-UPDATE- Reconsideration Denied; Summary Judgment for Harleysville Upheld In Bad Faith Case

READING, Feb. 2 – The Berks County Court of Common Pleas has denied Plaintiff’s Motion for Reconsideration on the same day the motion was filed regarding the case discussed in this prior post.

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Reading, Pa., Jan. 19Dickie, McCamey & Chilcote attorneys C.J. Haddick and Christine Line have won a dismissal in a bad faith case in favor of client Harleysville Insurance Companies.  The Berks County, Pa.  Court of Common Pleas on January 19 granted the motion for summary judgment filed by Haddick and Line in a bad faith suit arising out of a commercial property coverage dispute over an alleged van theft and fire involving business personal property.  Haddick and Line are members of the firm’s Insurance Law and Litigation Group.

Harleysville did not dispute it owed coverage for the value of the van, substitute van rental expense, and for the value of certain business personal property under an inland marine policy.  It did contest, however, the Plaintiff’s claimed entitlement to a variety of other sums for towing, vehicle storage, loss of business income, and claims for tool losses in excess of the policy limit.  The Court agreed that the additional claims were unsupported by the policy language.

The Court also agreed with Harleysville’s position that regardless of the outcome of the several coverage claims, the claims decisions made were made with reasonable legal and factual bases.  As a result, the Plaintiff’s bad faith claims were dismissed as well.

For additional details on  the ruling, or suggestions  how to have your coverage and bad faith claims decided faster and more favorably with greater cost control, contact us at chaddick@dmclaw.com or 717-731-4800

Rogers Flooring Co. v. Harleysville Ins. Co., Berks County No. 14-674 (Sprecher, J.)

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Bad Faith Case Based On Hailstorm Claim Dismissed in Lousiana

NEW ORLEANS, Jan. 28 – A Federal Judge in New Orleans has dismissed a statutory bad faith suit against an insurer arising out of a hailstorm property damage claim, finding that the insured failed to establish any genuine issue that the insurer acted arbitrarily or capriciously in the handling of the claim.  In Dubois v. Southern Fidelity Ins. Co., Judge Ivan Lemelle granted Southern Fidelity’s motion for partial summary judgment, dismissing the insured’s claim for statutory penalties.

In granting the motion, Judge Lemelle, found the insurer’s failure to pay the hailstorm property damage claim arose out of a genuine dispute about the cause, nature, and extent of the property damage.  The Court went on to note that the insured’s initial claims were both filed after some delay, and were initially unclear, making reference to both damage caused by the hailstorm, but also Hurricane Isaac.  This,  and the plaintiff’s failure to properly identify any facts tending to prove bad faith on the part of the insurer, warranted dismissal of such claims under F.R.C.P. 56, the Court held.

Dubois v. Southern Fidelity Ins. Co., E.D. La. 2016 (Lemelle, J.)

Editor’s Note:  This opinion contains a concise review of Louisiana law regarding insurer bad faith, including review of the applicable statutes, and the bad faith standard of arbitrariness and capriciousness.  The ruling also demonstrates that while the precise language of the bad faith standard may differ from state to state, in large measure they all articulate the same standard, i.e., the lack of a reasonable basis on the part of the insured in handling the claim.

 

Dollarizing Your Value to Legal Departments: Return on Investment

In an earlier post, I commented on some metrics used by insurance and other in house legal departments used to measure the value of outside law firms engaged to represent them in litigated matters, e.g., insurance coverage or bad faith litigation, the latter of which has at risk real corporate dollars.

I’ve received a thoughtful question or two from lawyers who were interested in how I went about demonstrating to my clients (and prospective clients) what kind of return they could expect in exchange for every dollar of legal fees  they invested in our firm to defending them.  I’ve referred to this metric as Return on Investment (ROI).

It’s somewhat of a subjective exercise up front, which involves making an educated estimate of the insurer’s reasonable exposure at the  start of the case.  You don’t need to actually DO the estimation at the start of the case, because the ROI calculation cannot be done and fed back to the client until the case has ended,  and both the final case outcome and total legal fees are known.  The initial exposure assessment is the only subjectivity in the process; all the rest of the numbers are hard data.

So, here’s a quick and dirty ROI calculation, which can be used for a single case, or aggregated to account for a number of completed cases.

For any case, let

a=the initial, reasonable worst case exposure for client at case outset

b=the final payout, if any; and

c= the amount of legal fees incurred to arrive at the final result

 The ROI calculation is simply:

(a-b)/c.

What Do The Numbers Tell Your Clients About Value?

This calculation is a ratio, which expresses the relationship between the company’s investment in legal fees and the reduction or elimination in the contingent corporate exposure which the fees produced.   In terms of quality or value, a reasonable initial target might be a 3:1 to 4:1 ratio.  5:1 and above are good benchmarks, as a general proposition.  But there is a caveat:  a 5:1 ratio is not satisfactory if your clients average ROI from outside firms is, for example 8:1.

And you may never  get data about your competitors.  The solution?  Shoot for as high a ratio as possible, and work to keep it high.  You will know how well you are doing by the number of repeat engagements you are given.

Originally, I simply used the plaintiff’s initial settlement demand as reasonable worst case exposure, but was quickly educated by clients, and by experience, that a plaintiff’s opening number cannot always, or even usually, be considered reasonable.  I also quicly learned that using such unreasonably high demands to plug into the equation led to ratios which were unreliably flattering, and as a result, not useful to discerning clients.

Return on investment (ROI) can only be used as marketing feedback if the numbers are reasonably reliable, and viewed as such by your clients.

Travelers’ “Fairly Debatable” Position On Roof Loss Bars Bad Faith Claim

SALT LAKE CITY, Jan. 25 – A Utah federal judge has dismissed bad faith claims against Travelers on grounds that the insurer’s position on coverage of a roofing damage claim  following a windstorm was “fairly debatable.”  In Pheasantbrook Homeowners Ass’n. v. Travelers, U.D. District Judge David Nuffer ruled that even if an insurer is ultimately incorrect on a coverage position, it should escape bad faith liability if the position it took is “fairly debatable.”

Judge Nuffer reviewed applicable case law, including Utah decisions which have held that an insurer’s engagement of an expert to help assess the nature and extent of covered damage for a given loss could provide a defense to bad faith liability.  He ruled that the denial of certain portions of the windstorm claim in reliance on an expert engaged by the insurer, even if the expert was compensated, created legitimate factual questions regarding which portions of the roofing repairs were attributable to the windstorm, as opposed to betterment, maintenance, or a need to replace the roofing regardless of the wind damage.

Such legitimate factual questions regarding the insured’s proposal for roof replacement created a “fairly debatable” dispute about the amount owed, causing the judge to grant Travelers’ summary judgment motion as to the bad faith claim.

Pheasantbrook Homeowners Ass’n. v. Travelers, N.D. Utah, 2016 (Nuffer, J.)

Alternative Fee Arrangements, Revisited

CAMP HILL, Jan. 27 – We addressed some of the flexibility provided by alternative fee arrangements in a prior post.   We are adding to that a resource page surveying some of the many emerging alternative fee arrangements we are offering to existing and prospective clients.  Please feel free to dig in and explore the many options available.

Good outside counsel view alternative fee ideas as starting points, not destinations.  Legal fee agreements can be as diverse and inventive as the lawyers and clients involved.  Reach out any time to me chaddick@dmclaw.com or 717-731-4800 for more information.

Zurich Asks 3rd Circuit To Reverse $1M UM/UIM Award

PHILADELPHIA, Jan. 13.  Zurich American Insurance company has asked the U.S. Court of appeals  for the Third Circuit to reverse a lower court’s ruling ordering it to pay $1 million in uninsured motorist (UM) benefits, arguing that a sign down form setting UM limits at $35,oo0.00 was valid and enforceable.

Stefan Freeth alleged injury while working on a truck owned by roadway contractor Road-Con Inc.  He sought UM/UIM benefits under Road – Con’s commercial auto policy with Zurich, and was awarded $1 million in U.S. District Court for the Eastern District of Pa., following Zurich’s removal of the case from the Chester County, Pa. Court of Common Pleas.

On appeal, Zurich contends that the sign down form completed by a company executive was a sufficient “express designation” within the meaning of the Pa. M.V.F.R.L.  to constitute a valid election of UM/UIM limits lower than the commercial auto policy’s bodily injury limits of $1 million dollars.  Freeth’s counsel claims the form is ambiguous, stating,  “there is no affirmative written election of the amount of $35,000.00 by Road-Con. There is no handwritten entry by the named insured or check mark or initialing of the amount of $35,000.00 on the Summary Form.”

Stefan Freeth v. Zurich American Insurance Co., No. 15-2924, (3rd Cir 2015)

Editor’s Note:  For copies of the briefing, email me at chaddick@dmclaw.com

Legal Departments: Are You Sharing Your Metrics With Outside Counsel?

From Legal Project Management (LPM) to the arrival of Legal Operations Officers at Legal Departments, insurers have become far more discerning and discriminating buyers of legal services than ever before.  Technology allows for any number of measurements of the performance of outside law firms, and therefore comparison of outside law firms.

Should this data be kept secret? Not if the insurer truly wishes to incentivize outside lawyers become the kind of lawyers the metrics are designed to create in the first place.

There are concerns, of course, about disclosing proprietary data, and information regarding other firms.  These issues, however, are easily addressed by 1.) providing metrics outputs to lawyers and law firms, not the methodologies and 2.) showing the outside lawyer or firm how it stacks up against averages, or par, as opposed to providing data on other lawyers or firms.

For an insurer to measure the data and not use it to influence outside lawyers toward the benchmarks the insurer is aiming for is to use but half of the tool.

The metrics themselves are as diverse as the objectives, but some of the more popular ones are:

  • Cycle Time  – how long a case takes from assignment to closing
  • Return on Investment – how much exposure was eliminated or reduced in exchange for payment of legal fees to defend a claim.  (This can also be an effective marketing tool for a law firm:  I was able to demonstrate to a large national insurer that over the course of several years that for every dollar they invested in legal fees,  my firm was able to eliminate six dollars in corporate contingent exposure.)
  • Leverage  – similar to ROI, a measure of dollars spent in relation to dollars at stake. Designed to prevent lawyers from killing flies with sledgehammers.
  • Overall Grade – somewhat subjective, but a great overall metric which allows General Counsel to grade how their outside lawyers are doing

We will delve into metrics in more detail in a future post.  In the meantime, remember that what can be measured can be used to steer outside lawyers in the direction the insurer wants to go.   Good outside lawyers will neither mind being measured, nor adjusting their performance to suit the insurer’s needs.

CJH