Insured’s Failure To Cooperate During Time Limit Demand Leads To Bad Faith Dismissal

Florida, Jan. 19.  A Federal District Judge in Florida has granted summary judgment in favor of Titan Insurance Co. in a bad faith case, finding that the insured’s lack of responsiveness during a time limits settlement demand precluded the case from proceeding further.

In Hinson v. Titan Ins. Co., 2015 U.S. Dist. LEXIS 121666 (N.D. Fla. 2015), Chief Judge M. Casey Rodgers dismissed a third party bad faith suit arising out of an excess verdict against Titan’s insured, Hinson.  During an underlying personal injury case against Hinson, the plaintiff’s lawyer issued a 20 day settlement demand for policy limits, requiring among other things an affidavit from Hinson as to any other applicable insurance.

Titan’s claims personnel made multiple attempts to alert Hinson, including the hand delivery of a draft affidavit to his address, in an effort to comply with the terms of the time limits demand.  Chief Judge Rodgers wrote:

Hinson failed to timely return the required affidavit to meet the [terms of the time limit] demand…The totality of the circumstances demonstrate that Titan diligently pursued a settlement; advised Hinson of the risks of an excess judgment, of settlement opportunities, and the probable outcome of the litigation; and tendered checks on more than one occasion.

Hinson at 15-16.

The Court found that the failure to meet the conditions of the 20 day time limit demand were therefore attributable to the insured, not Titan, and entered judgment for Titan.

The Court also found that Titan’s refusal to agree to try the bad faith claim before the personal injury action and pay the limits to the personal injury plaintiff  if the insurer prevailed in the bad faith case (known in Florida as a “Cunningham agreement”) was not bad faith as a matter of law.

Takeaway:  There is nothing new under the sun here, although the case is a perfect illustration of two key components of dealing with time limit personal injury settlement demands: 1.) claims staff must make Herculean efforts to act  on the insured’s behalf within the demand window, and before it is too late; and 2.) those efforts must be re-traceable in a well-d0cumented claims file.  For additional information on defensive handling of time limit settlement demands, reach me at chaddick@dmclaw.com or 717-731-4800.

Hinson v. Titan Ins. Co., 2015 U.S. Dist. LEXIS 121666 (N.D. Fla. 2015),

Philly Trial Court Recommends Dismissal of Time-Barred Bad Faith Claim

In an opinion  recommending that summary judgment in favor of the insurer be affirmed pursuant to Pa.R.A.P. 1925, , the Philadelphia Court of Common Pleas has ruled that the plaintiff failed to file his bad faith claim within two years of his claims denial, time-barring the claim under the two year statute of limitations.

In Fieldhouse v. Metropolitan Property Ins. Co., 2015 Phila. Ct. Com. Pl. LEXIS 396, the Court found that the Plaintiff’s bad faith claim, premised upon the insurer’s cooperation with law enforcement in their investigation of the auto accident which gave rise to the claim, was filed more than two years after the claim was denied.

Fieldhouse v. Metropolitan Property Ins. Co., 2015 Phila. Ct. Com. Pl. LEXIS 396

Editor’s Note: The statute of limitations defense  aside, it is highly unlikely any Court would find that an insurer’s cooperation with law enforcement in the investigation of an auto accident would constitute bad faith under the Pa. Bad Faith Statute, 42 Pa. C.S. A. §8371.

GCs: How Would YOU Like To Compensate Your Outside Law Firms?

Good lawyers can be bad listeners when it comes to legal fees.  Under ever-increasing pressure to fold more efficiency into the hiring and use of outside law firms, General Counsel are looking for alternatives to a running meter, which counter-incentivizes what clients want most – fast, cost-effective results.  Did I mention fast?   The best and most flexible law firms and lawyers are the ones who are responsive to that.

I’ve handled all kinds of cases, including litigation, under alternative fee arrangements (AFA’s) for years.  Generally, however, they have been arrangements lawyers  have designed and my clients have haltingly approved, or reluctantly agreed to try.   But even that model – the lawyer proposing to the client, amidst the ever – increasing speed of the rate of change in the hiring and use of outside legal counsel, may not be adequate responsiveness to a client’s needs.

What would the ideal fee arrangement be for an insurer’s in-house legal department to have an outside lawyer perform a coverage opinion?  Handle a bad faith case?  Perform a claims file review to do some bad faith preventative maintenance?  What would that look like to General Counsel’s Office?

GC’s and in-house lawyers, what is the best outside counsel fee arrangement for your company ?  That is the question to be asking, and good outside lawyers and law firms will be very interested in the answer.  Email us at  chaddick@dmclaw.com  and describe  YOUR ideal fee arrangement.   None of the responses will be shared unless you would like us to do so.

Looking for ideas on AFA’s?  Stay tuned for the posting of our AFA Resource Page, discussing any number of AFA options for both litigated and non litigated matters.  The options are virtually limitless.   These options can serve either as a pre-packaged deliverable fee arrangement, or a jumping off point to tailor an arrangement to meet your needs.

Best,

CJH

Federal Magistrate Judge Sanctions Insurer for Delayed Production of Draft Coverage Letter; Rules In-House Counsel E-mails Not Privileged

US D. New Jersey, Dec. 30, 2015 – U.S. Magistrate Judge Ann Marie Donio has granted in part and denied in part Plaintiff’s motion for sanctions against Bankers Standard Insurance Company in a bad faith and breach of contract case under a  homeowners’ insurance policy arising out of damage from Superstorm Sandy.   In Zawadsky v. Bankers Standard Insurance (link to full opinion below), the Court made several pronouncements which should be of concern to insurers, and their in house legal departments.

Draft Partial Coverage Letter: Admission of Coverage?

Although Bankers Standard issued a denial letter regarding the insured’s homeowners claim,  there was evidence that a junior adjuster had previously drafted a coverage letter extending partial coverage for the loss.  Judge Donio ruled that the intentional delay in turning the draft letter over was sanctionable under F.R.C.P. 37:

Most importantly, the Draft Partial Coverage Letter — despite Defendant’s assertion to the contrary — is an admission by one claims adjuster that there is coverage under the Policy. The fact that a more senior adjuster trumped that position and directed a flat denial of coverage be issued does not erase this conclusion. Additionally, the concealment of that conclusion — that admission — bespeaks of purposeful conduct that may, after the depositions are conducted, warrant additional sanctions. As noted by Plaintiffs, if it were not for the inadvertent production by Defendant on February 2, 2015 of the unredacted email, Plaintiffs would still not have the Draft Partial Coverage Letter.

(emphasis added).  The Court found the conduct of Bankers Standard Insurance sanctionable in this regard.

Emails Involving In House Counsel:  Lawyers or Claims Investigators?

Judge Donio ruled that Bankers Standard failed to adequately demonstrate that email strings involving in house legal department lawyers sufficiently came under protection for attorney client privilege.  She wrote:

…the timing of these communications supports Plaintiffs’ argument that Defendant’s in-house counsel was part of the investigation of Plaintiffs’ claim and not providing legal advice. The burden is on Defendant to appropriately support its application of the privilege at the time of the motion. Defendant has left it up to the Court to decipher these emails and determine whether in-house counsel is providing legal advice or acting as part of the claims investigation. Defendant has failed to demonstrate that the documents are protected by the attorney-client privilege.

As a result, the Court also ordered production of unredacted emails including communication with in house counsel.

Severity of the Sanction

Rather than granting the sanction requested by the Plaintiff — striking all of the insurer’s substantive defenses and moving directly to a damages trial — Judge Donio issued the lesser sanction of orders compelling production of the documents under dispute, and allowing the Plaintiff to re-open discovery on the issue of the draft partial coverage letter

Takeaways:

  • Bankers Standard was clearly concerned about the presence of a draft partial coverage letter in the same claims file in which a later full denial of coverage letter existed.   They elected to attempt to shield the letter from discovery.  Another option which may have proved the better route would have been to simply disclose the letter as part of the story of the on-going thought process of the claim, which later gave way to a reasonable conclusion, after consultation with senior claims staff and counsel, that there was ultimately no coverage for the loss.   Insurers are not prohibited from a change of mind on a coverage position if the claims investigation supports it.

 

  • This case is a signal example of why the  line of demarcation between claims staff and in-house legal counsel should never be blurred.  Here, Bankers Standard’s  failure to sufficiently articulate to the Court why the in house legal staff performed legal work, rather than claims investigation, sounded the death knell for attorney client privilege in the case.

 

  • The chances of Inadvertent production of privileged material can be reduced by the cross-checking of the production by a second or third pair of eyes in counsel’s office, and can be guarded against by inadvertent disclosure and claw-back discovery agreements, entered into at the outset of the case, along with such things as confidentiality agreements, and consent agreements to protective orders.

Zawadsky v. Bankers Standard Ins. Co., (D. N.J. 2015)

Cyber Liability Insurance Bad Faith Suit Trimmed In Utah

A U.S. District Court Judge in Utah has granted partial summary judgment in favor of Travelers Insurance in a bad faith suit involving a Cyber Liability insurance policy.  U.S. District Judge Ted Stewart of Utah has dismissed portions of a bad faith suit against Travelers, ruling that it has no duty to defend or indemnify its insured, Federal Recovery, in an underlying data breach lawsuit.  The Court found that Travelers’ coverage position was “fairly debatable,” and therefore that the position it took cannot, as a matter  of law, be found to have been taken in bad faith.

The Court denied Traveler’s motion to dismiss that portion of the suit against it relating to Traveler’s intake and handling of the claim, however.  The insured claims that Travelers breached its duty of good faith and fair dealing in allegedly misleading its insured to delay the filing of the claim until it received formal suit papers.   The Court also found there were factual issues relating to whether Travelers  diligently investigated, evaluated, and communicated about the claim to its insured, and denied Travelers’ summary judgment motion as to those claims also.

The Takeaway:   This decision is a textbook example of a jurisdiction in which having a reasonable position to deny coverage to an insured is not the end of the bad faith analysis.  Claims handling (the means), separate and apart from the claims decision (the end), is subject to bad faith scrutiny under this jurisdiction’s bad faith law.  Best claims practices, therefore, should facilitate proper claims decisions being made in conjunction with proper claims handling, from initial intake to final coverage decision.

Travelers v. Fed. Recovery Services (D. Utah 2016)

3rd Circuit Affirms Denial of Remand Motion, Upholds UM/UIM Waiver

In Lieb v. Allstate, the 3rd Circuit Court of Appeals affirmed district court rulings 1.) denying the insured’s remand motion after Allstate removed the case from state court; and 2.) affirming dismissal of breach of contract claims under an automobile insurance policy, finding the insured’s waiver of UM/UIM coverage to be valid under the Pa.M.V.F.R.L.

The district court properly looked to  assessing jurisdictional amount as of the time of the removal, the appeals court found.  At that time, the Plaintiff’s complaint contained a claim for insurance bad faith, thus taking the value of the case in excess of the $75,000 jurisdictional limit.

The appeals court also affirmed the dismissal of the insured’s suit for UM/UIM benefits, finding a signed waiver form in compliance with Pa. law.

Lieb v. Allstate (3rd Cir. 2016)

NJ Gov. Signs Fraudulent COI Bill

New Jersey Governor Chris Christie has signed legislation which makes it expressly illegal to request the issuance of certificates of insurance which contain false or misleading information. Click on link below for full text of bill.

New Jersey Bill S-3270