US legal roundup: Adjusters manipulate Xactimate estimates, CVS execs make unfulfilled AI promises, and more

By Isha Marathe Sept 18 (The Insurer) — The Insurer rounds up recent US insurance-related litigation news, including a judge tossing experts over their use of Xactimate estimates in a property suit, a court testing whether a Coalition can face contractual liability despite not being the carrier, another AI-related investor suit, and more. Xactimate Estimates Unreliable If Experts Alter Use Case A Texas federal judge excluded two damages experts for Trinity Fellowship Church of Pampa after finding they made dozens of unsupported alterations to Xactimate estimates in its property coverage dispute with Church Mutual Insurance Company.

The dispute stems from a June 2023 storm that Trinity says damaged its church property. 3 million in repairs. 8 million, including treble damages and attorneys’ fees. US District Judge Matthew Kacsmaryk said the parties agreed that Xactimate is a “Daubert-approved software system widely used in the insurance industry,” but Church Mutual argued that two Trinity experts manipulated the software to reach their preferred damages figures.

The court agreed, pointing to changes including replacement unit costs substantially above Xactimate defaults, additional waste factors on top of waste already included in the software, higher labor rates and altered roof specifications. One of the later estimates also increased roofing replacement pricing by roughly 238% from his earlier calculation, the ruling said. Kacsmaryk said Church Mutual had identified 27 examples of alterations and that Trinity offered no justification for them, finding the resulting methodology unreliable and excluding both experts’ damages opinions in their entirety.

The ruling does, however, permit Trinity to potentially offer similar evidence through non-expert testimony. Essentially, the judge said that use of an industry-standard estimating platform becomes unreliable when experts depart from its default assumptions without adequately explaining those departures. The ruling may be significant for how repair estimates are defended in future litigation, attorneys said. Church Mutual separately won summary judgment on Trinity’s bad-faith, Chapter 541 Texas Insurance Code and Deceptive Trade Practices Act claims.

The church’s breach-of-contract and Texas prompt-payment claims remain pending. Coalition Open For Liability Despite Not Being The Underwriter An Illinois state court allowed a breach-of-contract claim against Coalition Insurance Solutions to proceed in a dispute over a $10 million cyber policy issued to Crash Champions. It also dismissed claims against the affiliated Coalition Inc and gave the policyholder another chance to amend its case. Crash Champions bought the cyber policy in February 2023, shortly before a ransomware attack shut down much of its business.

9 million. The policy allocates the risk among six carriers: At-Bay Specialty at 20%, Fortegra Specialty at 30%, Allianz Underwriters at 20%, Ascot Specialty at 15%, Certain Underwriters at Lloyd’s at 10% and Chaucer Insurance Company DAC at 5%. Coalition argued that neither Coalition entity was among those six insurers and therefore neither could be liable for unpaid policy proceeds. But the court disagreed on the contract claim against Coalition Insurance Solutions, pointing to several ambiguities in the policy.

For example, it said Coalition Insurance Solutions signed it, the policy refers repeatedly to “we,” “us” and “our,” and defines those terms as the company providing the policy without clearly identifying that company. The judge said the document, read as a whole, did not conclusively establish that Coalition Insurance Solutions had no payment obligation. The court also cited Coalition’s alleged conduct after the ransomware attack, including receiving the claim, directing forensic accountants, deciding what to pay and demanding a release in its own name before making a partial payment.

Those allegations did not establish that Coalition Insurance Solutions was contractually liable, the judge said, but were enough to prevent dismissal at this stage. However, the court dismissed the contract claim against Coalition Inc. without prejudice, finding that it neither signed the policy nor appeared in the declarations or quota-share endorsement. The court likewise allowed Crash Champions’ claim for statutory penalties and attorneys’ fees over alleged vexatious and unreasonable delay to continue against Coalition Insurance Solutions, but dismissed it against Coalition Inc.

Federal, Argonaut Must Defend Executives In Cfpb Action A Delaware federal judge ruled that Chubb's Federal Insurance Company and Brookfield-owned Argonaut Insurance Company have to defend three executives in an enforcement action brought by the Consumer Financial Protection Bureau and several state attorneys general. The court rejected the insurers’ argument that a professional services exclusion barred coverage.

US District Judge Jennifer Hall adopted a magistrate judge’s finding that at least one of the CFPB’s claims, involving alleged false statements and deceptive practices, fell outside the exclusion because it lacked the necessary connection to the rendering of professional services. Under Delaware law, the existence of one potentially covered claim was enough to trigger a duty to defend the broader CFPB action. The court also allowed the plaintiffs’ bad faith claim to proceed, finding that whether Federal had a reasonable justification for denying coverage was a factual issue that could not be resolved on the pleadings.

However, the court dismissed claims against second-excess insurer RSUI Indemnity Company as unripe. Because RSUI sits above Federal’s $3 million policy and Argonaut’s $2 million policy, the plaintiffs had not plausibly shown that those underlying limits were likely to be exhausted, the court said. Cvs Executives Misled Investors On Role Of Ai, Suit Says A New York federal judge has allowed parts of a securities class action against CVS Health to proceed, finding investors plausibly alleged that the company misled them about the role AI and prior-authorization practices played in the performance of its Aetna Medicare Advantage business.

1 billion in medical-cost savings for CVS. Judge Margaret Garnett dismissed claims based on general statements about “responsible AI,” but allowed claims tied to statements that CVS had “fully baked in” utilization trends into its 2024 guidance and had accurately described the primary drivers of its performance. The court found those statements potentially misleading given allegations that AI and prior authorization were significant contributors to CVS’ results, the court documents said. The development is yet another one that lawyers are keeping an eye on as mentions of AI in investor calls ramp up.

For insurers, the ruling shows how AI use in claims and utilization management can become a securities-disclosure issue when it materially affects financial performance.