The Montana Supreme Court Just Made It Much Harder For Insurers To Litigate The Value of UM/UIM Claims

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HELENA, Oct. 24 – While disclaiming it was creating a new concept of insurer bad faith in the state, the Supreme Court of Montana just announced a bright line rule in first party UM/UIM litigation that discourages insurers from contesting in good faith the value of an insured’s injury, and rolls back the American Rule which requires that each litigant bear his or her own attorneys fees.

In Mlekush v. Farmers Ins. Exchange, 2017 MT 256, a unanimous Montana Supreme Court held that an insurer contesting an insured’s claim for UM/UIM dollars must reimburse the insured for attorneys fees if the insured goes to trial and recovers an amount in excess of the insurer’s last offer.  Justice Michael A. Wheat wrote for a unanimous court:

“[w]e hold that, when a first-party insured is compelled to pursue litigation and a jury returns a verdict in excess of the insurer’s last offer to settle an underinsured motorist claim, the insurer must pay the first-party insured’s attorney fees in an amount subsequently determined by the district court to be reasonable.   To be clear, if a first-party insured goes to trial and obtains a verdict in excess of the insurer’s last offer, this constitutes prima facie proof that the insured was forced to assume the burden of legal action to obtain the full benefit of the policy, thus obviating the need for an inquiry as to whether or not the insurance exception applies. However, in cases in which the policy limits are tendered prior to a verdict being returned, the district court may consider the entirety of the litigation to determine ‘whether, and to what extent, [the] insured was forced to assume the burden of legal action in order to recover the full benefits of the insurance contract.'”

Mlekush v. Farmers Ins. Exch., 2017 MT 256 (Oct. 24, 2017)(Wheat, J.)

Editor’s Note:   While the Court took steps to walk back from any suggestion it was creating new bad faith law, the opinion essentially creates  a rule of strict bad faith liability for any insurer who takes a UIM claim to trial and the jury awards more than the insurer’s offer.  The opinion is wholly  silent, of course on whether an insurer is entitled to recoup attorneys fees from the insured if the jury awards an amount less than the insurer’s last offer, and despite the symmetry of it,  it is probably not reasonable to assume such a corollary would ever be endorsed by the Court.  

 

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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. 

October Bad Faith Case Roundup

discovery

Discovery

Claims Files / Reserve History

Parisi vs. State Farm, 2017 US Dist. LEX, 162161 (Western District of PA, Oct. 2, 2017) (Gibson, J.)Court ordered in camera inspection of State Farm’s claims file including portion of the file designated “free-form attorney” to make determination of whether or not information contained is protected by the attorney-client privilege or attorney work-product doctrine.   Court also held reserve history of claim is discoverable.

Pleadings

Adequately Pleading Bad Faith/Handling UIM Claim

Thomas vs. Protective Insurance Company, 2017 US Dist. LEX 166955 (M.D. Pa. Oct. 10, 2017) (Caputo, J.) – The Court denied Protective’s Motion to Dismiss Plaintiff’s Amended Complaint pursuant to F.R.Civ. P. 12(b)(6) finding that Plaintiff sufficiently stated bad faith cause of action when making specific averments concerning insurer’s conduct of handling UIM claim.  Plaintiff specifically alleged Protective’s failure to investigate, failure to communicate, failure to evaluate, and misrepresentation to the insured as well as violation of Pennsylvania Insurance Department regulations.

Irving vs. State Farm, 2017 US Dist. LEXIS 164390 (E.D. Pa. Oct. 4, 2017) (Slomsky, J.) – Court granted State Farm’s Motion to Dismiss Plaintiff’s bad faith claims pursuant to F.R.Civ.P 12(b)(6).   Disagreement over the value of the UIM claim, without more, does not constitute bad faith.   Plaintiff granted leave to attempt to amend Complaint to state bad faith cause of action.

 

Summary Judgment

Defense and Indemnity Provided To Insured

State Auto Property vs. Stucky, 2017 W.V. LEXIS 759 (Oct. 10, 2017) (Ketchum, J.) West Virginia Supreme Court held that Plaintiff failed to state a bad faith claim as a matter of law where it was provided defense and indemnity in an underlying trespass suit.   Court observed that State Auto provided the insured, CMD, with a defense and settled the underlying tort suit for $325,000, well within the insured’s $1 million dollar policy limit.
Delays Processing UIM Claim,  Collection of Records,  Investigation

Radolfi vs. State Farm, 2017 U.S. Dist. LEXIS, 165013 (M.D. Pa., Oct. 5, 2017) (Carlson, J.) – Court grants summary judgment in favor of State Farm in UIM claim,  holding no inference from which a finding of bad faith could be made.   The Court observed that while there were delays in processing the claim, including the collection and review of medical records, the delays were not attributable to State Farm.  The Court found that State Farm’s request to the Plaintiff’s attorney for medical records were not complied with, including requests for updated medical records.  The Court held that Plaintiff also failed to provide employment records despite making a claim for wage loss.  The Court also held that a new contractual bad faith cause of action was barred by the law of the case, in that it had previously dismissed a statutory bad faith claim, and that State Farm’s initial error in stating coverage limits to the insured did not constitute bad faith.

The Best Defense: Insurer Voids Policy Ab Initio For Fraud, Alleges Reverse Bad Faith Following Claim

insurance-fraud

PHILADELPHIA, Sept. 27 – A state court judge in Philadelphia has upheld a jury finding that a commercial property insurance policy was void ab initio based on the fraud of the insured in the application, requiring the insured to disgorge claims payments, and the insurer to refund premium dollars paid by the insured for the policy.

In Smith v. United States Liability Insurance Co .,  the  insured filed a  vandalism claim with USLIC which wrote a  commercial policy on the property.  USLIC paid  more than  $150,000.00 on the claim , but a public adjuster hired by the  insured disputed that amount, claiming the total damage was  $444,325.71.

During the claims investigation the insured sat for several  examinations under oath.   The insured ultimately sued USLIC for failure to pay the full claim.  USLIC filed an answer and counterclaim seeking, among other things, (1) declaratory relief  (2) a finding that the insured violated the Pennsylvania Insurance Fraud Statute, and committed  common law fraud; (3) a finding that the insured breached the insuring agreement and (4) committed reverse bad faith.

Following jury trial, the jury returned a verdict in favor of the insurer on all claims and counterclaims.  The Court, per Judge Ann Butchart, denied post trial motions, and entered judgment on the verdict, declaring the policy void,  and requiring the insured to pay the insurer $285,094.40 ($157,725.09 in previous claim payments under the policy and $127,369.31 for claim related expenses incurred by the insurer).  The Court further ordered USLIC to return $48,467.55 in premiums to the insured.

Judge Butchart wrote in part that the insured had lied in the insurance application about the frequency of prior claims, withholding this information from the insurer:

“where the execution of a contract of insurance has been induced by fraudulent misrepresentations of the insured, the insurer may secure its cancellation . . . the jury, as the fact finder, determined by a standard of clear and convincing evidence that the Policy was procured by fraud with the intent to deceive . . . and the Court properly declared the Policy void ab initio. . . the jury was presented with sufficient evidence to determine, under the clear and convincing standard, that [the insured] committed fraud with intent to deceive when he submitted his application for insurance.”

 

Smith v. United States Liability Insurance Co., Philadelphia Court of Common Pleas, June Term 2016 No. 2354, 2017 Phila. Ct. Com. Pl. LEXIS 292 (C.C.P. Phila. Sept. 27, 2017) (Butchart, J.)

Flat – Rate, Quick – Turnaround Insurance Coverage Opinions: An Idea Whose Time Has Come

efficiency

Once upon a time an insurance executive who asked me to prepare a coverage opinion and a draft declaratory judgment complaint sheepishly asked me, “Can I get this in two to three weeks?”  I don’t get this question anymore.

Why?  Because in most cases the quickest line between an insurance executive and the coverage opinion he or she needs is a direct request to oftentimes-overworked in-house lawyers.  Seen as the lesser of two evils, the in- house route is perceived as slightly less costly in terms of both time and money.

A frequently expressed theme at www.badfaithadvisor.com  is that the market for outside legal services is changing in ways not even considered a few short years ago.  Insurers, to the extent there is budget or allowance for outside legal services at all, want the outputs faster and cheaper than ever before.  Legal problems are not only legal problems any longer — they are business problems.  And part of the business problem is obtaining  what is purchased from law firms quicker, and at lower cost.

Changing products and services must meet the changing conditions, or outside law firms will lose their usefulness.  Enter into the marketplace the fixed-cost, fixed delivery date insurance coverage opinion.   It is proving to be extremely popular with clients,  who find it to be an even  cheaper and better alternative than to having the work done in-house.

Innovation is not necessarily invention:  it is simply aligning supply with changing demand, and the fixed-fee coverage opinion does this with its pricing model, and with a guaranteed delivery date of usually as little as three to five business days.  Depending on the complexity and the coverage issue, and the volume of materials to be reviewed,  a client is proposed a single price for a complete coverage opinion and a guaranteed delivery date.  Priority 24 and 48 hour options are also available, also at a quoted, fixed fee.

Under the arrangement, the client is given dual cost control:  control over the financial cost of obtaining and opinion, and perhaps as importantly, control over the cost of time it takes to obtain it.  The life force of Perceived Value is breathed back into a transaction which, at a routine hourly rate arrangement, was and is flagging in the marketplace.

If you don’t have access to outside law firms who can deliver insurance coverage, case evaluation,  or other legal opinions to you in a matter of days for a quoted price, you will improve your efficiencies, and solve both business and legal problems, as soon as you do.

For more information on taking advantage of fixed fee, guaranteed-on-time coverage, case analysis, and legal opinions, contact me at chaddick@dmclaw.com or 717-731-4800.

 

 

 

 

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

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In Part One of this post, we examined a hypothetical time-limit settlement demand against an insured for policy limits,  and contemplated the decision not to pay the demand.  In Part Two, we examine the specifics behind an insurer’s decision not to pay a time limits demand.

In the first half of this post we saw that the decision not to pay must be an informed and deliberate one.  Here are some of the nuts and bolts to that decision-making process:

 Err On The Side Of Paying

This may strike you as an awfully odd first element of the decision not to pay a policy limits demand — actually leaning toward paying it —  but stay with me for a second.  If you follow this rule first and foremost, all of your decisions not to pay a policy limits demands are going to look much, much better.

Perhaps it’s best to explain this one through the use of some numbers, looking back at the hypothetical policy limits demand of $300,000.00 we set up in Part One of this post.  If the case is not worth more than $150,000.00 after research and analysis, that is one thing, and a refusal of the demand of $300,000.00 is most likely supportable.  But if your considered judgment is that the case is worth  $285,000.00,  for example, be wise:  protect your insured and pay the $300,000.00.  If your reasoning leads you to believe that there is a 70-80% chance of a verdict of $350,000.00 or more, pay the $300,000.00 and get your insured’s name on a release.

Never flirt with disaster on the close ones.  It is not worth the downside.  Enough said.

Have A Thorough, Reliable, Claims Valuation/Vetting Process

This will mean everything to you if you pass on a policy limits demand and are later faced with a verdict in excess of policy limits.  If you are going to successfully defend a bad faith claim based on the excess verdict, a thorough, valid, reliable case valuation process will oftentimes save you from a follow-on bad faith verdict.  Without one,  you are likely facing and uphill and most likely unwinnable battle.

What comprises a thorough, reliable, claims process?  Investigation.  Analysis.  More Investigation.  More Analysis.  The basic blocking and tackling  is what we are talking about here – recorded interviews, medical records, police reports, wage and employment records, medical exams, depositions, discovery, etc.  The more information considered, the better.

Legal research into the liability aspects of the case, jury verdict research from the applicable venue, and similar case-valuation research is also extremely helpful.  If the venue you are in routinely shows verdicts in the high six-figure amounts for multiple fracture automobile accident cases, refusing to pay the demand of $300,000.00 is, obviously going to be much harder to justify.

Do the homework.  And make the decision to pay or not to pay the limits demand depending on what your homework shows.

Thoughtful deliberation by more than just a single claims professional is crucial as well– collective wisdom and decision-making is a great help to successful bad faith defense.   For an extra layer of protection, especially in high value cases, it never hurts to ask independent, outside counsel for a complete evaluation of liability, damages, and a case valuation.  It is time and money well spent.

Document Your Thorough, Reliable, Claims Valuation/Vetting Process

The best and most intricate case workup and evaluation will be of no use to you in a bad faith case if you cannot reconstruct the thought processes of your claims professionals leading up to the decision not to pay a policy limits demand.   All of the major aspects of the process should be reflected in either the claims file and/or the claims notes, for use at a later time in the event of an excess verdict.

The settlement negotiations themselves should likewise be documented, including notes following telephone calls and correspondence from your counsel to the Plaintiff’s counsel declining the demand, and more importantly, explaining the rationale for declining the demand, whether it be because liability is questionable, or the value of the injuries to not justify, based on your research, the amount of the settlement demand.

If you feel the demand is premature because, for example, depositions have not yet been taken in the case, spell that out in your negotiations and, if appropriate, ask for additional time, or to hold negotiations open.  If there is missing information you need from the Plaintiff or his lawyer, document making requests for that information, as well as any failures on the part of your counterparts to provide that information, and how that impacts your ability to evaluate the demand.

In other words, leave a very good trail of breadcrumbs.

Conclusion:  Is It Better To Be Right or Reasonable?

There is likely no tougher decision in the insurance claims business than the decision of whether or not to pay a policy limits settlement demand on behalf of an insured.   A great deal rides on making the right call.   So the process used in arriving at that decision is of utmost importance.

Whether it is better to be right or reasonable is a trick question, of course — it is always best to be both.  When it comes to the decision not to pay a policy limits settlement demand, however,  you cannot always be right.  But you can always be reasonable, by sticking with the right process, and that will keep you out of the worst  kinds of trouble.

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

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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.