Month: February 2016

Cyber Insurance: Judge Holds Insurer’s “Privacy Pledge” Could Be Part of Policy In Data Breach Class Action

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CHICAGO, Feb. 23 – A Federal Judge in Illinois has allowed a proposed data breach  class action case against an insurer to proceed, ruling the insurer’s “Privacy Pledge” could be a part of the insuring agreement.

Dolmage and other employees of Dillard’s Stores purchased coverage from Combined Insurance through her employer between 2011 and 2012.  During the course of the application process, Dolmage and other employees were required to provide personal information to Combined.  During the process Combined furnished applicant’s with a “Privacy Pledge,” which indicated that personal information obtained in the application process, such as social security numbers, would be safeguarded and protected.   The Pledge further stated that Combined would provide information to affiliated companies to assist with the insurance placement process.

Combined engaged Enrolltek to assist with processing and placement of the coverage, and provided Enrollteck with a database of applicants’ information, which Enrolltek copied to an unsecure external hard drive and later maintained on an unsecured website.  Dolmage and other employees discovered through Google searches that their personal information from this process was readily available online at the unsecure website operated by Enrolltek.

Dolmage and other class action plaintiffs filed a ten – count complaint in federal court alleging, among other things, breach of contract and breach of fiduciary duty.  Following a Rule 12(b)(6) motion filed by Combined, the class action plaintiffs filed an amended complaint alleging only a breach of contract claim, and Combined filed a motion to dismiss, alleging that the complaint failed to state a plausible cause of action against it relating to the “Privacy Pledge” serving as the basis for a breach claim.

Judge Ruben Castillo denied Combined’s dismissal motion, and ruled that the Privacy Pledge, as the Plaintiffs alleged, was part of the insuring agreement between Combined and the Dillard’s employees, despite an integration clause in the policy, presumably preventing the policy from being supplemented.  Castillo ruled that at other parts of the policy,  Combined did incorporate by reference other extraneous documents, such as applications, riders, and endorsements.   The Court also relied on case law and Black’s Law Dictionary to point out that the terms “rider” and “endorsement” were broad, covering many possible amendments to the insuring agreement.

The Court, accepting all of the averments of the amended complaint as true, and giving the Plaintiffs the benefit of all reasonable inferences,  also dismissed Combined’s arguments that the amended complaint 1.) failed to allege that the Plaintiff’s relied on the pledge,  2.) failed to allege the Privacy Policy was part of the insuring agreement because it was provided to Plaintiffs after coverage was placed, 3.) failed to allege the Privacy Policy was supported by adequate consideration; and 4.) failed to allege how Combined breached the policy.  As to the latter claim, Judge Castillo observed that it was reasonable to infer that Combined’s failure to require Enrolltek to adhere to Combined’s data security policies and procedures could constitute a breach of the Privacy Policy.

Dolmage v. Combined Insurance Co. of America (N.D. Ill, February 23, 2016)

Third Circuit Rules Subcontractor’s Insurer Must Defend, Indemnify Construction Project Owner

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PHILADLEPHIA, Feb. 17 – The U.S. Third Circuit Court of Appeals has ruled that the insurer of a subcontractor who employed an injured worker must defend the project owner  in the personal injury litigation brought by worker, regardless of the subcontractor’s immunity under Pennsylvania workmens’ compensation law.

In Ramara v. Westfield, the Court provided a succinct statement of the facts:

Appellee, Ramara, Inc. (“Ramara”), the garage owner, engaged Sentry Builders Corporation (“Sentry”) as a general contractor to perform work at its parking garage, and, in turn, Sentry engaged a subcontractor, Fortress Steel Services, Inc. (“Fortress”), to  install concrete and steel components as part of the work. As  required by its subcontracting agreement with Sentry, Fortress obtained a general liability insurance policy (“the Policy”) from Westfield Insurance Group (“Westfield”) naming Ramara as an additional insured under the Policy. While Fortress was working on the project in April 2012, one of its employees on the job, Anthony Axe, was injured in an accident. As a result of his injury, Axe filed a tort action against Ramara and Sentry but he did not include Fortress as a defendant as it was immune from actions at law by its employees for injuries suffered on the job if they were entitled to compensation for their injuries under the Pennsylvania Workers’ Compensation Act (“Act”).   Ramara tendered its defense in Axe’s action to Westfield. But Westfield declined to defend Ramara as it claimed that Axe’s complaint against Ramara did not include allegations imposing that obligation on it under its Policy with its applicable endorsements.

The policy secured by Fortress naming Ramara as an additional defendant contained an Additional Insured Endorsement, under which Ramara was entitled to defense and indemnity if the underlying personal injury action alleged that the plaintiff’s injuries were in whole or in part caused by Fortress, the named insured.    Westfield claimed that since the complaint, which did not name Fortress as a defendant, contained no express averments of wrongdoing against Fortress, Ramara was not entitled to defense and indemnification.

Judge Morton Ira Greenberg undertook an examination of the underlying personal injury complaint, and concluded there were sufficient allegations implicating Fortress’ role in causing the accident, its legal immunity notwithstanding:

Taken together and construed liberally in favor of Ramara for purposes of this insurance coverage case, these allegations partially base Ramara’s liability on its failure to supervise the work of its contractors or subcontractors who used equipment improperly and disregarded a site specific fall protection plan, all while performing their work in violation of the industry’s standard of care. Fortress, though engaged by Sentry, was one of Ramara’s subcontractors, and Axe’s employment by Fortress was the sole reason that Axe was at the job site and was injured. Clearly, Axe made factual allegations that potentially would support a conclusion that Axe’s injuries were “caused, in whole or in part” by Fortress’s acts or omissions.

Of course, we need not and, indeed, cannot decide whether Axe will succeed on these claims at trial. Ramara only must show that the Axe complaint, when liberally construed in favor of Ramara, includes allegations to support a conclusion that Fortress was potentially negligent and that its negligence was a proximate cause of Axe’s injuries. We conclude that it does. Accordingly, Ramara comes within the Additional Insured Endorsement of the Policy with respect to the Axe case. Therefore, Ramara is entitled to a defense in the Axe case even under Westfield’s narrow interpretation of the Additional Insured Endorsement limiting coverage to situations in which an insured’s contractor’s actions proximately caused a plaintiff’s injuries.

(emphasis added).

The Court ruled that the workmen’s compensation immunity which Fortress enjoyed was not dispositive of whether the factual allegations of the complaint made out a case that but for Fortress’ acts or omissions, the injury would not have occurred, thereby entitling Ramara to defense and indemnity under the Westfield policy insuring Fortress.  The Court affirmed the District Court judgment holding Westfield liable for the defense and indemnity of Ramara in the underlying personal injury litigation.

Ramara v Westfield Ins. Co., (Third Cir., Feb. 17, 2016)

Sub-Surface Water Loss Mostly Excluded By Policy, Texas Judge Rules

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HOUSTON, Feb. 16 – A district judge in the Southern District of Texas has dismissed breach of coverage and bad faith claims against Praetorian Insurance Company, ruling that several of the policy’s coverage exclusions defeat the insured’s claims for property damage arising from a water related loss.

In Praetorian v. Arabia Shrine, a building owned by the Shrine suffered a subs-surface water loss which seeped into the building causing more than $1.8 million worth of damage to the foundation and building on March 14, 2014.   While the policy provided for coverage of for the loss of fire suppression equipment, and Praetorian paid nearly $64,000.00, it disclaimed nearly $2 million in other claims made by the Shrine.

The Policy contained an exclusion for damage to foundational elements, as well as an exclusion for damage to sub-surface piping.  The policy was also endorsed with a “Water Exclusion” disclaiming coverage for damage caused the escape or seepage of subsurface water into the building.

Judge Keith Ellison found that Praetorian met its burden of showing that the exclusions precluded the vast majority of coverage for the underground water loss.    The judge also found that since Praetorian had a reasonable basis to deny coverage, claims for breach of the Texas Insurance Code, and for the breach of Praetorian’s duty of good faith and fair dealing should also be dismissed by way of summary judgment as well.

Praetorian Ins. Co. v. Arabia Shrine Center Houston (S.D. Texas Feb. 16, 2016)

Defeating The Third Party Time Limit Settlement Demand

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It’s the most common arrow in the quiver of plainfiffs’ lawyers when it comes to dealing with insurance companies:  the time limit settlement demand.  It’s used as a multi-purpose tool  against insurers to 1.) force an early settlement of the underlying third party  claim; 2.) prevent the insurer from conducting a full investigation into the underlying claim; 3.) drive a wedge between the insurer and its insured; and 4.) set up assignment of a follow-on bad faith claim in the event of an excess verdict in the third party claim.

Here’s how insurers can successfully defend against this tactic every time:

Document Receiving The Demand, And Immediately Request An Extension To Respond

This seems a rather obvious suggestion, but in practice it is overlooked as many times as utilized,  in my experience.   The failure to document receipt of the time limit settlement demand will not be of any help, and it exposes the insurer to the allegation of sloppy claims handling and inattentiveness to the claim.   If it arrives, when it arrives, acknowledge it in writing to the Plaintiff’s lawyer.

Especially when the time limits demand arrives early in the claims investigation, a written request for extension to respond to the demand should be made in writing immediately.  And of course, any refusal by plaintiff’s counsel to agree to the extension should be documented as well.

Document The Investigation Which Must Be Done Before Responding

While not strictly necessary, it is extremely helpful to identify with as much specificity as possible  the nature and extent of investigation you would like additional time to complete.    Providing these specifics will prevent any claim that the insurer is merely requesting additional time to delay paying the claim.

Obviously, the proposed investigation steps should be followed, and the results documented in the claims file.  Requesting an extension to investigate the claim and then failing to do the investigation exposes an insurer to bad faith exposure for  unreasonable delay.

Document Any Attempts By The Plaintiff’s Lawyer To Delay or Obstruct The Investigation

It happens.  Some zealous advocates are not content with merely refusing a request for an extension; in order to manufacture insurer delay the insurer will find that it is unable to get medical authorizations promptly, or unable to schedule the claimant’s examination under oath, to name two.  It is important that the claims file document accurately document responsibility for delay, or for expiration of the time limit demand, especially if the plaintiff’s lawyer is being either not helpful or worse, obstructing the investigation.

Keep The Insured Apprised, And Document That

In order to discharge the fiduciary duty an insurer owes to its insured in defending him or her in a third partly claim, the insured must be included and involved in communications involving the claim.  This is especially true where the insurer refuses to settle the underlying claim within policy limits, theoretically exposing the insured to an excess judgment.

An insurer does not have an obligation to settle non-meritorious or questionable claims within the insured’s policy limits.  However, if the insurer decides not to respond to a time limit demand, or refuses to settle a claim,  that should be communicated to the insured in advance of the time limit demand deadline, and the specific reasons for the insurer’s course should be provided to the insured.

Dual Benefits

All of the above steps will not only be of use in defending a follow – on bad faith claim should it come down the road, but it will lead to better results, and allow for proper investigation, of the underlying third party claim.  For more information on how to effectively rebut and defend against third party time limit settlement demands, reach me at chaddick@dmclaw.com or 717-731-4800.

Legal Project Management Made Simple

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LPM sounds intimidating.   Anything which has to be shortened by using initials has to be, right?  Not to worry.  Legal departments don’t want to be bogged down in complicated legal project management processes any more than outside lawyers do.  They are only interested in legal project management to the extent it gets them to their goal:  engagements with outside lawyers who will do what they say they are going to do, on budget, and on time.

Legal Project Management can be thought of as the GPS of an engagement of outside counsel.   Every trip starts with an intended route, and a GPS does nothing more than tell you where you are in relation to that route.  It keeps you on track.  LPM=GPS.

The biggest obstacle to beginning a foray into LPM is what I call the intimidation of complexity.  Where do I start?  What methods should I use?  Will I need software?    Why can’t I just practice law?    The trouble, however, is that legal departments do not exist for the purpose of allowing outside law firms to practice law;  they exist for the purpose of solving the company’s headaches from within,  quickly, cheaply, and efficiently.  Outside lawyers will only be engaged if they help solve a problem in alignment with those goals.

Elaborate software and project diagramming are unnecessary to both the process and a happy client.   There are but three secrets to implementing LPM for outside lawyers and law firms:  1.) start somewhere; 2.) keep going; and 3.) the simpler the better.   A good outside lawyer with sufficient experience can sketch a project management outline for an assigned matter on the back of an envelope in less than five minutes.

An LPM Example

Here is an templated example of a project management outline I sketched out for a recent assignment from one of the insurance companies I represent in a relatively small, straightforward matter. Complicated, it is not:

Timeline

Pleadings Closed      4/1/2016

Written Discovery Complete     12/31/2016

Depositions Complete      1/31/2017

Dispositive Motions Filed         3/15/2017

Mediation Completed     4/30/2017

Settle or Try Decision      5/31/2017

Trial           8/31/2017

 

The budget portion of the legal project management sketch is hardly more complicated:

Budget

Investigation          Planned:  $ X            Actual:  $ Y

Pleadings        Planned:  $ X            Actual:  $ Y

Discovery        Planned:  $ X            Actual:  $ Y

Dispositive Motions     Planned:  $ X            Actual:  $ Y

Expert Workup    Planned:  $ X            Actual:  $ Y

Mediation/ Negotiation     Planned:  $ X            Actual:  $ Y

Total         Planned:  $ X            Actual:  $ Y

Trial Preparation        Planned:  $ X            Actual:  $ Y

Trial          Planned:  $ X            Actual:  $ Y

Total         Planned:  $ X            Actual:  $ Y

The plan is kept electronically in the matter (hard copy is fine too for the traditionalists), checked at regular intervals, updated, and the updates fed back to the client, so the client can see whether the matter is on course as planned, or whether adjustments need to be made, either to the plan itself, or to the execution of the plan.

A legal project management plan is only as good as the effort put into it up front, however.  There must be agreement and buy in up front from the client, and major deviations in the plan must be explained to the client’s satisfaction.  Unforseen developments will be encountered, and adjustments to the plan should be made where warranted.

LPM is no more than a good outside lawyer road-mapping a matter for his or her legal department client.  It gives the client the data it needs to exercise oversight and cost control in increasingly more demanding and less forgiving environments.  LPM=GPS.

For more information on how to effectively use LPM, reach me at chaddick@dmclaw.com or 717-731-4800.

 

11th Circuit Says Jury To Decide Bad Faith Issues In Road Rage Settlement

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FLORIDA, Jan. 12 – The U.S.  11th Circuit Court of Appeals has remanded a bad faith case to the U.S. District Court for the Middle District of Florida, instructing it that a jury must decide whether Geico acted in bad faith relative to the settlement negotiations arising out of a road rage incident.

Geico’s insured, Moore, was involved in a road rage incident in Florida, resulting in his truck being bumped across the center line, causing it to strike and later kill motorist Amy Krupp. Geico promptly tendered its $20,000.00 policy limit to the lawyer representing Krupp’s estate, but failed to comply with counsel’s request for an affidavit of no other insurance, and a precisely worded release agreement.

Because Geico did not comply with the provisos relating to the affidavit or the release, settlement was not reached,  and Krupp’s estate won a $4 million verdict against Moore.  Moore then filed a bad faith suit against Geico in federal court in Florida.  The district court, while conceding that Geico’s handling of the claim may have been “sloppy” and “bordering on negligent,” granted summary judgment for Geico, from which Moore appealed.

The 11th circuit reversed, finding that a jury question existed regarding the interplay between Geico and the Krupp estate’s lawyer.  The Court was careful to agree with the trial court that negligence on the part of the insurer was not sufficient to make out a bad faith claim.  It further, found, however, that there was conflicting evidence as to Geico’s conduct, and that negligence could be considered as part of the “totality of the circumstances” in the bad faith analysis.

The Court found that the trial court impermissibly made credibility determinations, most notably as to the deposition testimony of the lawyer for the Krupp estate, and that it ignored expert opinion proffered by the estate against Geico, both of which should have been considered by a jury.   It also found that the district court was too focused on the possibility that Krupp’s counsel was engaged in a bad faith setup.   The case was remanded for further proceedings.

Moore v. Geico (11th Cir., Jan. 12, 2016)

Editor’s Note:  There is a grave danger of converting the bad faith standard to a mere negligence standard when the Court takes negligence into account as part of the “totality of the circumstances.”  Here, the 11th Circuit apparently held evidence of the possibly negligent handling of a settlement sufficient to subject an insurer to the rigors of a bad faith trial.  There is an argument to be made also that if the trial court payed too much attention to the possibility of a bad faith setup by plaintiff’s counsel in granting summary judgment , the 11th Circuit payed far too little in reversing it.

For more information on how to protect your company from bad faith exposure arising out of allegations of simple negligence, reach me at chaddick@dmclaw.com or 717-731-4800.

9th Circuit: Insured’s Contract, Bad Faith Claims Get The Gate

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SAN FRANCISCO, Feb. 11 – The U.S. Court of Appeals for the Ninth Circuit has affirmed a district court’s dismissal of breach of contract and bad faith claims against Allstate, arising out of Allstate’s refusal to defend or indemnify its insured from a claim that the insureds committed trespass by destroying property.

In Zimmerman v. Allstate, Allstate’s insureds were sued by a homeowner’s association for trespassing upon and destroying a residential community gate.  The destruction was pre-meditated, according to the district court record.  After the insureds submitted the claim for defense and indemnity, Allstate denied the claim, and the insureds filed suit.  The district court entered summary judgment for Allstate, finding that the underlying complaint did not seek damages for an accidental occurrence, but rather for trespass, an intentional tort.

In affirming, the Ninth Circuit Court of Appeals found that the premeditated act of destruction of property committed by the insureds was neither “unexpected” nor “unintended,”  and therefore not an occurrence as defined in the policy.  The Court also affirmed dismissal of claims of breach of the duty of good faith and fair dealing.

Zimmerman v. Allstate, (9th Cir. Feb. 11, 2016)

Alternative Fee Spotlight: The Simplicity Of Fee Caps

“Nature is pleased with simplicity. And nature is no dummy.”
― Isaac Newton

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Above all things, clients do not want headaches.  They certainly don’t want headaches from their outside lawyers.  After all, outside lawyers are supposed to fix headaches, not cause them.  So amid an increasingly roiling sea of alternative fee arrangements, the simplest alternatives may stand out as the most appealing to legal departments who engage outside counsel for litigated and non-litigated matters.

And, believe it or not, some legal departments are reticent to  dispense with the hourly fee altogether, fearing that they may well be trading one gamble with outside counsel  for another:  a flat fee, for example, can under the right circumstances be a worse deal for a client than a high hourly rate, i.e., the bad faith or coverage case that is dismissed early, or settled within 60 days.

Enter the hourly fee with caps concept, an arrangement which not only provides simplicity, but allows legal departments to have their cake and eat it too.  Under the arrangement, outside counsel is engaged under a traditional hourly arrangement, but a cap is agreed to and put into place.  The cap can either be a single cap for the entire engagement, or it can be broken down into separate caps  for each phase of a case.  Caps ensure that the legal department has cost control over the matters it refers out to counsel.  It provides some muscle to legal project management, and not merely lip service.

If a legal department sends out a matter which outside counsel gets dismissed at the pleading stage, or resolves within a couple of months, the client gets the benefit of that speed, efficiency, and reduced expense — it pays only the hourly fee for the minimal amount of work.  At the same time, should a matter take a more protracted course, the client still has the cost control and budget certainty which either an overall fee cap, or phased fee caps,  provide.

One caveat:  as with all alternative fee arrangements, both the legal department and outside counsel must have a level of trust and goodwill which allows for adjustment and renegotiation of the fee mid-course, should their be a sufficiently large and unforeseen change in circumstances to warrant doing so.  The adjustments, however, can only be made if the client is agreeable to doing so, and should be the rare exception to the arrangement, rather than the rule.

For more information on how to put fee caps to work for your legal department to reduce costs and fine tune legal project management budgeting, reach me at chaddick@dmclaw.com or 717-731-4800.

 

 

 

Winning the Arson/Fraud Case – Part II

In an earlier post, we examined some key points to structuring and winning a civil arson/fraud trial against an insured suspected of misconduct in the making of an insurance claim.  We resume our examination in Part II of Winning the Arson/Fraud Case.

Your Claims Adjuster and Claims Witnesses Must Be Demonstrably More Credible Than The Insured(s)

This is a vital assessment which must made in an objective, detached manor.  Hoping that your claims staff will appear more credible than the insured is not sufficient grounds to proceed to try the arson/fraud case.  A reasoned, detached analysis of the insurer witnesses must be done to determine whether they, individually and as a whole, will stand up to the scrutiny of the jury, and be judged more credible.

Beware of the landmines here. How can claims staff be cross-examined?  Are there any troubling issues in their employment histories?  Do they appear to be partial or biased based on the documentation in the claims file and the claims logs?  Are any of them disgruntled in some way or worse, disgruntled in some way and not forthcoming about it.

Next to the law enforcement witnesses, the claims witnesses are the most important pieces in winning the arson/fraud trial.  They deserve detailed vetting as soon as possible in the process.

Who Let The Dogs Out?

This is going to sound silly.  But this indicator has almost never in 25 years of practicing law led me astray from assessing the proper cases to take to trial.

Did the insured have any pets?  Are they normally kept inside?  Did they perish in the fire, or was there some unusual event or explanation which led them to being out of the house at the time of the fire?

Arsonists love their dogs like anybody else.  The average one-off arsonist is simply neither aware enough nor disciplined enough to sacrifice a family pet  to create the impression of a fire of actual unknown origin.   Electrical malfunctions and other accidental fires do not take time to lead otherwise confined pets to safety before they begin.  Almost all arsonists do, however.  The notable exception to this guideline is the rage or anger fire in which the arsonist attempts to harm a pet of the object of his anger — which is a very, very small percentage of intentionally set fires, in my experience.

Look For Mistakes

Some arsonists are more skilled than others. Few are hired professionals, and the amateurs make plenty of mistakes.  Combining the stress of the circumstances which would lead an insured to commit arson for insurance benefits,  and a basic lack of experience in such activity generally leads to a break or two in the fire investigation —  telltale signs of intentionally set fire versus fire of accidental cause and origin.

The following mistakes have all occurred in cases I have handled, including one case in which all of the mistakes occurred in the same fire.  Some of these are sure to strike you as fantastical but they all are true:

  • multiple points of origin which did not communicate with each other;
  • failure to ventilate the fire by opening doors and/or windows;
  • leaving incriminating documents such as  a mortgage foreclosure notice dated within 10 days of the fire  in the area of origin;
  • failing to dispose of lighters/ignition sources in the areas or origin;
  • failing  to plug in electrical appliances which were later offered by the insured as probable sources of an accidental fire
  • writing an apology to a spouse in soot on a window following the fire (this one is not so much as a mistake as it is a confession of the subconscious, I imagine)
  • using a cell phone to call a business associate about the fire twenty minutes before calling 911 Emergency Services to report the fire.

The case in which all of these mistakes occurred in the same fire  was readily identified as an arson/fraud case which should be tried.   And while that particular case is an outlier to put it mildly, most arson fires do not go perfectly for the arsonist, and mistakes can be identified.  They should be pointed out and shown to the jury.

Do Not Forget Damages

In the bustle and effort spent establishing the insured’s liability for arson/fraud, the fact that many statutes provide a right of reimbursement and recovery to the insure is lost, and insurers as a result do not take sufficient advantage of recouping expenses and costs related to investigating the fire, and recouping claims dollars which may have been paid out during the pendency of the claim.

In many ways, an insurer used to being a defendant must become a plaintiff fur purposes of not only putting on an arson/fraud case, but also for putting on a damages case as well.  Costs and claims dollars must be tracked, organized, and presented in the form of cogent damages exhibits and/or summary exhibits, preferably using the same trial presentation software as discussed in the first half of this post.  SIU and other special investigators employed by the insurers, and claims staff can authenticate these items for admission into evidence.

Some states provide for recovery of multiples of such costs, and attorneys fees in the form of penalties.  For that reason, they should not be overlooked if the decision to try the arson fraud case has been made.

Arson/Fraud Cases Can Be Won

While it does require thought and effort, the right arson/fraud cases can be won by insurers who take the time to identify good candidates, and work those candidates up properly for trial.  The prosecution of civil arson/fraud claims can also be a source for the insurer to recoup costs and claims dollars thought to have been lost in the investigation and payment of fraudulent claims.

C.J. Haddick

 

 

Winning The Arson/Fraud Case: Part I

Many jurisdictions provide insurers with civil claims for damages and/or civil penalties in the event they sustain losses caused by insured misconduct including arson/insurance fraud.  Yet insurers are for the most part reluctant to take advantage of these provisions, fearing the arson/fraud case as either too costly or not good for company image.

These cases are both winnable and, not unpopular where there is a basis to proceed. Here is a quick survey of some key points to winning the arson/fraud case:

Pick The Right Case Before Buying In

To say that there are winnable fraud and arson cases is not to say that all cases of suspected fraud and arson are winnable.  Perhaps a full 50% or more of determining whether a civil arson or fraud prosecution will be successful rides on selecting the correct cases for prosecution.   In this regard, experience on both the claims team side and the outside counsel side is important when making this assessment, as is the collaborative process between the two.  Case selection must be a  joint exercise.

The topic of selecting the proper cases for trial could fill volumes, but some general guidelines will be helpful here:   The fire science in the case must clearly point to incendiary origin.  Motive, usually financial, is technically not required, but I have never successfully prosecuted a civil fraud or arson case without explaining to the jury why someone would want or need to try to burn their own home to the ground.  It is a hard concept for most people to wrap their heads around without explaining why to them.  Other possible non-financial motives include revenge, or “rage” fires, but my educated guess is that financial motive is the motive in play for more than every 8 of 10 arson fires.

The candidates for trial are likely to strike  you in the face; they have a way of standing out.  Regardless, however, analysis and due diligence of the merits of  such candidates should always be done before a final decision is made.

Be Mindful of the Burden of Proof

This is sometimes overlooked until the case is well underway.  However, it should be one of the first things considered before a decision is made to try an arson/fraud case.

In many jurisdictions the burden of proof for establishing arson/fraud is higher than the standard civil preponderance of the evidence standard, e.g., the clear and convincing evidence standard.  The burden of proof should be considered at the outset, when analyzing a case for possible use of arson/fraud defenses, or for the affirmative seeking of compensation on behalf of the insurer victimized by the alleged arson/fraud.  If the evidence is not so good that the burden of proof will be met, the case is not a good candidate for an arson/fraud trial.

Develop a timeline

Just as motive is crucial to success (addressed in Part II of this post), so is explaining to a jury precisely what happened and when and, most importantly, answering the question of whether the insured had the opportunity to start a fire at home within the appropriate window of time.  The time line must be used to eliminate any potential alibis which can undermine successfully putting on an arson/fraud case.

When I suggest here that a timeline must be developed, I suggest also that it must be developed in a way that a jury can 1.) visually see the timeline of events (preferably via software like PowerPoint or TrialDirector); and 2.) understand the time line so that it makes sense, and does not look in any way at variance with the evidence.

Pictures Pictures Pictures

This is a close relative of the timeline tip, and arguably even more important.  Jurors today more than ever view jury trials as television in the courtroom, albeit on a larger scale.  They would much prefer to be educated by the insurer, law enforcement investigators, and counsel about the cause and origin of the fire, than to merely be told what caused a fire.  The will be comfortable only after coming to a conclusion on their own, rather than taking the insurer’s word for it, even if that word is coming from an expert.

Demonstrative evidence, preferably photo, animation, video and other visual media presented on trial software is the best way to convey cause and origin information.  With photographs and demonstrative evidence, experts can discuss and demonstrate origin points at the fire scene, point out burn patterns, and other critical visual evidence to give the jury the comfort it needs to make a finding that the insured essentially committed a crime.

Scale model fire scene diagrams, photos of documentary evidence (such as financial papers, tax return summaries, etc.) and fire scene photos and video evidence all aid the jury in assessing the arson/fraud case.

We will review additional keys to winning the arson/fraud case in Part II of this post.