Guest Column – Attorney David Cole: The Proper Care & Feeding Of A Bad Faith Litigation Expert

 

 

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In its unanimous opinion in Rancosky v. Washington National Insurance Company, 170 A.3d 364 (Pa. 2017), the Pennsylvania Supreme Court confirmed the elements of an insurance bad faith action under Pennsylvania’s bad faith statute. The Court stated: “we adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994), which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Additionally, we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” Id. at 23-24. Additionally, the Court noted that mere negligence is insufficient for a finding of bad faith under §8371. Id. at 18.

The Rancosky opinion did not change the pursuit, or the defense, of insurance bad faith claims, so much as it confirmed a body of intermediate appellate case law that had developed over the last 24 years. Most practitioners and courts had applied the Terletshy test since its publication in 1994. With Rancosky now firmly establishing what is required to prove bad faith, experts used by the parties in insurance bad faith litigation will need to tailor their reports to that standard.

Experts, of course, are not required by statute or case law in Pennsylvania insurance bad faith cases. Experts are employed by the parties at the discretion of the trial judge. Experts are to provide opinion on the reasonableness of the insurer’s conduct to assist the judge or jury in determining if the insurer acted in bad faith. Experts are to opine on the reasonableness of the insurer’s conduct, not on whether they believe the insurer acted in bad faith. That decision is reserved for the trier of fact. Most courts permit expert testimony to assist in assessing the reasonableness of the involved insurer’s conduct.

Post-Rancosky, what does an expert need to assess the reasonableness of the insurer’s conduct? In other words, what do litigators need to provide an expert in order for him or her to prepare an informed, credible report, one that will stand up to summary judgment motion and trial cross-examination? This article will address these questions. My observations are based on my 15 years and over 50 expert reports in insurance bad faith cases, mostly as an expert for the defense. A second planned article will address what counsel can expect in an insurance bad faith expert report.

What Does the Expert Need to Evaluate An Insurance Bad Faith Claim?

Let’s make the answer simple: SEND ALL NON-PRIVILEGED FILE MATERIAL TO ME and let me review them and decide what is important to my review of the insurer’s conduct. And please don’t try to influence my opinion by sending only the documents that support your client’s position, or only the “pertinent” documents that you believe are determinative of the insurer’s conduct.

Another reason to send it all to me is to avoid surprise and embarrassment at trial. I don’t want to ever have to say I have not seen a document from the file. I won’t appear surprised at trial, and I won’t have to embarrass counsel by pointing out that counsel never provided me with the document.

Finally, do not send an unredacted claim file. I don’t want to rely on documents in my report that were not produced to opposing counsel. To do so is to risk the credibility of my report, or at least result in an order from the court requiring production of the documents in question and me having to perhaps amend my report.

What Do I Expect To See In The Claim File?

What is typically contained in a claim file will depend on the type of claim involved. For example, a property damage claim will not contain medical reports and records. An auto personal injury liability claim file will not contain a fire cause and origin report. Having said that, we can generalize what most claim files should contain, as follows:

  • Insurance policy: The applicable insurance policy and declaration page for the date of loss.
  • Correspondence: All correspondence, including letters, e-mail and texts by and between anyone involved in the claim.
  • Reports: Police, doctors, witnesses, parties, experts, investigators, counsel.
  • Court related documents: Pleadings, motions, discovery and opinions from the bad faith action and pertinent documents from the underlying tort suit if there was one.
  • Log entries: Pennsylvania insurance regulations require insurers to maintain records of their claim handling activity sufficient to permit the Insurance Department to assess what was done on a given claim. Typically, this is done by insurers through a “claim log”, either manual or more likely today by computer entry. These notes are often invaluable in assessing the insurer’s conduct in a bad faith case. It is the place where claims adjusters can sort out their thinking on a claim and explain their actions, or fail to do so.
  • Claim specific records: For example, medical records in injury cases and damage assessments and insurer has allegedly failed to adhere to its own internal claims handling procedures) the insurer’s claims handling manual and “best claims practices” should be provided to me.

Not all claim files will contain all these items.

Some counsel will go in the other direction, and want to send me everything, even their “work product”, such as their summary of the case, their theory of the case, a chronology they prepared for the case, their summary of medical records in the case, etc. I do not want that information; I want to review the file on my own, prepare my own chronology, summarize the issues in my own way, and form my own understanding of the case.

I am being paid to reach my own conclusions about the insurer’s conduct, not “parrot” counsel’s view of the case. To do otherwise – that is, to provide me your work product – can make for a very uncomfortable cross-examination for me, and an effective challenge to the credibility of the defense for you.

David Cole is owner of David Cole Consulting, Inc. and he may contacted at 844-744-5600 or dcole@philadefense.org. For more information about Mr. Cole and his litigation support services, please see his website at  www.colelitigationconsulting.com 

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CJ Haddick Guests On A.M. Best’s “Updates In Insurance and Bad Faith Podcast”

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A.M. Best has published the most recent episode of its Updates In Insurance Coverage and Bad Faith podcast earlier today, in which I discuss some recent developments in insurance coverage and bad faith law with the show’s host, John Czuba.  You can listen to the episode via the link below.

A transcript of the podcast can be found here:

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PRESS RELEASE: Haddick Featured Guest on National AM Best Insurance Podcast

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Contact:  Greta Kelly, Assoc. Marketing Director

Dickie, McCamey & Chilcote

412-392-5311

gkelly@dmclaw.com

 

Dickie McCamey Attorney Haddick is Featured Speaker on National Podcast

February 2018 (Harrisburg, PA) –  For Immediate Release – Dickie, McCamey & Chilcote, P.C. attorney Charles E. Haddick, Jr. will be the featured speaker on A.M. Best’s monthly podcast, which airs February 28, on the Legal Talk Network. Haddick’s episode will focus on recent national trends in bad faith insurance coverage law.

Mr. Haddick is a shareholder of Dickie, McCamey & Chilcote, P.C. and is the Location Chair of the Harrisburg office. He has practiced law for almost 30 years. He concentrates his practice in the areas of insurance coverage and insurance bad faith litigation; insurance fraud, arson, fire and explosion cases; cybersecurity and cyber insurance coverage and litigation; professional liability including insurance agency errors and omissions; subrogation; and general liability defense. Haddick is the author and editor of the legal insurance blog www.badfaithadvisor.com.

Mr. Haddick received his J.D. from The Dickinson School of Law of the Pennsylvania State University. He is AV Preeminent® Peer Review Rated by Martindale-Hubbell® and he is also listed in Best Lawyers in America® for Insurance Law.

The Insurance Law Podcast examines timely insurance issues from an attorney’s point of view and is published by Best’s Directory of Recommended Insurance Attorneys. Guest speakers are prominent attorneys from across the United States who specialize in insurance defense. To listen or subscribe to the Insurance Law Podcast, click here.

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About Dickie, McCamey & Chilcote, P.C.: Dickie, McCamey & Chilcote, P.C. is a nationally recognized law firm providing comprehensive legal expertise in a multitude of practice areas. Headquartered in Pittsburgh, Pennsylvania and founded more than 100 years ago, the firm serves industry-leading clients across the country from offices throughout the mid-Atlantic region in Delaware, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina and West Virginia, the Southwestern region in California, and the Rockies in Colorado. For more information: 800-243-5412 or www.dmclaw.com.

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How To Defend A Bad Faith Case When The Claims Rep Is A Bot, And Other Terrifying Questions…..

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I came across an extremely thought –  provoking article this morning on Artificial Intelligence (A.I.) and the law, by Dennis Anderson on Law360.com, which began with the following futuristic, bone-chilling scenario:

On the evening of Dec. 23, 2016, at seven seconds after 5:49 p.m., the holder of a renter’s policy issued by upstart insurance company Lemonade tapped “submit” on the company’s smartphone app. Just three seconds later, he received a notification that his claim for the value of a stolen parka had been approved, wire transfer instructions for the proper amount had been sent and the claim was closed. The insured was also informed that before approving the claim, Lemonade’s friendly claims-handling bot, “A.I. Jim,” cross-referenced it against the policy and ran 18 algorithms designed to detect fraud.

This piece goes on to ask a question which I have yet to stop thinking about:  how to defend an insurance company claims decision when the decision is made by an algorithm, not a human being?

Before attempting a reasonably good answer to this question, if there is  good answer to be had at all,  a quick review of history is in order:  this is not the insurance claims industry’s first foray into using artificial intelligence to process claims.   Countless bad faith claims in the past have in fact been premised on that very thing, i.e., the use of a computer program to put the value on a bodily injury claim, for example.  The very use of software to value a claim was the central theme of the bad faith complaint.  Many of those claims, however, were successfully defended by lawyers for  insurers who  argued that such computer-provided data was merely a starting point, and that claims representatives with blood pulsing through their veins then went to work to take that piece of information, along with countless other pieces of information, to value, negotiate,  and otherwise  process the claim in good faith –  the Human Element Defense, let’s call it.

Now, a stolen parka, I grant you,  is a far cry from  a soft tissue neck injury.  But it is not hard to see that in the future, algorithms can and will be developed to use A.I. to adjust property damage and homeowners’ claims, commercial coverage claims,  and , yes, let’s  be bold here, personal injury claims.

I have spent decades defending bad faith claims, and every defense begins and ends with the same thing:  what was the claims representatives thought process?  Can that process be traced, documented, demonstrated, and shown in the light of day to be a reasonable approach to a difficult problem?

Are we coming to a time now when claims logs and insurer communications will simply be replaced with massive strings of zeroes and ones?  How can you tell a story made out of zeroes and ones?

The immediate question, of course, becomes how to defend a claims algorithm in a bad faith case  to a jury of humans, or a human judge sitting in a bench trial.  There is, I’m afraid no immediate answer, except perhaps this one — it is best to continue to  include human beings, in some capacity,  in a claims process which may later have to be explained and legally justified to other human beings.

Stated another way, a purely mathematical,  algorithmic defense of a bad faith claim may not be fully successful until the time comes when judges and juries are also algorithms, and, so too, are the lawyers.

I hope I’m retired by then.

CJH

 

 

 

Professional Liability Insurer Off The Hook For Settlement After Insured Fails To Obtain Consent To Settle, Ninth Circuit Rules

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PASADENA, Jan. 19 – The Ninth Circuit Court of Appeals has ruled that a professional liability insurer had no obligation to fund a settlement agreed to by the insured, which did not obtain the insurer’s consent to the deal, as required in the policy.

In One West Bank, FSB v. Houston Casualty Co.,  Houston Casualty wrote a professional liability policy requiring the insured to seek prior written consent before resolving any covered claim by way of settlement.

The insured, One West, was sued for failure to properly administer loans it was servicing.  One West reached an agreement to settle with the plaintiff in the underlying case, but it neither sought or obtained  Houston Casualty’s written consent to the terms prior to executing the term sheet.  Applying California law, the 9th Circuit Court ruled that One West breached  prior written consent provision of the policy, thereby relieving Houston Casualty of its obligation to fund or cover the settlement.

In the ruling, while the Court recognized that an insured could be relieved of the consent obligation for  economic necessity, insurer breach, or other extraordinary circumstances, it affirmed the district court’s finding that no such circumstances existed.

Also, while One West alleged that Houston Casualty breached the insuring agreement and its common law obligation of good faith, the Court affirmed dismissal of those claims, ruling that there was no evidence that Houston Casualty withheld any benefits due under the policy, in light of the consent provision.

One West Bank, FSB v. Houston Casualty Co., 676 Fed.Appx. 664, 2017 WL 218900 (9th Cir., filed January 19, 2017).

Summary Judgment For Insurer In Super Storm Sandy Claim; Deposited Claim Check Constitutes Accord and Satisfaction

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PHILADELPHIA, Nov. 17 – The U.S. Third Circuit Court of Appeals has ruled that a day care center which submitted a Super Storm Sandy  claim for nearly a million dollars has accepted less than $30,000.00 from Philadelphia Indemnity Insurance Company in full satisfaction of the claim.

In Cranmer v. Harleysville Insurance Company et al,  2017 U.S. App. LEXIS 23187 *; 2017 WL 5513204, the owners of Tiny Tots day care center submitted a claim for storm damages to PIIC for $956,455.09 for income loss, business interruption, and other related claims.  PIIC valued the claims at $28,542.84.  Ultimately, counsel for PIIC sent counsel for the insureds a letter which stated:

Accordingly, should I not hear from you within ten (10) days of your receipt of this correspondence, I will instruct [PIIC] to tender settlement in an amount of $28,542.84 payable to Tiny Tots Daycare Preschool, LLC and [RLF], its attorney. We will deem the acceptance of this payment as full and final settlement of this claim as well as a release by your client of any further demand for recovery as against Philadelphia Insurance Companies.

The insured endorsed and deposited the check, which was marked “FINAL,” and the comment line stated: “Business Income, windstorm damage, loss of income from the date of loss through the period of restoration.”  PIIC’s counsel also sent a general release to the insureds, however, which was never signed and returned.

The Plaintiffs sued PIIC for breach of contract and bad faith, and PIIC moved for summary judgment, which was granted by the U.S. District Court for the Eastern District of Pa.  In affirming summary judgment in favor of the insurer, Judge Patty Schwartz held that the elements of an accord and satisfaction were met:

Under New Jersey law, the affirmative defense of accord and satisfaction requires the defendant to prove: “(a) a bona fide dispute as to the   amount owed; (b) a clear manifestation of intent by the debtor to the creditor that payment is in satisfaction of the disputed amount; and (c) acceptance of satisfaction by the creditor. . . The undisputed record shows that the first accord and satisfaction requirement of a bona fide dispute was satisfied because PIIC and Plaintiffs disagreed about the amount to which Plaintiffs were entitled under the insurance policy. Plaintiffs submitted Sandy-related claims to PIIC for $956,455.09 while PIIC valued Plaintiffs’ loss at $28,542.84. . .

There is also no genuine dispute that PIIC intended its $28,542.84 payment to satisfy all of Plaintiffs’ Sandy-related claims against PIIC, thus satisfying the second element of accord and satisfaction. The August 15, 2013 letter states that PIIC will “tender settlement in an amount of $28,542.84 payable to Tiny Tots Daycare Preschool, LLC and [RLF], its attorney” and “deem the acceptance of this payment as full and final settlement of this claim as well as a release by [Plaintiffs] of any further demand   for recovery as against [PIIC].” App. 341. One month later, PIIC’s counsel sent RLF a check for $28,542.84, with an accompanying letter that incorporated by reference PIIC’s August 15, 2013 letter and stated that the $28,542.84 payment was tendered “in good faith for the purposes of settlement.” App. 345-46. In  addition, the check contained a claim number matching the Sandy claim that Plaintiffs submitted to PIIC, was marked “FINAL” in the payment line, and the comment line stated “Business Income, windstorm damage, loss of income from the date of loss through the period of restoration.” . . . The combination of the letters and the check demonstrate that PIIC intended to make a payment in full satisfaction of the claim, and Plaintiffs have identified no evidence to the contrary.

The Court also ruled that the Plaintiffs failed to demonstrate any bona fide evidence of bad faith on the part of PIIC, and affirmed summary judgment in favor of PIIC on the bad faith claims as well.

Cranmer v. Harleysville Insurance Company et al,  2017 U.S. App. LEXIS 23187 *; 2017 WL 5513204

Electronic Signature On Limited Tort Form and Medical Peer Review Both Valid; Court Dismisses Bad Faith Claims Against Progressive

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PHILDADELPHIA, Dec. 11 – A Pennsylvania Federal judge has granted summary judgment in favor of Progressive Insurance in a bad faith case, finding in part that an electronic signature on a limited tort form was valid, and that use of a PRO medical review was also appropriate

In Jallad v. Progressive Advanced Ins. Co., 2017 U.S. Dist. LEXIS 202999, Plaintiff Sahar Jallad (“Jallad”) filed suit against a motorist defendant and her own insurer, Progressive Advanced Insurance Company (“Progressive”) in the Court of Common Pleas of Philadelphia County, alleging negligence against the motorist,  Madera causing personal injuries,  and claims of breach of contract and bad faith against Progressive related to its handling of Jallad’s underinsured motorist (“UIM”) claim.

Following removal of the case to the U.S. District Court for the Eastern District of Pennsylvania, U.S. District Judge Robert F. Kelly granted Progressive’s motion for summary judgment on the bad faith claims.

Judge Kelly confirmed a long standing principle that the mere disagreement over the value of the insured’s injuries in the setting of a UIM claim was not a sufficient basis for a prima facie bad faith case against an insurer.

Judge Kelly went on to rule that none of four other arguments made by Jallad created a genuine issue of material fact as to the bad faith claims.  First, Kelly ruled that regardless of whether or not the tortfeasor’s insurer paid a $15,000.00 liability limit insuring Madera,  Progressive was entitled to a credit of that available limit toward the valuation of Jallad’s UIM claim.

Kelly further dismissed Jallad’s argument that her signature on a limited tort election was invalid:

“Jallad provides no citation to any case law or statute that prohibits insurance companies from obtaining electronic signatures for tort waiver forms. Further, Progressive responds that electronic signatures are permissible under both federal and Pennsylvania state law. See 15 U.S.C. § 7001; 73 P.S. § 2260.305. Accordingly, Jallad’s argument is without merit.”

Next, Judge Kelly ruled that Proressive’s use of a PRO reviews of Jallad’s medical records did not, as a matter of law, constitute bad faith:

“Pennsylvania law provides that “[i]nsurers shall contract jointly or separately with any peer review organization established for the purpose of evaluating treatment, health care services, products or accommodations provided to any injured person” and “[s]uch evaluation shall be for the purpose of confirming that such treatment, products, services or accommodations conform to the professional standards of performance and are medically necessary.” 75 Pa. Cons. Stat. § 1797(b)(1). Under the circumstances presented here, we fail to see how sending medical documentation to a PRO to determine whether medical treatment conforms to the professional standards of performance or is medically necessary amounts to bad faith.”

The Court finally ruled that Progressive’s request for documents concerning Jallad’s wage information was appropriate, and  dismissed Jallad’s bad faith claims with prejudice.

Jallad v. Progressive Advanced Ins. Co., 2017 U.S. Dist. LEXIS 202999