Category: General Counsel / In-House Counsel

Application Satisfies Requirement of Written Election of Lower UM/UIM Limits, Federal Court Finds

insurance%20coverage-x

HARRISBURG, Dec. 29 – A U.S. District Court magistrate judge has ruled that an original signed application was  a valid means of choosing UM/UIM limits lesser than bodily injury limits under Pennsylvania’s motor vehicle law, even if a separate option selection form was not compliant with the statute.

In Farmland Mut. Ins. Co. v. Sechrist, 2017 U.S. Dist. LEXIS 213618 (M.D. Pa., Dec. 29, 2017)(Arbuckle, M.J.), Plaintiff Farmland Mutual Insurance Company filed a declaratory judgment suit  against Defendants Edward Alfred Sechrist and Gary Bryant Kauffman, employees of Farmland’s insured, Clouse Trucking, seeking a  ruling that the commercial automobile insurance policy issued with a $1 million liability limit  provided $35,000 of combined single limit coverage for underinsured motorist claims arising out of an accident on April 30, 2013 in which both Sechrist and Bryant were seriously injured.

The Employees opposed Farmland Mutual, contending that the UIM limit should be equal to the policy’s bodily injury liability limit of $1 millon, on grounds that there was not a valid election of lesser UIM coverage pursuant to the Pa.M.V.F.R.L.  The employees claimed that the insurance policy should be reformed to include one million dollars of underinsured motorist coverage because the requirement of a signed writing choosing reduced UIM coverage  under 75 Pa.C.S.A. section 1734 was not met.

U.S. Magistrate Judge William I. Arbuckle first agreed with the employees that a specific UIM option selection form did not comply with section 1734 and was therefore not a valid election of lesser coverage:

Section 1734 of the MVFRL allows a named insured to elect limits of underinsured motorist coverage in an amount equal to or less than a policy’s liability limit for bodily injury. 75 Pa.C.S.A. section 1734.   Absent a signed, written election for lesser coverage, it is presumed that the underinsured motorist coverage limit is the same as the bodily injury liability coverage limit. . .

The Underinsured Motorist Coverage Selection form in this case. . .    is signed by Mr. Clouse but does not expressly designate the amount of coverage requested. Accordingly, we find that this form does not satisfy the requirements of  75 Pa.C.S.A. section 1734.

Judge Arbuckle went on to find, however, that the original insurance application prepared by an insurance agent, and signed by Mr. Clouse selecting the lesser amount of coverage, did meet the requirement of a signed writing under section 1734:

The parties dispute whether the Insurance Policy Application in this case satisfies the writing requirement of section 1734. . . Farmland contends that the Farmland Policy Application signed by Mr. Clouse is a valid written election of lower coverage under section 1734. By contrast, the Employees contend that the Farmland Policy Application does not satisfy the requirements of section 1734 because: (1) the Farmland Policy Application does not advise Clouse Trucking of Farmland’s obligation to offer underinsured Motorist coverage limits equal to the Farmland Policy’s limit for bodily injury; and (2) the Farmland Policy Application is not a clear indication of Clouse Trucking’s intent to purchase a underinsured motorist coverage below the Farmland Policy limit for bodily injury because the blanks in the Farmland Policy Application were filled in by an insurance agent.

As an initial matter, I find that Farmland is correct that the Farmland  Policy Application meets the requirements of section 1734. The Farmland Policy Application  is signed by Mr. Clouse, and does request a specific amount of underinsured motorist coverage.

In short, Judge Arbuckle found that the policy documents, including the application, constituted a valid written request for reduced UIM coverage.  He also found that whether or not an insurance agent completed the application itself  was irrelevant, provided, as here, that the insured certified via signature his review and adoption of the statements contained in the application.

Farmland Mut. Ins. Co. v. Sechrist, 2017 U.S. Dist. LEXIS 213618 (M.D. Pa., Dec. 29, 2017)(Arbuckle, M.J.)

Advertisement

Control Outside Legal Costs By Building Fee Caps Into Outside Representation

feecap

It’s no secret that the biggest fear any in-house legal department has with engaging outside law firms in handling matters, especially litigation matters, is the fear that there is no way to know when the billing will end, and how high it will be when it gets there. This can commonly be referred to as The Runaway Train Syndrome.  Every in-house lawyer or general counsel reading this is nodding in agreement.  They have met the enemy, and it is outside law firms charging exclusively by the hour, with no objective or external controls ensuring proportionality between the price paid, the result delivered, and the timeliness with which the result was delivered.

The concept of fee caps, and the notion that there is always, up front, a known end in sight, is not only the perfect antidote to Runaway Train Syndrome, it is also the Swiss knife of legal fees.  Fee caps are so universally useful, in fact, that they can be put to use in billing arrangements  ranging from traditional billable hour fee arrangements, to newer, alternative fee offerings to give those who pay outside law firms the ultimate in cost-certainty.

Set an overall fee cap on top of a billable hour arrangement, for example.  Immediately, the outside law firm’s disincentive to accelerate an outcome disappears.  The incentive has aligned much better with that of the client – to deliver the requested outcome within budget, and within a reasonable time.  In this type of arrangements, the fee cap can be as simple as an overall matter total fee cap, or an annual fee cap, subject to an overall cap on the number of months or years a matter can be charged.

Fee caps can also  be used in alternative  billing arrangements to give the client some measure of clarity as to when a matter might reasonably  be concluded, and what the total project cost is going to be.  A good number of insurance clients I work with are using flat monthly fee agreements to retain me, and those fee agreements are always subject to an overall cap on the number of months for which they will be obligated to pay the flat fee.

Fee caps also do not eliminate flexibility to accommodate unforeseen circumstances as an assignment proceeds.  Both sides should remain free to re-negotiate caps upwards or downwards as case circumstances change.

If you are not already using fee caps to accelerate outcomes and reduce your outside legal expense, you should give them a try to see how much cost-control they can deliver.

CJH

 

 

What Two Roofing Companies Taught Me About Pricing Legal Services

Roofers On The Roof.

My wife and I recently downsized into a house we love, except for the roof we had to replace.  What ensued as I sought estimates from two roofing companies was a signal lesson to me about what clients want from their service providers, including law firms.  I was put in the rare position of calling the shots — I was for the purposes of this roofing job, the client.  What power.

Here’s how it went:

Company A’s estimator was a no-nonsense guy, who did a thorough tour of the roof and handed me a simple, one page estimate for X.   On the spot.

This number — X — was fairly close in my mind to what I would have to reasonably pay for a new roof.  I’d rather get the new roof for nothing, of course, but X made sense to me on a gut level.  It felt like a fair price to pay for what I was getting.

Company B’s estimator, on the other hand,  was nice also,  but a little more polished.  He handed me a glossy brochure after looking the roof over,  and said he would email me his estimate after he got back to his office and “did some satellite measurements” of the roof surface area.  A day later I got an estimate.  For 2X.

I didn’t like 2X as much as I liked X.  Company A got the job because Company A’s pricing made more sense to me.  It was lower, yes, and that certainly didn’t hurt, but a bid can become so low that it is no longer credible.  This bid was not so low.  This bid was  credible.

And thus, here is what the endeavors of laying shingles and hanging a shingle have in common, and what I learned from the experience:

  1. Some roofers (and some lawyers) will price their services based on what they think they can get away with — the highest possible number  which gives them what they perceive is a chance at the business.
  2. The more successful roofers (and lawyers) price their products and services at a level which is very close to the client’s perceived value of the result to be delivered.  The price is not directly or necessarily linked inexorably with the amount of time it  takes to produce the result, but rather the result itself.

The lesson I share here  is a mildly damning indictment  of the  billable hour to the extent that the billable hour creates disunion between price and result.  The billable hour is a wonderful tool for lawyers who want to maximize what they can get out of a client.  Value-based pricing, on the other hand, is the better tool for lawyers who are trying to price their services  to match the client’s perception of the value they are receiving.

Which pricing model do you think the clients prefer?

With the exception of the legal and consulting fields, customers largely pay for outcomes, not inputs.  This outcome-based pricing has made its way into how lawyers charge for their services.   Jim Savina, General Counsel of Kraft Heinz Co., said the following about the billable hour  in an interview earlier this week on Law360.com:

I have to think there is a better way to correlate price paid with value delivered, while aligning incentives to outcomes. I want my firms to be thorough and conscientious, but I never want them to spend five hours doing what they could do in one. The billable hour rewards them for doing so. I would rather reward firms for delivering the outcome at a rate that would be three times their billable rate. I have to think firms have access to data they could mine to develop those types of “win-win” arrangements in lots of areas.

And I would rather pay, and I did pay,  a roofing company the value of what that company did for me, as opposed to what the company thought it could get away with charging me.  That is the essence of pricing based on value,  which sophisticated clients will continue to demand.

 

A Roadmap For CGL Insurers To Disclaim Defense and Indemnity For Underlying Opioid Litigation

shutterstock_852782921

In a post last  week, we discussed an appeals court opinion from California, Traveler’s Prop. Cas. Co. of Am. v. Actavis, Inc., 2017 Cal. App. LEXIS 976, which ruled that Travelers Insurance had no duty to defend or indemnify pharmaceutical company insured who was sued by various state and local government units for deceptive practices leading to the overuse and abuse of opioids.  The opinion is a signpost on a road to what is likely to come a multiplicity of opioid suits against the drug-makers by governmental health organizations now overwhelmed with the problems arising out of opioid addition and abuse.

Insurers should be ready, therefore, to stake out clear lines demarcating the limits of the CGL coverage they wrote and priced, which  did not contemplate opioid suits.  Here is a very brief review of key points for successfully disclaiming duties to defend and indemnify insurers never contemplated:

What Does Your Policy Say?

CGL policies routinely cover “occurrences” which are traditionally seen to be accidental, unintended, and unexpected.  As discussed below, the current trend in opioid litigation is the allegation of intentional, deliberate conduct on the part of pharmaceutical companies.

In addition,  CGL policies routinely come with “Products and Completed Work” and / or “Completed Operations / Your Product” exclusions.  In the California case discussed earlier this week, and in most Pharma CGL’s, there is also a “Products-Completed Operations Hazard – Medical and Biotechnology” exclusion, which was seen by the Court as directly on point in Actavis.  The definition of an “occurrence” under the policy, and exclusions like these are the first steps to defining coverage, and these provisions have routinely been held by courts across the U.S. to be clear and unambiguous.

What Is Your Insured Being Sued For?

The emerging trend in opioid litigation against the manufacturers is the allegation by state and local governmental health units that the manufacturers deliberately misrepresented the benefits and downplayed the risks of opioids to self-grow demand for the drugs, and to diminish concern in the medical community for the risks and downside of opioid products, namely addiction.    The allegations sound in intentional conduct and intentionally deceptive trade and marketing practices, and are not the  types of allegations of accident or negligence which CGL polices are intended to cover, i.e., they are generally not “occurrences” as defined in the CGL policy.

The Actavis Court went to great pains to examine the underlying complaints against the drug makers, and in the end it found that the conduct complained of was neither accidental nor fortuitous such that it would be insurable under the CGL, but rather calculated and intentional.

Avoid The “Duty to Defend” Trap

While in the Actavis case the court recognized the distinction between an insurer’s duty to defend and duty to indemnity, it also  pointed out that where there is no possibility of coverage, not even the broad duty to defend was triggered.  The Court found that all of the conduct alleged was deliberate and not accidental, and that, according to the underlying complaints, none of the damages caused by the drug makers were unexpected or unforeseen.   It held, therefore, that not even the duty to defend was triggered.

There is case law in almost every jurisdiction holding that the duty to defend is not so broad and infinite as to require an insurer to defend its insured if there is no possible way the underlying wrongful conduct comes within the terms and conditions of the policy.   Insurers should take advantage of this to avoid incurring defense costs in these kinds of opioid cases where it is almost certain to never have a duty to indemnify.

The Best Defense…..

The costs of defending opioid litigation is, and will continue to be substantial.  Therefore, in the right cases, an insurer may be wise to invest in an early, interventional, declaratory judgment suit to free itself from any question of its duty to either defend, or indemnify insureds in the type of litigation seen in the Actavis case.  So too, early, well -reasoned denial letters, and, where appropriate, reservations of rights letters, will help protect the insurer from covering a risk it may never have contemplated, and certainly never priced into the policy it sold.

As discussed above, opioid litigation of the type seen in Actavis is likely to multiply.  Insurers should take pains to make sure that the CGL policies they issued, which  cover only accidental occurrences arising out of negligence, are not converted into product liability insurance for injuries and damages caused by opioids.

 

 

Travelers Does Not Owe Pharmaceutical Company Defense, Indemnity, In Opioid Suits

drugs

RIVERSIDE, Nov. 6 – An intermediate appeals court in California has ruled that Travelers and St. Paul Insurance companies owe no duty to defend or indemnify Watson Pharmaceutical in governmental suits against the pharmaceutical company over the deceptive marketing of opioids.

In Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., et al, No. G053749, 2017 Cal. App. Lexis 976 (Nov. 6, 2017)(Fybel, J.), The Court of Appeals of California held that under CGL policies issued by Travelers and Saint Paul, the exclusion from coverage of any liability arising out of manufactured products or “completed operations” relieved the insurers of the duty to defend or indemnify.   In the Court’s opinion, Associate Justice Richard Fybel described the nature of the underlying litigation against Watson and the other Parma defendants:

“The California Complaint and the Chicago Complaint are based on allegations that Watson and the other defendants engaged in a fraudulent scheme to promote the use of opioids for long-term pain in order to increase corporate profits. Both complaints allege that Watson had by the 1990’s developed the ability to cheaply produce opioid painkillers, but the market for them was small. Defendants knew that opioids were an effective treatment for short-term postsurgical pain, trauma-related pain, and end-of-life care and knew that, except as a last resort, “opioids were too addictive and too debilitating for long-term use for chronic non-cancer pain.” Defendants knew the effectiveness of opioids decreases with prolonged use, requiring increases in dosages and “markedly increasing the risk of significant side effects and addiction.”

While acknowledging an insurer’s duty to defend was separate and broader than its duty to indemnify, the Court found no potential for coverage in the underlying suits because the conduct complained in the underlying suits was not accidental or fortuitous:

“The injuries alleged [in the underlying suits] are: (1) a nation ‘awash in opioids’;  (2) a nationwide “opioid-induced [*24]  ‘public health epidemic'”; (3) a resurgence in heroin use; and (4) increased public health care costs imposed by long-term opioid use, abuse, and addiction, such as hospitalizations for opioid overdoses, drug treatment for individuals addicted to opioids and intensive care for infants born addicted to opioids.

None of those injuries was additional, unexpected, independent, or unforeseen. The complaints allege Watson knew that opioids were unsuited to treatment of chronic long-term, nonacute pain and knew that opioids were highly addictive and subject to abuse, yet engaged in a scheme of deception in order to increase sales of their opioid products. It is not unexpected or unforeseen that a massive marketing campaign to promote the use of opioids for purposes for which they are not suited would lead to a nation “awash in opioids.” It is not unexpected or unforeseen that this marketing campaign would lead to increased opioid addiction and overdoses. Watson allegedly knew that opioids were highly addictive and prone to overdose, but trivialized or obscured those risks.”

The Court also found that the underlying complaints set forth no claims against the pharmaceutical companies potentially sounding in negligence, and that the Products and Completed Operations Exclusions were clear and  unambiguous, such that they relieved the insurers from the duty to defend or indemnify the companies.

Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., et al, No. G053749, 2017 Cal. App. Lexis 976 (Nov. 6, 2017)(Fybel, J.),

New Jersey Hot Potato: Insurer Who Merely Serviced Policy Can Be Liable for Bad Faith

courtroom2

NEW JERSEY, Oct. 20 – A U.S. District Judge in New Jersey has ruled that an insurer who does not issue, but merely services, a policy of insurance, may be held liable for bad faith conduct.

In Fischer v. National Surety Corp., Civ. No. 16-8220 (KM), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.), the insured plaintiffs had a home insurance policy “issued by Fireman’s Fund, underwritten by National Surety, and serviced by ACE American.” The insureds  complained that after promptly reporting a claim they were subject to nearly two years of dealings with various insurance company representatives, but did not receive full payment for the original loss.

After filing suit against the insurers, ACE filed a motion to dismiss bad faith and breach of contract claims, pointing out that National Surety was the insurer, and it was not, and therefore it could have not bad faith exposure to a non-insured.

U.S. District Judge Kevin McNulty denied the motion to dismiss, observing that at this state of the proceedings the precise servicing arrangements between the defendants was unclear.  Judge McNulty also dismissed ACE’s argument that without an insuring agreement, there could be no bad faith claim as s matter of law.

Citing the leading bad faith case of Pickett v. Lloyds. The court ruled:

“Pickett itself … seems to contemplate a bad faith cause of action against a party other than the primary insurance company. Indeed, it reasoned that because an agent owes a duty to the insured, the insurer must ‘owe[] an equal duty ..[a]gents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds…“[e]ven if the [insureds] fail to establish the existence of a contract with ACE American, their bad faith cause of action may still be viable.”

Fischer v. National Surety Corp., Civ. No. 16-8220 (KM), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.)

Editor’s Note:  As insuring agreements, and servicing arrangements get more complex, new theories of non-contractual bad faith liability on the part of insurers and claims entities are likely to arise, and be based on the tort concept of the responsibility to act reasonably when a duty toward an insured  is undertaken.

Monday Morning Wakeup Call: A Note No Law Firm Has Ever Sent To An Insurance Company Client (Until Now…)

keep-calm-a-surprise-is-coming-1

The following is a true account — only names have been withheld to protect the identities of the parties.  My identity is left in, because — well, because I’m the guy who writes this blog, and because I’m trying to sneak a pat in on my own back, maybe.  Indulge me for three minutes.

There is a demand in the client marketplace for law firms to get beyond the billable hour.  But there is also fear and  trepidation of the unknown, on both sides.  Cutting edge law firms must, therefore offer not only  innovative pricing alternatives, but also metrics and data with those alternatives, to show the client that it is benefitting from the new arrangement.  Even beyond that, the law firm must show the client how much it is benefitting compared with the old way of doing things.

So without further adieu, here is an actual email which left my office last Friday afternoon.  On the surface, it is a routine update to an insurer I represent about the metrics of an alternative fee program we developed and implemented to align with their business goals.   But read on nevertheless, there is news here :

Hello All,

The most recent metrics on our flat fee program with you are showing us you are currently realizing about an 8-10% savings on all open matters, compared to the traditional hourly arrangement. We’d actually like to see you do a little better than that, and get you closer to 15% and higher.

So please get ready to read something no law firm has ever written to you before….Beginning next month we are cutting the flat monthly fee payment on all open matters by $125 to make sure the flat monthly fee program delivers better value to you, and moves us closer to  hitting that benchmark of at least 15% in reduced outside  legal expense.

You do not have to do anything on your end. You will simply see the reduced payment on your next round of invoices. And remember, the more you utilize the arrangement, the more cost control you are going to have over your outside legal expense. We will continually monitor and feed back the data and make sure you are receiving value in the alternative monthly flat fee program.

Thank you, as always, for your business.

CJ

This actually happened last Friday, and as it did, three things occurred to me about delivering value and better pricing models to corporate clients in an increasingly competitive business environment:

  1. Lawyers must make a leap.  Nothing is fatal.  Nothing is irreversible.  Everything is adjustable.  You will never remove 100% of the variables, and if you wait for that point to get started, you will simply never start, and  clients will be working with law firms which have started.
  2. Measure What You Are Doing.  This does not require floors and floors of mainframes and data analytics personnel.  Track a few items:  what your client is paying under an alternative fee deal, and what your client would have paid had the engagement been hourly,  for example.  Compare those two numbers, and… Presto!  You are now in the analytics business.
  3. Share What You Measure With Your Client.  If your alternative fee arrangements are helping your clients improve their bottom  line and helping them meet their goals, you would be foolish not to give yourself the free advertising you get by sharing that data.  And if the numbers aren’t working out, the only way you are going to adjust it and keep a happy client is to show them the data to discuss making an adjustment about which both sides feel good.

Let me close by asking the question I am certain you would like to ask me right now:   are you some kind of idiot?  Losing money on a client as it is, and making a decision to lose it faster? That’s very, very, bad business.

I am NOT a philanthropist, and despite what my kids might tell you, I do not believe myself to be stupid.  So what am I really doing here?  Think big picture for a minute  and let’s  revisit the most important win-win sentence of the note I sent:

“And remember, the more you utilize the arrangement, the more cost control you are going to have over your outside legal expense.”

Clients will not do business with you unless you are helping them with their bottom line.  It is written nowhere, however,  that this exercise  has to be is a zero sum game with one winner, and one loser.  In today’s business environment, lawyers and law firms have to find ways to create two winners, starting always with the client, and working outward from there.

It can be done.

 

Dickie, McCamey & Chilcote’s Insurance Law Practice Group Named One of the Nation’s Best for 2018

U.S. News Best Law Firms

Dickie, McCamey & Chilcote, P.C. received six national practice area rankings in the 2018 “Best Law Firms” list published by U.S. News & World Report and Best Lawyers®, which included the firm’s Insurance Law Practice Group.   The  firm’s inclusion in these rankings reflects the high level of respect a firm has earned from leading lawyers and clients in the same communities and practice areas for its ability, professionalism, and integrity.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of evaluations from clients, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. Clients and peers evaluated firms based on the following criteria:  responsiveness, understanding of a business and its needs, cost-effectiveness, integrity, and civility, as well as whether they would refer a matter to the firm and/or consider the firm a worthy competitor.

About Best Lawyers®
Best Lawyers is the oldest and most respected peer-review publication in the legal profession. A listing in Best Lawyers is widely regarded by both clients and legal professionals as a significant honor, conferred on a lawyer by his or her peers. Our lists of outstanding attorneys are compiled by conducting exhaustive peer-review surveys in which tens of thousands of leading lawyers confidentially evaluate their professional peers. Lawyers are not permitted to pay any fee to participate in or be included on our lists.

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 Pennsylvania, Delaware, New Jersey, New York, North Carolina, Ohio, South Carolina, West Virginia, the Southwestern region of California, and the Rocky Mountain region of Colorado.

CJ Haddick is the Director In Charge of the firm’s Harrisburg, Pa., office, and he heads Harrisburg’s Insurance Law Practice Group.  Reach him at chaddick@dmclaw.com or 717-731-4800. 

The Fine Art Of Deciding Not To Settle Within Policy Limits: Part One

jlt_sp_specie_and_fine_art

The Problem

You are defending your insured in a motor vehicle case with a $300,000.00 policy limit.  The Plaintiff’s injuries are fairly severe (several fractures and a hospital stay) and there is some work loss and other consequential damages.   The case is venued in a middle-of-the-road jurisdiction, and liability for the accident is questionable — a jury may well apportion some fault to both parties.

Until now, the Plaintiff’s only settlement demand has been $650,000.00.  But in today’s mail you receive a 30 day time limit settlement demand for the $300,000.00 policy limit, after which, the letter continues, the Plaintiff’s lawyer is going to take the case to verdict and seek an assignment of bad faith rights from your insured against you in the event of an excess verdict.

You have almost all of the relevant medical and work loss records, but no depositions have been taken.  What to do?

If those of you in the claims and claims management business had a nickel for every time this scenario  (or one similar to it) crossed your desk, you would no longer need to be in the claims or claims management business and, consequently, would not have to worry about it.   But until that kind of hazardous duty pay somehow materializes, you are stuck on the horns of a dilemma.

An excess verdict, in this example is possible, you believe, but it is equally possible that the case could come in at $200,000,00, maybe less.  Heck, if the jury finds the plaintiff more than 51% at fault (using Pennsylvania law as an example), the Plaintiff is going to take $0.  So the decision is taken:  despite the urgings, and veiled threats, of both the Plaintiff’s lawyer, and your insured’s personal lawyer (policy limit demands indeed make strange bedfellows), you are going to decline to pay the demand, and move forward for now with the litigation.

* * *

In this two-part post, we are going to examine the decision not to settle your insured’s tort case within policy limits.  How it should be done, when it should be done, whether it should be done, and why it should be done or not done, not necessarily in that order.  In Part One,  we will take a broad, 50,000 – foot look at the issue, and then in Part Two,  we will drill down into some of the particulars.

The Big Picture And  Rules of the Road

Obviously, the decision not to protect an insured and settle a tort case against him or her is a major one with major consequences:  It potentially exposes the insured to excess, and potentially personal liability, which defeats the purpose, your insured believes, of paying for insurance in the first place.  Not settling prevents financial and emotional closure of a rather unpleasant experience for one of your customers.  And perhaps most importantly, if declining a policy limits demand  is not done properly, with reasonable basis, it exposes the insurer to extracontractual damages via a bad faith claims in the event the underlying tort verdict exceeds the policy limits.

Doing business in this territory can be a risky place to go.

While all of these things are true, there are other less thought of elements which also operate in the background:

  • Despite what every Plaintiff’s lawyer would like you to believe, an excess verdict is not a res ipsa loquitur  or per se establishment of insurance bad faith.   An excess verdict is nothing more than an entre’ for an insured or his assignee to attempt to make out a bad faith case, which is a far cry from a final finding.  Do not let a Plaintiff’s bad faith  lawyer standing at home plate holding an excess verdict convince you he or she has already hit a home run.  He or she has not.
  • Reasonable offers of settlement less than policy limits are often  made, and rejected, followed by a verdict in excess of the policy limits.  It happens, and it often times happens even in the absence of insurer bad faith.    If the amount of the offer and the amount of the verdict are reasonably close (I use this vague term intentionally), and there is a reasonable, documented rationale for either making a sub-limit settlement offer and/or declining to pay a limits demand, a finding of bad faith against the insurer is not a foregone conclusion.

So how should the decision to pay or not to pay a limits demand be made?

 

The Art and Science of the Decision Not To Settle Within Limits

There is a reason this post was not titled, “The Fine Art of Not Settling Within Policy Limits.”  The title contains an extremely important verb:  “Deciding.”   An insurer’s decision to reject a policy limits demand against its insured must be just that:  a decision.  The decisional aspect of not settling within limits implies a whole host of items comprising a decision – making process, which encompasses legal and factual information-gathering, deliberation, analytics, examination of comparable injuries and cases, and consideration of other relevant factors.

The decision not to settle within limits must be an informed one — it cannot be one which is knee-jerk, emotional, or irrational.  It cannot be one made simply on the basis that the insurer would rather not pay.  Stated simply, the decision, if made, must be made properly.  The decision – making process must not only  be a thorough one;  it must be one where the reasoning behind it is documented so that it is re-traceable at a later time .  We will examine the specifics of this decision making process in Part Two of this post.

 

Faulty Workmanship Not Occurrence, Travelers No Duty to Defend / Indemnify Real Estate Investment Companies, Federal Judge Rules

con3

PHILADELPHIA,  September 1 — A Pennsylvania federal judge granted summary judgment Travelers Insurance last week, ruling it had no duty to defend insured real estate developers who were sued for claims of defective community living infrastructure construction.

In the breach of contract suit over coverage (bad faith claims had been dismissed earlier in the case), U.S. District Judge Mitchell Goldberg said that no coverage existed under the applicable Travelers insurance policies because the defective workmanship issues were not “occurrences” under well-established Pennsylvania precedent.

The insured plaintiffs, Northridge Village LP and Hastings Investment Co. Inc., bought and subdivided lots in Chester County, Pa., subsequently selling them to a builder.   Northridge built roads, storm water and runoff  management and other infrastructure for the planned community.

The community  association alleged defects with the construction of roads, drainage ponds, utility boxes, and other items, later suing Northridge and Hastings in Pennsylvania state court in 2013.  Northridge and Hastings then sought defense and indemnity for the suits under a commercial general liability policy with a $1 million occurrence limit, $2 million aggregate limit and $2 million products-completed-operations aggregate limit, as well as excess coverage of $2 million.  When Travelers denied the claims, Northridge and Hastings brought a coverage and bad faith suit against Travelers  in 2015.

Judge Goldberg dismissed the coverage suit, relying on what he called well-settled precedent stemming from a 2006 case, Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006).  Judge Goldberg held that under Kvaerner, construction workmanship issues did not constitute “occurrences”‘ within the meaning of the CGL policies, as they were not accidental, fortuitous events which the instrument of insurance is designed to cover:

 “Courts in this circuit have consistently applied Kvaerner and held that claims based upon faulty workmanship do not amount to an ‘occurrence,’ and thus do not trigger an insurer’s duty to defend … The same conclusion has been reached in this circuit in cases where the faulty workmanship results in foreseeable damage to property other than the insured’s work product…Given the weight of Pennsylvania and Third Circuit precedent, I conclude that the term ‘occurrence’ in defendants’ CGL policies and excess policies does not include faulty workmanship. Further, the definition of ‘occurrence’ excludes negligence claims premised on faulty workmanship.”

Judge Goldberg further held that even if a duty to defend were potentially triggered, that was mooted by a ‘Real Estate Development Activities’ exclusion which also appeared in the applicable policies.

Northridge Village LP and Hastings Investment Co. Inc. v. Travelers Indemnity Co. of Connecticut et al., (E.D. Pa 2:15-cv-01947)(Goldberg., J.)

%d bloggers like this: