Kevin Willging Executive Counsel Travelers Asim Desai Alex Mahler amp Craig Jacobson Partners Gordon amp Rees Outline What is Good Faith Claim Handling Dealing with Bad Faith Setups ID: 759200
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Bad Faith Damages in Third-Party Claims
Kevin
Willging
, Executive
Counsel, Travelers
Asim Desai, Alex Mahler &
Craig Jacobson, Partners, Gordon & Rees
Slide2Outline
What is Good Faith Claim Handling?Dealing with Bad Faith Set-upsNavigating Multiple Claimant/Inadequate Limit scenariosUnderstand Consent Judgments
Slide3What is Good Faith Claim Handling?
Acting prudently and reasonably.Keeping your insured’s interests at least equal to the company’s.Following the laws of the jurisdiction.Fulfilling the obligations of the insurance contract.Settling on behalf of your insured, when it is reasonable to do so.Doing all of the above in a professional manner.Main Causes of Bad Faith Lawsuits:DelayCoverage DenialsInadequate InvestigationSettlement NegotiationsExcess exposure
Slide4In Most Jurisdictions
Negligence and judgment errors are not bad faith. Facts in support of a bad faith claim must demonstrate negligence plus bad faith conduct.If plaintiff proves insurer knowingly acted unreasonably, punitive damages may be possible.
Slide5Insurer’s Duty to Settle
Most Liability policies give insurer the right to control settlement.Potential conflict of interest when it relates to settlements within policy limits.What is the standard for proving bad faith failure to settle claim?Insurer must consider insured’s interests when determining whether to settle within policy limit.The bad faith litmus test.
Slide6Bad Faith Set-Ups
Slide7Understanding The Reasons For The Set-Up Demand
Serious injuries with significant damages – limits are not enough.Plaintiff’s counsel may actually want the demand to be rejected, but Plaintiff must give the appearance of a willingness to settle.If there is no settlement and an excess verdict, plaintiff will refer to demand as proof of carrier’s opportunity to settle.
Slide8Identifying Those Claims Where The Demand Is Likely
High Exposure/Large Damages.Liability more likely than not.Liability is not likely but the damages are far greater than available limits.Multiple claimants whose claimed damages exceed the available limits.
Slide9“Silent” Set-up
Silence ≠ Acquiescence.If an offer is finally made (late), it will likely be rejected.No further negotiations will take place and an excess verdict will be taken.Advice: In clear liability/significant damage claims, quickly gather information necessary to confirm claim is worth more than limits and make an offer.May not be “all” information – just “enough” information.
Slide10Demand Above Limits
To prove bad faith, plaintiff must show that case could have settled within limits.A demand for more than limits would seem to contradict that notion.But wait . . . Claimants will make excess of limits demands in the hopes that:Insurer’s answer will be flat “no.”Insurer will not advise/seek contribution from insured.Always communicate demand to the insuredMake fair offers where appropriate-even if you can’t meet demand
Slide11Multiple Insurer Demand
In situations in which there are multiple insurers involved, claimant may make demand on all, and a settlement requires acceptance by all.If C/H knows that another insured does not intend to accept, they may feel secure in likewise not accepting.Only one way to know for sure that compliance by carrier will not settle the claim is to actually accept the demand.If carrier accepts and performs that part of the settlement over which it has control, it may have created a “safe harbor” such that no bad faith claim can be pursued. Brightman (GA).
Slide12Conditional, Time-Limited, Policy Limits Demand
Creates appearance of an attempt/opportunity to settle the case.Reality is they don’t want carrier to agree to settlement.Mirror Image Rule.Only way to accept the demand, is to meet every condition of the demand.If even one condition is not met, the demand is not accepted.So, demand is made with the intention of “tripping” carrier up into failing to meet one or more condition.Demand contains multiple conditions.Some of which are hard to recognize, decipher.Some are hard to meet.
Slide13Conditional, Time-Limited, Policy Limits Demand
Conditions within the Carrier’s control:Response required within time deadline.Acceptance requires “tender” or “check in hand.”Certified copy of the policy/Insurance Disclosure.Can certified copy be obtained in time?Strict compliance with insurance disclosure will be enforced.
Slide14Conditional, Time-Limited, Policy Limits Demand
Conditions within carrier’s control (continued)…“Standard” release.May mean no indemnity/hold harmless provision.Probably do not want to include carrier on release.Certain parties are being released (and not others).All insureds?Disclosure of certain aspects of the claim file.No attempt at verbal contact/modification of demand.Payment of both BI and PD limit.Even though PD claim may be overvalued/ unsubstantiated.If there are separate BI/PD adjusters, coordinate response.
Slide15Conditional, Time-Limited, Policy Limits Demand
Conditions Outside of the Carrier’s control:Affidavit of “No Other Insurance.”Financial Affidavit.Provide Information relative to the incident.Cannot compel the insured to comply with these requests.Must inform the insured:About the demand – promptly.About the request – promptly.If there is not strict compliance, there can be no acceptance.
Slide16Conditional, Time-Limited, Policy Limits Demand
Must inform the insured (continued)…Without acceptance, claimant may not entertain settlement again, and an excess verdict could be sought.Insured can retain counsel (at its expense) to discuss demand/condition.If the carrier wishes to accept, but insured refuses to comply, insurer should attempt to comply with all conditions over which it has control.will be considered a counter-offer.
Slide17How to Respond to a Set-Up
An ounce of prevention . . . Immediately advise the insured of any demand.Read the demand in its entirety (not just the $).Watch for “buried” demands.Carefully determine the deadline and calendar it.Determine early on whether the essential investigation is complete or can be completed before demand expires.
Slide18How to Respond to a Set-Up
If more time is needed, ask for an extension as early as possible.Carrier has the right to a prompt investigation.Be specific about why additional time is necessary.If an extension is given:Confirm in writing.Act quickly to obtain information within the extended time window.
Slide19How to Respond to a Set-Up
Attempt to clarify any ambiguous terms of the demandAny release that accompanies acceptance, should be a “proposed release”If acceptance is not possible/desired, consider a counter-offerIf case is not worth plaintiff’s demand, propose a lower, reasonable number.If all conditions can’t be met, meet those that can be, and propose settlement on those terms.
Slide20How to Respond to a Set-Up
Where appropriate, express sympathy/condolences for the claimant and their family.Correct any misstatements/misrepresentations (specifically or generally).Document the file with everything being done to respond to demand and why you’re taking the position that you’re taking.
Slide21Practical Suggestions
Communicate with the insured on everything relative to the claim, but especially settlement demands/offers.Always respond to a time-limited demand, even if the response is to ask for more time.Use your resources.Recognize the red flags.Seek out advice on how best to respond.The response to the set-up demand is going to be the central piece of evidence in the bad faith case.Often, bad faith case will boil down to this question: Who was being more reasonable in trying to get the case settled?Be the more Reasonable Person!
Slide22Multiple Claimants and Inadequate Limits
Slide23Multiple Claimants/Insufficient Limits
The Scenario:Multiple Parties injured in a single accident.Value of those Claims will exceed the limit of all available policies.
Slide24Multiple Claimants/Insufficient Limits
Insurer Dilemma:Settling with one claimant, will exhaust deplete remaining limits.May not be enough $ to pay remaining claimants.May leave insured personally exposed.Not settling with any claimants could expose carrier to bad faith.
Slide25Multiple Claimants/Insufficient Limits
General Rule: An insurer may settle with fewer than all claimants and deplete/exhaust limits.As long as settlements are made in good faith.Investigation/Evaluation should be done to determine relative seriousness of claims.Minority Rule: Carrier must accept first limits demand made if it’s reasonable (TX).Even if other claims exist that are as serious.
Slide26Multiple Claimants/Insufficient Limits
Practical Suggestions:Attempt to achieve global settlement of all claims.Through Mediation, Settlement Conference, or pro rata settlement offers.If unsuccessful, eliminate those claims presenting the greatest exposure for the best settlement possible.
Slide27Multiple Insureds Issues
Slide28Multiple Insureds/Insufficient Limits
The Scenario:Multiple Insureds are potentially liable for loss.Employee/Employer.Vehicle Owner/Operator.Claim is worth more than policy limits.Claimant makes demand to release one insured, but not the other(s).
Slide29Multiple Insureds/Insufficient Limits
Insurer’s DilemmaSettlement for one insured will leave the other insured “bereft of coverage.”Failing to settle on behalf of any insureds could exposure carrier to bad faith.
Slide30Multiple Insureds/Insufficient Limits
General Rule (on limited authority):Insured may settle on behalf of one, but not all insureds (IL, FL, PA, MO, OH, TX).Minority Rule:It is bad faith to settle on behalf of less than all insureds (CA, NY, AK)Leaving some insureds without coverageShowing preferential treatment Hinders long-term goal of global settlementsDoes the non-settling insured have coverage elsewhere?
Slide31Multiple Insureds/Insufficient Limits
Practical Suggestions:Always attempt to get all insureds included release.Confirm in writing that claimant will not agree.Determine whether non-settling insured has coverage elsewhere.Determine whether your state allows settlements with less than all insureds.
Slide32Consent Judgments
Slide33The Scenario…
Injury claim with moderate or significant damages.Plausible liability defenses for the insured.Insurer has good coverage defenses.Carrier denies defense or issues a Reservation of Rights letter.Carrier is presented with a settlement demand within limits.
Slide34The Fall-Out…
With no prior notice, insured and claimant enter into a stipulated, consent judgment.Judgment amount is more than insurer valued claim; and often more than the policy limit.Insured receives a covenant-not-execute.Claimant receives an assignment to pursue the carrier for the full judgment amount.
Slide35What about the policy?
Most liability policies provide:Insured shall cooperate with insurer in the investigation, settlement or defense of a claim.Insurer may make such investigation, negotiation and settlement . . . as they deem expedient.Insured shall not, except at its own cost, make any payment, assume any obligation or incur any expense.
Slide36Challenges to Consent Judgments
Coverage position was correct:Underlying complaint did not trigger defense obligation.Loss is not covered – no indemnity owed.Was the insured “released” from the underlying claim?Is the insured “legally obligated to pay …”?
Slide37Challenges to Consent Judgments
Judgment may be unenforceable if it was the result of fraud or collusion.Difficulty lies in proving fraud/collusion.Many courts employ a “reasonableness” standard.Particularly if the carrier was providing a defense under ROR.Burden of proof varies from state to state.
Slide38Offering an Unconditional Defense
Majority of states hold that an outright defense precludes a Consent JudgmentInsured is not left in a position of wondering whether there will be coverage or personal exposure for entire judgment.No reason to excuse insured’s obligation to cooperate with the insurer.
Slide39Refusing a Defense
An outright refusal to defend gives the insured the right to enter into a Consent Judgment.Typically, the insured/claimant (by assignment) must establish the existence of coverage before enforcing the Consent Judgment.In some states, wrongfully refusing to defend estops carrier into coverage.Missouri suggests that the insured need not prove a breach of the duty to defend:“The standard is whether the insurer had the opportunity to control and manage the litigation, not whether the insurer had the duty to [do so].” Schmitz v. Great American (2011).
Slide40Shades of Gray – Defending under ROR
Theory No. 1 – No Consent Judgment allowed.If the carrier hasn’t breached, why would the insured be entitled to breach the “cooperation” and “voluntary payment” provisions? Kelly v. Iowa Mutual (Iowa 2000).Offering a defense under an ROR, is not technically a breach of the policy by the carrier. Continental Casualty v. City of Jacksonville (11th Cir. 2008).
Slide41Shades of Gray – Defending under ROR
Theory No. 2 – The insured is free to enter a Consent Judgment.“The insurer’s insertion of a policy defense by way of [ROR] narrows the reach of the cooperation clause and permits the insured to take reasonable measures to protect himself against the danger of personal liability.” USAA v. Morris (Ariz. 1987)Offering a defense under ROR, is the “equivalent to a refusal to defend.” Butters v. City of Independence (Mo. 1974)
Slide42Shades of Gray – Defending under ROR
Theory No. 3 – If the insurer offers an ROR defense and the insured accepts, insured cannot enter Consent Judgment.But insured may reject the ROR and proceed to protect its interests. Taylor v. Safeco (Fla. Dist Ct. App. 1978).Normally, if the insured indicates that it does not wish to be defended under an ROR, the carrier has the ability to withdraw the ROR and defend unconditionally.However, the insured cannot accept the defense and then “change its mind” once it has an opportunity to enter into a Consent Judgment.
Slide43Shades of Gray – Defending under ROR
Theory No. 4 – Insured being defended under ROR may settle if the insurer “breaches its duty by refusing fair and reasonable settlement offers.”Babcock & Wilcox v. American Nuclear Insurers (Pa. 2014). PA Supreme Court expressly held that insurer’s refusal to settle need NOT be the result of bad faith.
Slide44Defend or Not?
Slide45Questions?
Wrap Up and Review
Asim DesaiDirect: 213-270-7850adesai@grsm.com
Kevin
Willging
Direct: 443-353-1919 kwillgin@travelers.com
Craig Jacobson
Direct: 312-980-6784craig.jacobson@grsm.com
Alex MahlerDirect: 312-980-6782amahler@grsm.com
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