for his or her deposition is not something
to leave for the morning of the event. Adjusters are tense and distracted the morning
of their deposition. They cannot absorb all
the information and advice when defense
counsel does a “data dump.” Better practice
is for the adjuster to meet with counsel days
or even a week ahead of the deposition.
5. Small but expanding storm
A growing minority of courts are finding bad faith even in the absence of coverage. Some courts have held that, even
if an insurer prevails in proving no coverage, it can still be sued when its claim-handling was deemed unreasonable beyond good faith mistakes. Still, even in
those jurisdictions recognizing bad faith
in the absence of coverage, the putative
insured must still prove damages.
6. Do eroding policies equate
to eroding good faith?
Defense-within-limits policies pose
interesting (and volatile) bad faith po-
tential. Should those policy dollars be
spent more on settlement than defense?
Do these policies entitle policyholders
to a greater say in selecting their defense
counsel? Does the insurance company
have a heightened liability exposure for
mismanaging legal fees if they deplete the
policy limits? This could be a burgeoning
subset of bad faith in the future. (Refer to
the sidebar on the top right for more in-
formation about these policies.)
7. No easy wins for policyholder
Despite fears of runaway verdicts or
bad-faith lawsuits against insurance companies, these are not easy cases plaintiffs
to win. Don’t just take the word of the defense bar, either.
“Even good bad faith cases are relatively
rare and hard to win,” explains David W.
White, a founding member at Breakstone,
White & Gluck, who typically represents
policyholders. “Even if the plaintiff wins,
two-thirds [of those decisions] are reversed on appeal.” This observation dovetails with Martin’s thoughts in item 2.
8. Watch the “ear test” as a
barometer of insurer bad faith.
Plaintiff attorneys read body language
of the claims adjusters and executives during the deposition. They infer signs from
the body language of key insurer personnel. Opposing lawyers read such body
language as poker players read the tells of
others sitting around the card table. It lets
them gauge whether or not they have a
promising bad faith claim.
According to White, the odds of a pu-
nitive award “correlate directly with the
redness of the claim manager’s ears dur-
ing deposition.” Therefore, the takeaway
for adjusters and claims executives is
this: Manage your emotions during tes-
timony. Expect to be hit and hit hard, as
in tackle football.
9. You win or lose a bad faith
case long before trial.
As in other matters, preparation pays
off. “Most bad faith cases are usually
won or lost long before trial starts,” says
Rick Hammond, a Chicago-based equity
shareholder at Johnson & Bell. “Problem
areas are investigations that identify information adverse to the insured’s interests as ‘good news’ in the claims file.”
Another adjuster pitfall, he adds, is
choosing to believe someone other than
the insured. Hammonds also cites adjusters who hang dirty laundry in the claims
file, such as a supervisor commenting
about adjuster performance in the claims
file. He has also seen claims file entries
to the effect that, “the line unit really
screwed up this claim” or “it looks like we
are in bad faith because of the long delay.”
These are essentially the bad faith equivalents of dynamite sticks.
10. Looking at Facebook
And Bad Faith
Social media use in claims handling
is becoming a new wrinkle in bad faith
cases according to Paul Berne, senior vice
president of claims at Lancer Insurance
Company. While claims people may be
excited about social media tools, Berne
cautions that jurors may view an insurance company’s use of social media in
claims as an invasion of privacy. This
might extend to sending a friend request
as a pretext to access information that jurors feel should be private.
As a final thought, if you want to guarantee that attorneys will stay until the bitter end of a conference, hold the ethics
presentation until the very last session.
Many attorneys must have a certain minimum number of hours of annual ethics
continuing education (CE) credits. Periodic ethics training could arguably be one
safeguard against, well, bad faith.
Kevin Quinley is the principal of Quinley
Risk Associates LLC. He may be reached
William Kobokovich, vice president and associate group general counsel at Travelers, and the Hon. Enrique Romero, a retired Los Angeles County Superior Court judge
and a mediator with ADR services, commented on perils of defense-within-limits liability insurance policies. Four observations that impact adjuster case-handling are:
1. Communicate with the insured. There may be a duty to keep the insured informed
of the defense costs incurred.
2. Watch the meter. Avoid unreasonable defense costs that deplete the coverage at
an accelerated rate.
3. Explore settlement early. Such policies may put a heavier onus on adjusters to
explore early settlement in order to avoid ballooning defense costs.
4. Brace yourself for demands for Cumis counsel. Some argue that such policy features create an inherent conflict between insureds and insurers, which creates a
right of independent counsel for the policyholder.
Do Self-Eroding Policies
Heighten Bad Faith Risks?