I’ve been representing policyholders in insurance claims litigations for 35 years now, and I’m convinced I’ll never understand the logic of insurance companies’ claims administrations. They settle the issues that I think they might want to fight, and they fight the cases that I think they should really settle. (maybe me.)
The carrier’s claim file often does not contain the kind of rational and detailed analysis I would expect. (I reviewed a lot in discovery.) Not long ago, I reviewed a claim file in which the carrier’s vice president and general counsel informed the claims department (working only by attorneys who were subordinate to GC) that he felt coverage was “dubious” for an injury claim ad . He didn’t even review the policies. Taking the cue from his vigorous suggestion, the lawsuits attorneys composed a refusal letter that included a set of insurance policy language remotely irrelevant to the facts. And once the coverage case got to court, it didn’t turn out well for the carrier, which ended up paying the claim And the My company fees.
Here’s a tip for anyone involved in litigation: An excellent and essential way to analyze any liability claim can be found in the NJ “bad faith failure to settle” case Rova Farms Resort, Inc. v. Investors Insurance Co. American, 65 NJ 474 (1974). in rufaThe court wrote: “While the opinion of the carrier or its attorney regarding liability is an important factor, an assessment in good faith requires more. It includes consideration of the expected scope of the judgment, if adverse; the strengths and weaknesses of all evidence to be presented on both sides until Now; the history of a particular geographical area in cases of a similar nature; and the relative appearance, persuasion and potential appeal of the plaintiff, the insured, and the witnesses at trial.” ID. in 489. I rarely see this kind of thoughtful review in the carrier’s records.
Along those lines, as I write this, the Fifth District has just released an opinion on what happens when carriers fail to make decisions based on fair and thorough analysis. the case I be. Warranty and Liab. additional. Company vs. IS AM. additional. Share., No. 19-20779 (5th Cir. 21 Dec 2020), which you can read over here.
This was a severe case. A 43-year-old Houston firefighter, Mark Braswell, was killed when his bike collided with a landscaping company trailer that had been stopped on a four-lane highway. He left behind a widow and two children. No witnesses saw the crash, but some trial testimony indicated that the landscaping truck suddenly stopped. Instead of turning into a less crowded side street, the crew decided to unload the equipment halfway. (Terrible idea.) During the week-long experiment, a landscaper company supervisor admitted that stopping in traffic was dangerous. Compounding the problem, workers failed to put up cones, flags or checkpoints to redirect traffic.
Landscaping company Brickman was insured by ACE (max. $2 million), with excess coverage by AGLIC ($10 million plus $2 million). ACE took control of the Brickman settlement negotiations.
Before the trial, an ACE-appointed defense attorney estimated the settlement value of the case to be between $1.25 and $2 million. The excess carrier assessed the claim at $500,000. To prepare for the trial, ACE conducted juror research from which ACE claims handlers drew two conclusions. First, it was important to prove during the trial that the truck did not stop. Second, it was important to establish that the truck was parked legally. (In the middle of a busy highway. Great.) Ace also focused on the fact that Brasswell’s helmet had cracked in the middle, which claim handlers thought would prove Braswell had his head down and not been looking for his destination. No one on the defensive side believed a judgment of more than $2 million was likely.
Braswell’s attorney demanded $2 million. Ice responded with $500,000. The Braswell family rejected the offer, and the case went to trial. Things have gone sideways for Brickman. The judge ruled out evidence that Brickman’s truck was parked lawfully. Braswell’s widow, Michelle, was allowed to testify that a Brickman employee said the truck had stopped; She allowed Michelle to testify about her daughter Marie’s psychological trauma, self-harm, suicide attempts, and hospitalization, all due to her father’s death. Following the plaintiffs’ closing statement, the case manager at AGLIC informed that a judgment of more than $2 million was possible”[g]In light of the negative evidence. . . judgments. ” (Do you think so?)
At this point, in my opinion, Ace had to forget all her great demo strategy and great appeal points, get the checkbook, and pay $2 million. Things will not end well. But, in a stunning display of tone deafness, Ace decides instead to play General Custer. First, Braswells’ attorney offered a high/low cost of “$1.9 million to $2.0 million with costs”. (This means Braswells will guarantee them $1.9 million regardless of the verdict, but they will recover $2 million plus costs if the jury issues the plaintiff’s verdict.) Then Braswell’s attorney demanded a maximum of $2 million. ACE again said no, because, as everyone knows, jurors tend to stand with the giant insurance monolith for widows and orphaned children. (I know, I know, the insurance company wasn’t the defendant. But come on, jurors aren’t stupid.)
The jury returned a verdict of nearly $40 million. After deducting 32% from Mark’s comparative negligence, the total reward to Braswells was $28 million, which, of course, far exceeded ACE’s base limit. Braswells eventually agreed to a $10 million settlement to avoid a lengthy appeal. ACE paid its $2 million limit, and AGLIC, the excess carrier, contributed $8 million.
This made the overload carrier unhappy. AGLIC asserted that since ACE decided to roll the dice at trial, it should be liable for the overstay. (I love it when these guys fight.) The court agreed, writing:
Evidence is clearly sufficient to support the trial’s verdict [in the coverage case between ACE and AGLIC] which – which ‘[a] A reasonable insurance company would have reassessed the value of the case settlement [and accepted the Braswells’ third offer]After all, by the time this offer was made, the trial had taken a clear turn against Brickman. Two opposite rulings (disallowing evidence that the truck was lawfully parked and allowing a short-stop statement attributed to a Brickman employee) only exacerbated the Brickman’s greatest known weakness in this case.Given all the empirical circumstances, a “typically prudent insurance company” in the ACE position would have recognized that the “probability and degree” of Brickman’s potential exposure to an overrule has materially worsened from the start of the trial. When Braswells’ third presentation was made. , would have been accepted by a normal, prudent insurance company. The evidence presented in the District Court is sufficient to support that ACE infringed [duty of good faith] by failing to reassess the value of settling the case and accepting Braswells’ reasonable offer.”
We can draw a lot of lessons from this decision, but perhaps the main reason is this: Never fall in love with your story. Hubris kills.
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