Pa. Supreme Court Holds No Fiduciary Duty Created By Purchase of Insurance From Ameriprise Financial

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PITTSBURGH, June 20 – The Pennsylvania Supreme Court has ruled that Ameriprise Financial owed no fiduciary duties to two insureds who consulted with an Ameriprise financial adviser following a cold call  and purchased life insurance and annuity products from the insurer.

In Yenchi v. Ameriprise Financial, Inc., Mr. and Mrs. Yenchi sued Ameriprise, American Express Financial Services Corporation, American Express Financial Advisors Corporation, IDS Life Insurance Company, and an agent, Holland, after having their purchases independently reviewed.  The Yenchis’ complaint, filed in November 2003, asserted claims of negligence/willful disregard, fraudulent misrepresentation, violation of the Uniform Trade Practices and Consumer Protection Law (“UTPCPL”),  bad faith, negligent supervision, and  breach of fiduciary duty.

The trial court granted the defendants’ summary judgment motion which argued that no fiduciary duty existed.  The Superior Court reversed, however, and the Defendants appealed to the Pa. Supreme Court which granted allocator on the issue of whether a fiduciary duty existed between  the Yenchis and the Defendants.

In finding no fiduciary relationship existed, Justice Christine Donahue wrote that not all insurance transactions impose fiduciary obligations upon the insurer:

The record here establishes that the Yenchis made the decision to purchase Appellants’ advice and financial products. Reliance on another’s specialized skill or knowledge in making the purchase, without more, does not create a fiduciary relationship. We acknowledge that the Yenchis may have become comfortable with the Appellants’ expertise before deciding to purchase the 1996 whole life insurance policy, which is to be expected when making a financial decision. It is part of the development of any business relationship — consumer or otherwise. It   does not, however, establish a fiduciary relationship. There is no evidence to establish that the Yenchis were overpowered, dominated or unduly influenced in their judgment by Holland.

The Yenchis never ceded any decision-making authority to [the advising agent]Holland. Over the course of the relationship, they followed some of his recommendations and rejected others. Prior to the proposal for the whole life policy at issue, Appellants proposed a different whole life product that the Yenchis did not purchase. As to advice accepted, the Yenchis purchased the 1996 whole life insurance policy and the 1997 deferred variable annuity. They began saving money in an investment certificate and opened an IRA account. On the other hand, they rejected other recommendations, including, in particular, Holland’s advice in 1998 to increase their life insurance to the $300,000 level, deciding for themselves that the 1996 whole life policy was a sufficient amount of life insurance for their needs. The evidence does not establish that the Yenchis were subject to any overmastering influence by Holland. They maintained and exercised decision-making control over their financial matters. No confidential relationship was ever created.

Yenchi v. Ameriprise Fin., Inc., No. 8 WAP 2016, 2017 Pa. LEXIS 1405, at *23-25 (June 20, 2017)

Pa. Federal Judge Says Amended Complaint Sufficiently Alleges GEICO Attempted To Avoid UIM Claim In Bad Faith

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LANCASTER, July 11 –  A Federal District Judge has ruled that an amended complaint sufficiently alleges that GEICO sought to avoid a UIM claim in bad faith on grounds that the vehicle in question was not added to the subject policy.  In Reidi v. Geico Casualty Co., U.S. Middle District Judge Lawrence Stengel found that the insureds sufficiently alleged Geico failed to follow its own policy language guaranteeing coverage for new vehicles if they were reported to the company within 30 days of acquisition.

After granting Plaintiff’s leave to file an amended complaint following a motion to dismiss which Geico filed to the original complaint, the Judge held that the newer pleading sufficiently alleged breach of contract and bad faith.

After purchasing a new car, Ms. Reidi and her son were involved in an accident with an uninsured motor vehicle. The insureds made a claim for UIM benefits to Geico, which denied the claim because the  the newly purchased car was not listed an insured vehicle at the time of the accident. Ms. Reidi brought suit against Geico including claims for breach of contract and statutory bad faith.

In the amended complaint, the insureds attached their automobile policy which assured coverage  to plaintiffs “as long as they request a car be added to the policy within 30 days of acquiring the car.”

Judge Stengel found that reference to the specific policy language re newly acquired vehicles was sufficient allegation of bad faith.  He wrote, “an insurance company ignoring its costumer’s claim in the face of its own policy language clearly guaranteeing coverage for the very claim at issue certainly forms the basis for a bad faith claim.”

Editor’s Note:  This particular fact pattern provides very unfavorable optics for the insurer, and can easily, in the hands of competent plaintiff’s bad faith counsel, be made to look as if the insurer was attempting to use a technicality to avoid its coverage obligation — a technicality that its own policy took care of with the after-acquired vehicle provision.

Reidi v. Geico Cas. Co.CIVIL ACTION NO. 16-6139 (E.D. Pa. Jul. 11, 2017)

Disability Insurer Prevails: Pre-Existing Condition Justifies Denial, Federal Judge Rules

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HARRISBURG, June 21 — A Pennsylvania federal judge has granted a disability insurer’s summary judgment motion, finding that a refusal of long term disability (LTD) benefits was neither arbitrary nor capricious, because the denial properly relied on a pre-existing condition exclusion in the policy.

In Yvonne Hilbert v. The Lincoln National Life Insurance Co., 15-471, M.D. Pa., 2017 U.S. Dist. LEXIS 93424), U.S. District Judge Sylvia Rambo ruled that Lincoln National Life Insurance Co., did not violate or abuse its discretion under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (1974) (ERISA), when it found that Ms. Hilbert’s claim was not covered under a LTD policy it issued to Delta Dental, covering her as an employee.
Hilbert worked at Delta Dental and received benefits under the company’s short term disability policy (STD) for back and leg pain, and depression, claiming she was unable to work.   When Lincoln reviewed her claim for LTD status, the LTD policy in question barred coverage for any condition for which the employee was treated within 3 months of her hire.  Lincoln determined that Hilbert received treatment for depression  during her “look back” period of  Aug. 1, 2011 to Nov. 1, 2011, and eventually denied Hilbert’s claim for LTD benefits pursuant to the pre-existing condition exclusion.  Lincoln contended that Hilbert did not prove she was unable to work independent of her depression.
Following the denial of her administrative appeals, Hilbert sued Lincoln in the Eastern District of Kentucky, but the case was moved by Lincoln to the Middle District of Pennsylvania on grounds that  that it was a more convenient forum.
Following transfer, the parties filed cross motions for summary judgment..Judge  Rambo granted Lincoln’s motion and denied Hilbert’s motion , ruling that Lincoln’s denial of LTD benefits was not arbitrary and capricious.  She rejected Hilbert’s argument that the grant of STD benefits undercut the denial — the STD policy did not have a pre-existing condition exclusion.  She also found that Hilbert failed to prove her inability to work was wholly divorced from her depression:
“[the record] demonstrates that Lincoln considered the relevant medical evidence and supports Lincoln’s decision that Plaintiff was not totally disabled due a physical condition as of September 18, 2012…Lincoln did not act in an arbitrary and capricious manner in characterizing the principal duties and responsibilities of Plaintiff’s occupation…Significantly, although Plaintiff treated with several medical providers, not a single physician — not even her primary care physician or her pain physician — supported her claim… Here, Lincoln’s decision to deny Plaintiff LTD benefits is supported by substantial evidence in the record, and without substituting the court’s judgment for that of the defendant in determining eligibility for plan benefits, the court concludes that Plaintiff is not entitled to benefits under the terms of the LTD Policy and that Lincoln’s decision was neither arbitrary nor capricious.”
The judge also found that Hilbert’s receipt of Social Security disability benefits did not entitle her as a matter of course to LTD benefits under the Lincoln policy, observing that SSDI rules do not bar coverage for pre-existing conditions.

Federal Judge Rules Pollution Exclusion Ambiguous; Orders Insurers To Defend School District In Copper/Lead Class Action

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Pittsburgh, June 9 – A U.S. District Judge in Pittsburgh has granted a motion for judgment on the pleadings in favor of a school district, ordering a primary and excess insurer to defend the district in a pollution class action case.  In The Netherlands Ins. Co., et. al. v. Butler School District, et. al., U.S District Judge Arthur Schwab interepreted pollution exclusions in the involved insurance policies as ambiguous because they did not specifically exclude pollution claims arising out of copper becoming “bioavailable.”

The school district had a  general liability policy issued by Netherlands and an umbrella policy written by Peerless.  The insurers sought a declaratory judgment in the Western District of Pa. that they had no duty to defend the district because the claims were within exclusions for “pollutants” and lead exposure.

Judge Schwab ruled that both The Netherlands Insurance Co. and Peerless Insurance Co. had to defend Butler Area School District and a prior superintendent, Dale Lumley,  from parents’ claims against the district for concealing hazardous levels of lead and copper in one of the district’s elementary schools.  The Court found the insurance policies’ general pollution exclusions were ambiguous enough to allow coverage and that the specific lead poisoning exclusions did not specifically reference copper.

In ruling on the parties’ cross-motions for summary judgment, Judge Schwab looked to prior decisions in lead paint cases which held that exclusions “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants,’” did not sufficiently address the gradual chemical process by which the paint caused lead poisoning.

“These findings are similar to the facts, as here, where lead and copper are essentially components of the water system at Summit Elementary, which have degraded over time, thereby allegedly rendering the lead and copper bioavailable.”

The judge also held that without a specific copper exclusion, the insurers were bound  to provide a defense in the underlying case, as there has been no factual decisions made as to whether the alleged injuries were caused by the lead, copper or both.  He also ruled that the duty to indemnify would have to await those factual determinations in the underlying case.

Judge Schwab emphasized the bedrock premise that the duty to defend was broader than the duty to indemnify, and then concluded:

“The court will not countenance the insurers’ invitation to turn Pennsylvania law relative to the duty to defend on its head, so as to allow the potential exclusion of a single type of claim to relieve them of their duty to defend, when the law actually requires a defense when a single potentially covered claim is alleged.”

The Netherlands Ins. Co., et. al. v. Butler School District, et. al., (W.D. Pa., June 9, 2017)(Schwab, J.)

 

Insured’s Claims Conduct Dooms Bad Faith Claim, Federal Judge Rules

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SCRANTON, May 30 – In Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017), U.S. District Judge Richard Conaboy dismissed the plaintiff’s bad faith case, finding that the insured, who was already paid nearly $350,000 for a fire property loss by State Farm, delayed and frustrated a disputed additional payment amount.

The parties disputed that the insured was entitled to more than $17,000 in landscaping charges.  The insurer had already paid $347,000 for other property loss.  And while the contract dispute over the landscaping fees was not resolved at summary judgment, the bad faith claim made by the insured was dismissed, Judge Conaboy finding it unthinkable” on the facts that a jury could find State Farm acted in bad faith.

The Court ruled that the issue of delay could be analyzed first by a review of the insuring agreement itself.  Judge Conaboy found that the policy placed a duty on the insured to advance his claim by providing information supporting the claim.  The insured in this case, the Court observed, delayed production of supporting documentation for over a year:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that ‘the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.’ Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. ‘The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith,’  citing J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004)…. In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)

 

 

Insurer’s Failure To Obtain Stacking Waiver On Added Vehicle Results In Stacked Benefits, Pa. Judge Rules

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STROUDSBURG, May 30 –  A Pennsylvania state court judge has decided that a driver was entitled to $400,000 in stacked coverage because the driver did not sign stacking waivers when adding the most recent vehicles to his policy.

In Newhook v. Erie Ins. Exchange, Monroe County Court of Common Pleas Judge David J. Williamson granted declaratory relief sought by  Kenneth Newhook when he filed a complaint against Erie seeking entitlement  to the stacked coverage.   Newhook was involved in a rear end accident when he was struck by a drunk driver, and he alleged he sustained severe injuries in the collision.

Erie paid $100,000 in single-vehicle coverage but denied Newhook’s claim for $300,000 in additional stacking benefits based on 3 other vehicles listed on the policy.  Newhook neither selected nor waived stacking  when adding the most recent vehicles, Williamson noted in his opinion.

Williamson declined to follow Erie’s argument that it had no duty to obtain new stacking waivers for the recently added vehicles after the insured initially declined stacking on the former vehicles:

“It appears that the existing case law varies regarding availability of stacked UM/UIM coverage when it is not selected by an insured, but also not specifically waived in writing…From a pure public policy standpoint, and in conformity with the intent of Section 1738 of the [Motor Vehicle Financial Responsibility Law], it would seem that when more benefits are available, a written waiver of those benefits should be given…Clearly, a significant change was made when the Ford Fusion was added to the policy. No stop-gap insurance was needed because Erie was informed and issued a new declaration and also renewed the insurance policy prior to the accident. No new waiver was executed.”

Williamson ruled in favor of stacking despite the fact that the vehicle in the accident, a Ford Fusion, was a replacement for an automobile on which stacking had originally been rejected.  The judge ruled that acquisition of the new cars was akin to the purchase of a new vehicle, on which a stacking waiver would be required.

A link to the opinion appears below.

Newhook v. Erie Ins. Exchange (Monroe C.P., May 30, 2017)(Williamson, J.)

Judge Rules IME Policy Provision May Violate Pa. Motor Vehicle Law

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SCRANTON, May 15  — A Pennsylvania federal judge  dismissed  bad faith and other claims against Allstate Insurance Co.  in a class action, but permitted claims brought under the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL)  by a woman injured in a car accident.

In Sayles v. Allstate Insurance Co., No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760),  Sayles filed suit after the company denied her claim for medical benefits for injuries she sustained following an automobile accident.  According to Sayles, Allstate denied her claim  because she did not first obtain a physical examination, as required in the insuring agreement.  The suit, originally filed against Allstate in Pike County,  was removed to federal Court.

Sayles claimed Allstate’s policy requirement of a mandatory medical examination violated provisions of the MVFRL which permit medical examinations by court order.  She also advanced claims under the Unfair Trade Practices and Consumer Protection Law, and for bad faith under 42 Pa,C.S.A. section 8371.  Sayles also sought class certification for Allstate policyholders denied medical benefits where Allstate had not first obtained a court-ordered physical examination

Allstate moved to dismiss all claims relating to its policy’s examination requirement, which permits it to require  insureds to undergo an independent medical examination (IME) by a physician of Allstate’s choosing as a condition precedent to payment of medical expenses.  Allstate claimed the provision was enforceable notwithstanding Section 1796 of the MVFRL, because Section 1796 relating to court-ordered IME’s  was permissive in nature, not mandatory.

U.S. Middle District Judge Richard Caputo granted the motion to dismiss as to the bad faith claims, but denied the motion regarding Sayles’ claims that the policy provision requiring IME’s violated the MVFRL:

“[T]he Court predicts that the Pennsylvania Supreme Court would find Allstate’s examination requirement, as alleged, in conflict with § 1796 of the MVFRL and thus void as against public policy.  The examination requirement conflicts with the plain language of the statute and is inconsistent with the twin purposes of § 1796.  Moreover, the Court is not persuaded by the ‘implication’ of the Superior Court’s decision in Fleming and, consequently, departs from the conclusion reached by the district court in Williams.  Instead, the Court finds it appropriate to rely on the opinion of the district court in Scott, as well as the opinions of Judge [R. Stanton] Wettick [Jr.] in Erie and Hoch.  Additionally, the Court finds the analogous case law from the Commonwealth of Kentucky addressing a similar statutory provision under similar factual circumstances compelling.  Accordingly, in light of the above discussion, Allstate’s Motion to Dismiss will be denied with respect to Counts I and II of Sayles’s Complaint.”

In dismissing both statutory and common law bad faith claims against Allstate, Judge Caputo recognized that the law regarding mandatory IME’s in Pennsylvania was not fully settled, and that Allstate was not unreasonable in relying on some lower court precedent which had approved of similar mandatory examination provisions.  He wrote, therefore:

“It was reasonable for Allstate to rely on [precedent] which supported Allstate’s decision to deny Sayles’s medical benefits based on her failure to submit to an IME per the terms of the Policy.  Because Sayles’s bad faith claim is predicated entirely on the examination requirement, the Court finds that the Complaint alleges only that Allstate made a ‘reasonable legal conclusion based on an area of the law that is uncertain or in flux.’ . . .  Accordingly, the Court will grant Allstate’s Motion to Dismiss with respect to Count IV of Sayles’s Complaint.”

The judge also dismissed Sayles’ claims for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, unjust enrichment and intentional misrepresentation.

Sayles v. Allstate, No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760) (Caputo, J.)

 

Pa. Judge: Bad Faith Case Severed, Jury To Hear Common Law Bad Faith Claims

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Pennsylvania’s  Westmoreland County Court of Common Pleas has denied a motion to stay of discovery in a  bad faith case pending completion of a UIM case, but has also ordered severance of trial of the bad faith claims under which common law bad faith claims will be tried by a jury, and statutory bad faith claims will be tried by the judge.

In Madeja v. State Farm Mutual Automobile Ins. Co., No. 5493 of 2016 (C.P. Westmoreland Co. April 11, 2017 Scherer, J.), the plaintiffs advanced both common law bad faith claims and statutory bad faith claims,  The trial court ordered those claims severed from the underlying UIM claim.  In a bit of a quirk, however, the court ruled that depending on the verdict returned on the UIM claim,  the common law bad faith claims would be heard with the same jury that determined the UIM claim while the court would hear the statutory bad faith claim on a non-jury basis.

A copy of the trial court order can be found here.

Editor’s note:  The trial court order in this case points out the somewhat unique nature of bad faith law in Pennsylvania — it is a two-headed creature with both a common law component and a statutory law component.  In this writer’s experience, trials of both statutory and common law bad faith claims is not the norm — statutory bad faith claims are usually singly tried to the bench in state court.  The court order in question sets up for a potentially unruly and cumbersome bad faith trail, given the likelihood of overlapping evidence presented on the common law and statutory bad faith claims.   The Court might streamline the process by simply taking evidence in a single bad faith proceeding, and then letting the jury render a verdict on the common law claims, with the Court issuing a decision on the statutory bad faith claims. 

The ruling could serve as an incentive to the plaintiffs’ bar to not only plead common law bad faith claims, but seek trial of those claims in an effort to work around what has traditionally been the province of the trial judge in bad faith cases. 

 

 

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Pa. Supreme Court Update: Is Ill Will A Required Element of Bad Faith?

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PITTSBURGH, April 4  — This week, the  Pennsylvania Supreme Court heard oral argument on whether intentional ill will or malice was a required element to make out a claim for insurance bad faith in Pennsylvania, exposing insurers to punitive damages.

In Rancosky v. Conseco, the Pa. Superior court reversed a trial court ruling in favor of an insurer on bad faith claims following a bench trial.  The Superior Court held that the insurer  did not have a reasonable basis to deny benefits to LeAnn Rancosky following her diagnosis of ovarian cancer in 2003.  The intermediate appeals court relied on its 1994 ruling in Terletsky v. Prudential, and held that while it was a consideration, ill will and malice was not a stand-alone requirement to establish insurer bad faith.

Ms. Rancosky and her husband sued Conseco in the Washington County Court of Common Pleas in 2008,  and eventually won a $31,000 jury verdict on breach-of-contract claims.  Conseco prevailed, however, on the bad faith claims.

During argument this week, Conseco argued to the state Supreme  Court  that Pennsylvania’s bad faith statute does not contemplate punitive damage awards against carriers without evidence of a malicious motive.  In response, Rancosky’s estate argued that proving ill will was exceptionally difficult, and that making bad motive a requisite element would allow insurers to handle claims recklessly and carelessly without fear of penalty.

Law360.com reported that during argument earlier this week,  Justice Max Baer saw the appeal of Rancosky’s arguments, stating “It’s hard to prove that kind of motive, and if you’re going to hold the insured to that burden then you tend to put the rabbit in the hat and the insurance company wins because they say, ‘We’re the most incompetent organization in the world. We were dead wrong, but we had no motive of ill will.’”

A ruling is anticipated later this year.

Editor’s note:  Justice Baer’s comments during oral argument this week are emblematic of a trending misconception that the Pa. Bad Faith Statute created anything beyond an intentional tort cause of action.  There is a large body of case law in both Pa. state and federal courts holding that mere negligence is not bad faith, and that an insurer has the legal right to be wrong on claims decisions, as long as the decision can be supported by a reasonable basis. 

There should be no real dispute that reasonable but negligenct claims decisions are not actionable, and that intentionally malicious claims decisions are actionable , under the bad faith statute.  The  current battleground in Pennsylvania appears to be the class of claims decisions which lie in the twilight between these two signposts, i.e., claims decisions made recklessly, and wanton disregard to the insured’s rights.   Rancosky is an attempt to find clarity in this twilight.

 

 

No Bad Faith Claim Where UIM Claim Not Covered Under Antique Auto Policy

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PITTSBURGH, March 13 – U.S. District Magistrate Judge Cynthia Reed Eddy has dismissed both a bad faith and breach of contract claim against an issuer  of an antique auto policy where the alleged injury occurred in a vehicle not covered under the UM/UIM portion of the policy.

Bish v. Am. Collectors Insurance, Inc., et. al., (W.D. Pa., March 13, 2017)(Eddy, U.S.D.M.J.)

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