Foremost asserted that no justiciable matter is pending against them in this case, they are unable to decide the petition because not all of the necessary documents are included.

Foremost has until the New Year to provide the Arkansas Supreme Court with the requested documents.

The insurance company was recently ordered to pay $315,000 in sanctions for not adequately responding to a circuit court's order to provide the plaintiffs with discovery-related documents.

Ignoring the request for a protective order guarding policyholder's privacy rights, Judge Johnson ordered Foremost to produce all quality assurance documents and all e-mails relating to overhead and profit from the beginning of the class period until present.

Although Foremost attempted to comply with the judge's order, Judge Johnson believes the company did not comply with the deadline or produce all requested documents.

According to the Oct. 23 order granting sanctions, Foremost had produced 23,000 documents with the remainder of the document production not expected to be completed until after the class certification hearing.

Regarding the production of e-mails, the judge states that Foremost's objections of expense and software difficulties are a "half-hearted effort to provide cover for the refusal to provide the ordered documents."

Judge Johnson ordered a fine of $5,000 per day for each day past the deadline, totaling $315,000.00.

Other defendants are facing similar orders and possible sanctions and believe it is to force settlement.

The plaintiffs are represented by Texarkana attorneys John Goodson and Matt Keil of the law firm Keil and Goodson, and attorneys Michael B. Angelovich, Cary Patterson, Brady Paddock and Christopher Johnson of the Texarkana law firm Nix, Patterson and Roach LLP.

Chivers v State Farm Case No 2004-294-3

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Arkansas Supreme Court
625 Marshall St
Little Rock, AR 72201

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