We have a 15-year-old cover case in the office, with no end in sight. The surprising thing is that it’s not even a particularly complicated issue. I don’t want to go into too much detail or give the names of the parties, because the matter is still pending. But even if we eventually get the carriers to pay the claim, they win, because they’ve already invested the premium dollars and paid out the potential claims, and they’re making a good profit. (By the way, they lost out on a liability coverage experience 10 years ago, and have since been using the concept of proper loss assignment to delay judgment day. They’re really good at throwing molasses into the machine.) It’s just a shame and so frustrating that so few judges are willing to call out comp. transport on it.
The situation recalls the words of Professor Rutgers Jay M. Feynman in his brilliant and insightful book Delayed Denial of Defense (Delden Press 2010). Professor Feynman writes:
“The time lag between obtaining premiums and paying claims (the “float”) and the income earned at that time is a major source of profit; in 2007, industrial investment profits totaled $58 billion. Warren Buffett, whose Berkshire Hathaway affiliate has said GEICO and other insurance companies, flotation is the great thing about the insurance business, because “the money is not ours but we have to invest it.”
This is the game often played by carriers in New Jersey’s many complex commercial insurance claims. First, take a “no pay” position and dare to sue the policy holder. It won’t do much. Then, if the policyholder sues and determines liability, the carrier argues that he is only liable for a small allotted share. Meanwhile, the carrier pays its attorney discounted rates to defend the coverage claim, while investing the money it would have had to pay on behalf of the policyholder. What a deal.
Of course that wasn’t how personalization was supposed to work. As the late Judge O’Hearn wrote in the influential New Jersey appropriation case for Owens-Illinois vs United Ins. a company , 138 NJ 437, 479 (1994): “Insurers whose policies are operated due to injury during the policy period must respond to any claims made to them and, if they refuse full coverage, they must initiate procedures to determine the portion of defense and reimbursement costs. In the event of failure. In providing coverage, the policyholder may recover costs incurred under the provisions of Rule 4:42-9(a)(6).
under Owens, if the carrier rejects the claim completely and does not initiate the required allotment procedures, the logical conclusion is that the carrier should be liable for the full amount of the loss. Unfortunately, many judges are uncomfortable with this concept, so delays, denials, and defense continue.
Another case in our office presents an interesting twist on the topic of personalization and delay. (I omitted the names again, because the case is still pending.) The case involved the sometimes difficult area of advertising liability coverage. Basically, the relevant policy provided coverage for copyright infringement committed in the course of advertising activity. Our customer has been sued by a competitor for allegedly providing access to infringing computer software, including on our customer’s website, in an attempt to attract customers. The legal fees spent defending the lawsuit were substantial. The case was eventually settled, without any liability to our customers. Two carriers will likely carry coverage for our customers. Carrier One, which apparently thought it had better things to do with its time, paid nearly half of defense costs for the release. But Carrier Two refused to waive the “no-pay” position, so we had to file a lawsuit. There were several issues of interpreting the policy, but the key point was that Carrier Two sold a policy that covered copyright infringement and then dismissed the claim on the grounds that the copyright infringement shouldn’t be covered because it was an intentional error.
The Court of First Instance, in part, in issuing a summary judgment in favor of our client and awarding us our legal fees in the cover case, wrote:[T]It is… the policy defines “advertising harm” in four ways; This concerns the first definition: (1) copyright infringement. according to [the competitor’s] complaint…, [the policyholder] allegedly infringed on [the competitor’s] Copyright directly and contributor. Thus, by promoting its own product, [the policyholder] She was involved in advertising when she allegedly caused advertising harm – as defined in… Policy – to [the competitor]. “
In other words, if you sell a policy that covers copyright infringement in advertising activity, you may have to cover a lawsuit alleging copyright infringement in advertising activity. What a unique concept.
Regarding the assignment, the court wrote, quite simply: “The New Jersey Supreme Court has consistently determined that ‘if the complaint includes multiple or alternative grounds for action, the duty to defend shall be attached so long as any of them will be covered by the claim and shall continue until all covered claims are resolved. Here, two out of four claim it [competitor] allegedly against him [policyholder] In the 2012 proceeding – the two copyright claims – are covered by the… policy. Thus, to allow [carrier] To avoid her duty to defend [policyholder] It goes against New Jersey Supreme Court precedent and public policy.”
The decision was confirmed on appeal, but the insurance company has now succeeded in applying to reconsider the appeal decision, on the grounds that the rules provide for oral arguments, and the Appeals Chamber issued its confirmation without giving the attorney his time to shine. delay, refusal, impulse.
The key to overcoming the delay, denial, and defense (“DDD”) ruse is to impose costs on the carrier beyond the amount of the insurance claim. This can throw off the entire insurance company equation. Unfortunately, the bad faith law in New Jersey has been so destroyed that the courts have ruled that unless the policyholder succeeds in bringing a summary judgment against the insurance company in connection with a coverage claim, bad faith does not exist. Since overcoming hasty judgment only requires one matter of fact, it is difficult to meet the bad faith criterion.
However, there are other ways to threaten the insurance company with damages outside of contract and combat DDD. The first is R. 4:42-9(a)(6), which allows policyholders to recover attorneys’ fees against the insurance company if they have to file a lawsuit to enforce coverage on a third-party liability claim. Of course, the insurance industry managed to convince an Appeals Division committee that the rule should not apply to allotment proceedings, despite the explicit language of Owens Illinois On the contrary, and despite the fact that “customization” is currently a primary weapon in the DDD arsenal of tankers. (Litigating the insurance industry is a lot like playing Whack-A-Mole.)
Another tool for policyholders in state (but not federal) court is the judgment offer rule, R. 4:58. Basically, the policyholder submits a settlement application to the court at least 20 days before the trial date of the coverage case. The insurance company can accept the order up to 10 days before the trial date, or 90 days after serving the order, whichever comes first. If the policyholder redeems at least 120% of the offer (not including permissible legal fees or interest), then in addition to the financial provision, the policyholder is entitled to pay the legal fees, plus interest of 8% from the date of the offer or the date of completion of discovery whichever comes first.
The last tip I will give in this post is, when the insurance company agrees to accept a “share” of the loss, immediately ask to see the proposed assignment in writing. If the insurance company fails to comply, or uses questionable methodology that is inconsistent with the facts of the case, it may eventually support a dodgy bad faith judgment. Keep in mind that for commercial property and liability policies for which the annual premium is $10,000 or less, insurance companies are required to respond to relevant claims communications within 10 business days. NJAC §11: 2–17.6.