2010 Professional Risk
Symposium: EPL, E&O
and Fiduciary
PLI Claims Trends:
Fresh Perspectives
PLI Claims Trends:
Fresh Perspectives
Moderator:
Meryl R. Lieberman, Esq., Founding Partner, Traub Lieberman Straus &
Shrewsberry LLP
Panelists:
Judge Marina Corodemus (Ret.), Esq., Director ADR Practice Area,
Corodemus and Corodemus, LLC
Charles K. Graber, Esq., Shareholder and President, Charles K. Graber, Esq., P.C.
Jeffrey R. Lerman, Esq., Partner, Montgomery, McCracken, Walker & Rhoads, LLP
Jeanette Bourey McDonough, Esq., CPCU, Claims Counsel, Markel
PLI Claims Trends:
Fresh Perspectives
• At the core of every bad faith cause of
action is the recognition under the law
that insurance companies owe a duty
of good faith and fair dealing to the
persons they insure.
HAT TRICKS
•
Comparative examples from three
popular states:
1. New Jersey
2. Florida
3. California
New Jersey
1. New Jersey Supreme Court Defines Bad Faith in Pickett v.
Lloyds, 131 N.J. 457, 621 A.2s 445 (N.J. 1993)
2. New Jersey recognizes an action of bad faith claim for
denial of insurance benefits where:
• No reasonable basis exists for denying benefits
• Coverage obligation is clear and not “fairly debatable”
3. The “fairly debatable” standard is based on the idea that
when an insurer denies coverage with a reasonable basis
to believe that no coverage exists, it is not guilty of bad
faiths even if the insurer is later held to have been wrong.
Polizzi Meats, Inc. v. Aetna Life & Cas. Co., 931 F.Supp.
328, 334 (D.N.J. 1996).
New Jersey
4.
Insurance regulations in New
Jersey impose on insurers the duty to
act “in good faith to effectuate prompt,
fair and equitable settlements of claims
in which liability has become
reasonably clear.” N.J.A.C. 11:3-10.5
Florida
•
The Supreme Court of Florida, in State Farm Mut. Ins. Co. v. LaForet,
658 So. 2d 55 (Fla. 1995), expressly rejected the “fairly debatable”
standard.
•
Under the “fairly debatable” standard, a claim for “bad-faith” can
succeed only if the plaintiff can show the absence of a reasonable
basis for denying the claim.
•
Under Florida law, the standard of care that the insurer must exercise
when handling claims against the insured "the same degree of care and
diligence as a person of ordinary care and prudence should exercise in
the management of his own business."
•
The Florida Statute, states that an insured has a cause of action for
bad faith, when the insurer did not attempt "in good faith to settle claims
when, under all circumstances, it could and should have done so, had it
acted fairly and honestly towards its insured and with due regard for her
or his interests." § 624.155(b)(1), Fla. Stat. (2002).
California
• The key to a bad faith claim in CA is whether the insurer's denial
of coverage was reasonable. “When an insurer unreasonably or
without proper cause, withholds a payment or denies a payment
that is due under the policy, the insurer has not only breached the
contract, but is subject to the tort of bad faith.
• The ultimate test is whether the insurance company acted
unreasonably. A bad faith claim can be dismissed on summary
judgment if the defendant can show that there was a genuine
dispute as to coverage.
• Third party coverage also contains a duty to settle a reasonably
clear claim against the policyholder within policy limits. This
avoids the risk of a policyholder being hit with a judgment in
excess of the policy limits. If the insurer breaches its duties to
defend, indemnify, & settle, it may be liable for the entire amount
of any judgment against the policyholder, even if the amount is in
excess of policy limits.
Examples of Bad Faith
Unreasonable denial in Coverage
Unreasonable delay in payment of a claim
Duty to Investigate
Duty to Disclose Coverage
Wrongful Refusal to Defend Third Party Claim
Duty to Settle
Unreasonably Low Settlement Offers
Other Bad Acts
• Threatening to rescind the policy where there are
no grounds for such.
• Unsupported allegations that the insured is guilty of
fraud may constitute evidence of bad faith
• False promises to provide coverage
• Hostile or sarcastic attitude of Insurance adjuster
may constitute evidence of bad faith
Other Examples
• Failure to promptly and thoroughly investigate a
claim
• Unreasonable interpretations in translating policy
language
• Refusing to settle or inadequate offers to settle
• Unreasonable denial of benefits to a claim or
termination of a claim that should have been paid
• Unreasonable delay in making payments to a policy
holder
• Unreasonable attempts to under-settle a claim.
State Farm
•
State Farm Mutual Auto. Ins. Co. v. Campbell,
538 U.S. 408 (2003).
• Campbell sued State Farm for damages arising
from its decision to try a third-party automobile
accident case in which Mr. Campbell was the
defendant, rather than accepting offers to settle for
Campbell's insurance policy limits. The jury found in
Campbell’s favor, awarding $911.25 in out-ofpocket costs, $2.6 M in compensatory damages,
and $145 M in punitive damages.
Verdicts
•
Riehs v. Rutgers Casualty Insurance Company,
•
In New Jersey, if a plaintiff is willing to settle his or her
claim for the defendant’s policy limits, and the
defendants’ insurance company, in bad faith, refuses to
tender the policy limits, then any excess verdict will not
be the responsibility of the defendant, but rather will be
the responsibility of the insurance company. Rova Farms
Resort Inc. v. Investors Insurance Co., 323 A.2d 495
(N.J. 1974). In January, 2010 New Jersey case, a
verdict of approximately $186,000 was awarded by a jury
after trial against Rutgers Casualty Insurance Company’s
insured, The plaintiff had advised defense counsel of his
willingness to settle the case for the insured’s $100,000
policy the full amount of the verdict was deemed payable
by the insurance company.
The Rainmaker
• Mrs. Black (Mary Kay Place) reads a letter
from her insurance company, denying her
son's claim. "You must be stupid, stupid,
stupid," says the letter.
Insufficient Limits
• When the damages exceed the limits
• When the insured can’t accept a potential
excess exposure
• When the co-defendants are uninsured and
there is joint and several liability
• Where XS policy does not match primary
• When the aggregate limit has been eroded by
unrelated claims or defense costs
Multiple Claims
• When more than one claim has been made
against the policy
- need to analyze each claim separately
• In some jurisdictions there is a duty to try to settle
all claims, even if not in same proceeding
- global mediations are helpful
• Work closely w/Insured and its personal counsel
in reviewing exposures and various resolution
scenarios
Multiple Insureds
•
When a settlement demand is made
against one but not both defendants
- can’t leave second defendant w/o a
defense by settling out least culpable
defendant for remaining limits
- need to include both defendants in
discussions of how to reach resolution
- if interests are adverse, each defendant
should have separate defense counsel
Bad Faith Claims
• Where a claim is not settled and an Insured is
found liable in excess of policy limits, or where
the duty to defend or indemnify was denied, the
Insured can allege that its Insurer breached its
duty of good faith under either a statute or
common law and seek to recover its
consequential damages.
• This first party type of bad faith claim is generally
assignable to the underlying plaintiff or judgment
holder against the Insured.
Bad Faith Pitfalls
• Failure to promptly issue a reservation of rights
when coverage issues are identified
• Failure to urge Insured to retain independent
counsel at its own expense whenever there is
potential excess exposure
• Failure to recognize Insured’s right to independent
counsel paid under the policy when required
• Failure to advise Insured and/or its personal
counsel of need for consent as soon as it becomes
clear that case should be settled
More Bad Faith Pitfalls
• Failure to initiate early settlement discussions where
limits are potentially inadequate or policy is cost
inclusive
• Failure to consult with Insured on response to
settlement demand that exceeds limits
• Failure to make reasonable settlement offer when
liability is clear & damages are known or
ascertainable
• Failure to accept limits demand when liability is
clear, damages could exceed limits, and consent is
given or unnecessary
WHAT IS BAD FAITH?
• Most courts define bad faith as acting (or not
acting) without a reasonable basis with
knowledge of the lack of a reasonable basis
or with reckless disregard of the absence of a
reasonable basis
• But: Does this definition really help the
insurance professional in the real world?
A GOOD LAWYER ASKS:
• Is the conduct in question representative of
good faith? Bad faith is the opposite of good
faith.
• Is the conduct arbitrary?
• Was the insured harmed?
• Can we win?
A GREAT LAWYER ASKS:
• Does the case have PIZAZZ?
• Is a jury going to be ANGRY?
• Is it SEXY?
• Do I go WOW?
WOW FACTORS:
“They must be crazy. They’re not offering a
dime. They won’t give me authority to offer
any money in this case, you know I can’t
believe it.”
Birth Center v. St. Paul Cos., Inc.,
787 A.2d 376,380-81 (Pa. 2001)
(quoting N.T. 5/3/96 at 69).
WOW FACTORS:
“[We try] all of these bad baby cases,
and we’re going to trial.”
Birth Center v. St. Paul Cos., Inc.,
787 A.2d 376,380 (Pa. 2001)
(quoting N.T. 5/6/96 at 16).
More Wow
(but only after digging)
“She/he who has control of the dollars
is in a position of power!
If you are in a position of power,
use it!
If you are in a position of no power,
delay.”
Negotiating Skills for the Claim Professional,
introduced as an exhibit in
State Farm v. Campbell
More Wow
(but only after digging)
Premise:
“Show me a company’s compensation plans, and
I’ll show you how its people behave.”
Jack Welch, How to Be a Good Leader,
Newsweek, (Apr. 4, 2005) (quoting Charles
Ames, former chairman and CEO of Reliance
Electric Co.).
Courts Agree on
the Wow
• Evidence of a philosophy to reduce average claim
payment to level first consistent with, then lower
than, major competitors supported bad faith verdict.
• Evidence regarding Provident’s practice of claims
adjudication in light of “termination ratios” in respect
to claims arising under disability policies supported
bad faith verdict
• Evidence suggested State Farm set arbitrary claim
payment goals for its claims personnel to reach goal
of having the most profitable claims service in the
industry; promotions & salary increases for claims
personnel were based upon reaching these goals.
Courts Agree
on the Wow
• Evidence of corporate policy of taking tough stance
towards insureds implemented through periodic
evaluations of claim handlers and supervisors
admissible as evidence of bad faith.
• Evidence that claim personnel had a financial
incentive to deny claim.
• Evidence that State Farm had a comprehensive
nationwide policy of handling certain claims in a like
manner.
Rewarding Claims
Personnel
for Not Paying:
• An insurer cannot encourage its claim
personnel to meet certain arbitrary average or
median claim payment amounts before the
facts and circumstances of the claims to be
evaluated and valued are known. It is, by
definition, arbitrary.
• Don’t you agree?
Mantra
• Bad Faith is an arena where few gladiators
should be. It’s tough combat. Blood is spilled,
and it’s not for the faint of heart.
• To be successful, the Plaintiff lawyer must
wake up with two questions, each and every
day:
What did the company do last night?
What are they hiding today?
WHAT IS GOOD FAITH?
• Treat the insured fairly
• Give at least equal consideration to
the insured’s position as the
company’s position
• Search for basis to find coverage,
not grounds for denial
• LOOKING GOOD – THE ROLE OF
HONESTY AND SINCERITY
COMMON NEGATIVE
VIEWS OF INSURERS:
• They deny claims whenever possible
• They delay claims as long as possible
• When they do pay they nickel and
dime as much as possible
• THE PREVALENCE OF THE
“RAINMAKER” ATTACK
A FAIR AND MORE
REALISTIC WAY TO
THINK OF INSURERS
• Who is the insurer/personalize
• The Insurer is the people you see in court who
like other working people have a job to do
• Nobody’s perfect
• Not all claims are legitimate or honestly or
reasonably computed and presented
• The interests of the insurer do not have to be
abdicated by its employees.
• Just like banks, an insurer’s employees do not
always have to agree with the customer
THE TRUTH OF
MODERN INSURERS
• Delay is expensive
• Procedural safeguards are almost universally in
place to prevent unreasonable denials
• Customer satisfaction means repeat business
for insurers too
• Auto insurers now have repairs done in days;
homeowner claims get investigated & approved
almost immediately through high tech systems
NEGOTIATING IS FAIR GAME;
TAKING UNFAIR ADVANTAGE IS NOT
WE ARE NOT AN HMO OR A
HEALTHCARE INSURER
CREATIVE SELECTION
OF THE SPOKESPERSON
•
•
•
•
Claims handler
Supervisor
Expert
Bottom line:
WHO CAN WEAR THE WHITE HAT
COMFORTABLY AND APPEARS ABOVE
REPROACH
PROTECTING THE INSURED AS
“JOB ONE”, REASONABLY AND
CONSISTENT WITH THE POLICY
TERMS AND CONDITIONS
IS IT ENOUGH TO OFFER THE
COMPANY’S FAIR SHARE?
EMBRACING OR
CREATING DISTANCE
FROM THE FILE
• Profanity
• Favoring the insurer
• Disregarding the interests of the
insured
• Individual or group disparagement
• Having a closed mind
• Discourtesy
REAL “THE FILE IS ON
TRIAL” PROBLEMS
• Let’s roll the dice on this one
• No way am I going to tender
• Try your best to save something off the policy
• Let’s wait until they’re desperate
• In fact, the kid comes from parents that are a
step above retarded. What do they expect
• Unfortunately, I cannot find basis to deny
coverage
IF YOU DO NOT BELIEVE INSURERS
CAN BE SET UP THERE IS
A BRIDGE IN BROOKLYN I WOULD
LIKE YOU TO SEE
• Demand letters
• Bad faith letters
• The “set up” as an art form
SOMETIMES YOU HAVE TO
PUT THE INSURED AND ITS
ATTORNEY ON TRIAL
• Reverse bad faith
• The conduct of the insured/claimant as
part of “what happened”