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Archive for the ‘Insurance Coverage and Extra-Contractual Liability’ Category

Is Flood Insurance the Next Big Thing in California?

Posted on: April 19th, 2019

By: Matthew Jones

California’s winter has been quite wet given the significant amount of rain. With heavy rain comes flooding and mudslides. California is not used to either of those types of events; but maybe it should be. Recently, the Russian River flood in Sacramento, California has brought problems to residents in the region. Approximately 2,600 homes and businesses were damaged by the floods, as well as some automobiles. However, the flood problems do not stop there. Consumers are also running into insurance issues since traditional homeowners’ insurance does not cover flood damage.

So what should be done to protect your property from the next flood? The Department of Insurance answered that question by educating consumers on the need to purchase flood insurance. One thing to keep in mind, however, is that flood insurance typically does not take effect for 30 days. Also, there are various exclusions to coverage, including for earthquakes, landslides, land subsidence, sinkholes, destabilization or movement of land from water accumulation, or gradual erosion. So while flood insurance may provide some peace of mind in the event of a flood, potential property damage may not be covered in full.

Given the Department of Insurance’s press releases on the topic, as well as the constant and unpredictable climate change, it is likely that the amount of flood insurance policies issued will only increase.

If you have any questions or would like more information, please contact Matthew Jones at [email protected].

Cooperation: A Policyholder’s Duty…or Downfall?

Posted on: April 12th, 2019

By: Marc Finkel

A policyholder’s duty to cooperate with its insurer is one of the most significant commitments made in the relationship between an insurer and its insured. It goes without saying that the consequences can be dire for an insurer when this commitment is broken. However, a potential remedy is possible when insurers are caught in the predicament of facing surprise exposure due to a policyholder’s failure to cooperate and adequately updating the insurer as to claims in litigation. This is illustrated in the recent case Ironshore Specialty Insurance Co. v. Conemaugh Health System Inc. et al., 2019 U.S. Dist. LEXIS 45690, currently being litigated in the Western District of Pennsylvania.

In that case, Ironshore defeated Conemaugh’s attempt to dismiss an insurance coverage dispute that began when Conemaugh, a large regional health care provider in western Pennsylvania, was found liable for a $19,000,000.00 award in a medical malpractice action. Ironshore, an excess insurer for Conemaugh, routinely requested updates from Conemaugh and Conemaugh’s defense counsel concerning the status of the underlying malpractice action. Ironshore was informed that the underlying matter was potentially “problematic” for Conemaugh, but Ironshore was never informed of the potential for a verdict that would trigger excess coverage under the Ironshore policy. Furthermore, Ironshore was not informed of the trial date or that there had been ongoing pre-verdict settlement discussions which would have required participation from Ironshore.

The underlying medical malpractice action was ultimately settled with a contribution from Ironshore that was subject to a “continued reservation of rights, including its right to recoup.” In denying Conemaugh’s motion to dismiss, the Court found that the Ironshore policy’s Cooperation Clause unambiguously required Conemaugh to “cooperate” with Ironshore by “making available all such information and records as [Ironshore] would reasonably require” upon Ironshore’s election to associate in the “investigation, settlement, or defense” of the underlying claim against Conemaugh. The Court further found that Ironshore’s allegations of receiving inadequate information concerning the status of the underlying claim, despite having made repeated requests for such information from its insured, was enough to allege a breach of the Cooperation Clause, thereby preserving Ironshore’s right to seek a claw back of the share it paid to settle the malpractice action.

In the coverage dispute, Ironshore positioned itself to potentially recover part or all of its contribution to the settlement proceeds from Conemaugh by taking the following steps beginning during the pendency of the underlying litigation: (1) making a clear and express election of its rights to associate; (2) regularly requesting reasonable updates from its insured; and (3) reserving its rights to seek recoupment as part of the underlying settlement agreement. The court recognized these efforts as solid bases for limiting Ironshore’s exposure by virtue of questionable cooperation by its insured.

If you have any questions or would like more information, please contact Marc Finkel at [email protected].

First Circuit Affirms Ruling That Third-Party Administrator Responded Reasonably To Settlement Offers Within Policy Limits

Posted on: April 9th, 2019

By: Bill Buechner

We recently posted a blog (see here) concerning an appeal to the First Circuit Court of Appeals from a Massachusetts district court decision finding that a third-party administrator (Sedgwick) did not violate the Massachusetts Consumer Protection Statute, Chapter 93A, or the Insurance Practices Statute, Chapter 176D, even though it did not make any offer to settle a wrongful death claim before trial and did not accept settlement offers within the policy limit for a negligence claim for pain and suffering. Our previous blog noted that the “insurance coverage bar will be paying close attention when the First Circuit issues its decision.” The First Circuit very recently issued its decision affirming the district court’s judgment in favor of Sedgwick. Calandro v. Sedgwick Claims Mgmt. Servs., ___ F.3d ____, 2019 U.S. App. LEXIS 7913, 2019 WL 1236927 (1st Cir. March 18, 2019). Notably, former Supreme Court Justice Souter was on the panel.

In the underlying case, Genevieve Calandro fell from her wheelchair at a nursing home (Radius Danvers) and subsequently died in August 2008 at a hospice facility after being taken to the hospital. The estate filed suit for wrongful death and negligence against Radius and later added as a defendant Radius’s medical director, who was also Calandro’s attending physician. While the underlying case was pending, the estate made settlement offers for $500,000 on October 12, 2011 and November 12, 2013 and for $1 million in April 2014 and July 3, 2014, which was the policy limit for the nursing home’s policy. The most that Sedgwick offered before trial was $300,000, which the estate declined.  The underlying case went to trial in July 2014, and the jury awarded $1,425,000 in compensatory damages and $12,514,605 in punitive damages. The estate then sued Sedgwick to recover these amounts and more. The district court, after a bench trial, concluded that liability was never “reasonably clear” on the wrongful death claim as required by the statute, and that Sedgwick made timely and reasonable offers on the negligence claim for pain and suffering.

Rejecting the estate’s appeal, the First Circuit held that the district court did not clearly err in finding that liability on the wrongful death claim was never “reasonably clear” before trial on the wrongful death claim. The First Circuit noted that an independent adjuster hired by Sedgwick stated in its initial report in October 2011 that the cause of death seemed to be related to ongoing medical conditions and not necessarily Radius’s negligence, but that there were missing documents and witnesses he had not yet been able to locate and interview. Under these circumstances, the First Circuit concluded that it was reasonable for Sedgwick to continue to investigate (which it did) “rather than roll over and concede that Radius’s negligence was the cause of death.” Id. at *13.   The estate argued that liability on the wrongful death claim became reasonably clear in May 2013 when the estate’s expert presented his opinion as to causation. The district court credited the testimony of Radius’s defense counsel, who was retained by Sedgwick, that only an outline of the estate’s expert’s anticipated testimony was provided in May 2013, and that the estate’s expert’s full report explaining his reasoning as to the cause of death was not provided until late April 2014. The First Circuit also emphasized that Sedgwick received a report from its own expert in May 2014 that reached materially different conclusions on the causation issue than the estate’s expert did. Id. at *15. In addition, the First Circuit noted that the verdict form included a question as to causation, which indicated that Sedgwick never conceded the causation issue, and internal Sedgwick correspondence shortly before trial stating that, in light of comorbidity issues often affecting elderly and infirm people like Calandro, “we have a strong argument for causation.” Id. at *16 n.5.

As to the negligence claim for pain and suffering, the First Circuit held that that the evidence supported the district court’s conclusion that Sedgwick conducted a good faith investigation, and noted that Sedgwick retained a qualified investigator almost immediately after it learned of the claim. Id. at *18-19. Furthermore, the First Circuit upheld the district court’s findings that the settlement offers were reasonable and prompt after liability on this claim became reasonably clear in February 2014. On February 6, 2014, in response to the estate’s $500,000 offer made on November 12, 2013, the defendants made a joint settlement offer of $275,000 and indicated that they had “some room to move.” Id. at *5, 20. A day later, defense counsel wrote a report to Sedgwick in which he predicted a verdict against the defendants in the range of $300,000 to $500,000.  Id. at *5. The First Circuit explained that, “especially given the difficulties inherent in placing a dollar value on intangibles such as pain and suffering,” the district court did not clearly err in finding this settlement offer reasonable.  Id. at *20. The First Circuit also noted that the defendants made an offer of $300,000 in May 2014 after the estate increased its settlement demand to $1 million in April 2014, and that Sedgwick made an offer of $250,000 on behalf of Radius a few days before trial.  Id. at *20-21.

Calandro construed a state statute that differs from the common law bad faith failure to settle claim recognized in most jurisdictions,  and it applied a very deferential clear-error review to the factual findings of the district court after a bench trial. Nevertheless, Calandro provides some helpful reminders to claims professionals and attorneys responding to settlement demands within policy limits and defending bad faith failure to settle claims. First, while the facts themselves of course are critical, the procedural steps taken by a claims professional may often be significant as well.  In this case, the First Circuit emphasized the fact that Sedgwick retained a qualified and independent investigator almost immediately after receiving notice of the claim, that the investigator provided his initial report within two weeks raising the causation issue, and that Sedgwick continued to investigate the claim throughout the case. Second, courts will not expect insurers and claims professionals to “roll over” if there is a reasonable defense to liability at the time a settlement offer within policy limits is made or if the evidence available at that time is not sufficiently developed to make a reasonable assessment as to liability. Third, sensitive information such as internal correspondence or emails and reports from defense counsel may become critical evidence in defending a bad faith failure to settle claim. In finding that liability for the wrongful death claim was not reasonably clear, the First Circuit in Calandro cited internal Sedgwick correspondence within a week of trial expressing confidence in the causation defense. The conclusion that Sedgwick’s settlement offers on the pain and suffering claim were reasonable was supported by the fact that its settlement offers were close to or within the verdict range predicted by defense counsel in his report to Sedgwick.

Nevertheless, insurers and claims professionals should recognize that the actions of the third-party administrator in Calandro likely received much more thorough and sympathetic consideration from the district judge who served as the fact-finder than most juries may have provided.

If you have any questions or would like more information, please contact Bill Buechner at [email protected].

Georgia Supreme Court Clarifies the Essential Elements of a Failure to Settle Claim within Policy Limits

Posted on: March 18th, 2019

By: Phil Savrin

In recent years, Georgia has become fertile ground for setting up insurance companies for extra-contractual damages based on the failure to settle a liability claim within policy limits. Partly, the reason for this reputation is that the “ordinary negligence” standard governs these types of claims and there is broad language in the cases that a jury must generally resolve the reasonableness of the insurer’s decision not to settle the claim at issue. Of course, by the time the claim even exists there will have been a judgment entered in the liability case in excess of the limits of the policy, making it difficult to tease through the chronology of the case without the benefit of 20-20 hindsight. The challenge in defending these types of claims is often reconstructing the “lay of the land’ at the time the decision was made without the judge or jury focusing on what occurred or developed thereafter.

In 2003, the Supreme Court issued its decision in Cotton States Insurance Company v. Brightman, whose main holding is that an insurer can avoid a “failure to settle” claim altogether by tendering its limits even if the demand is conditioned on payments by other insurers over whom it has no control. A lesser known holding of Brightman, however, is its rejection of the intermediate appellate court’s holding that an insurer has an “affirmative duty” to engage in negotiations to determine whether the case can be settled within limits. Although implicit in this reasoning is that a demand for limits needs to have been made, subsequent case law has muddied the waters by suggesting that all that needs to be shown is that there was a “reasonable opportunity” for settlement within limits to state a claim for failure to settle within limits.  And because an ordinary negligence standard applies, insurers have had to defend against assertions – often backed up by expert witnesses – as to whether the insurer knew or should have known that the case could settle within the limits of coverage even in the absence of a demand.

The Supreme Court put an end to that uncertainty in First Acceptance Insurance Company of Georgia, Inc. v. Hughes, decided March 11, 2019. In a very powerful decision, the justices stated succinctly that “an insurer’s duty to settle arises when the injured party presents a valid offer to settle within the insured’s policy limits.” From that short holding it was relatively simple to find that First Acceptance could not be liable for the $5.3 million judgment because there had not been a valid time-limited demand for the policy limits of only $25,000.

Essentially, the holding of the case is that the burden is squarely on the injured party to make clear to the insurer that the liability claim against the insured can be resolved within the coverage of the policy. Although not stated expressly in the opinion, this holding makes sense given that the injured party is the only one (as opposed to the insurer or the insured) who knows at the time whether the case will settle within limits. Likewise, the effect of the decision is that the injured party must put its cards on the table in terms of its willingness to settle and not be allowed to reap rewards from keeping the insurance company in the dark as to the ability to settle within limits. In that manner, the decision restores a degree of sanity to the adjudication of these disputes by restricting the exposure to instances in which the insurance company has rejected a clear demand for settlement within its limits, with the remaining issue being whether the insurer acted reasonably considering all the circumstances that existed at that time.

If you have any questions or would like more information, please contact Phil Savrin at [email protected].

First Circuit Court of Appeals to Decide Dispute Involving Handling of Settlement Demands within Policy Limits

Posted on: March 15th, 2019

By: Ben N. Dunlap

A claimant’s demand to settle a case within the limits of a defendant’s liability insurance policy can lead to a variety of outcomes driven by the particular allegations, evidence, liability and damages evaluations, procedural posture, and law of the jurisdiction.

In one case addressing these issues, the First Circuit Court of Appeals is considering arguments that a third-party claims administrator failed to make a reasonable settlement offer when liability became “reasonably clear” in an underlying suit alleging wrongful death and negligence against a nursing home.  In Calandro v. Sedgwick Claims Management Services, the First Circuit recently heard arguments by the estate of Genevieve Calandro, seeking to revive claims under the Massachusetts Consumer Protection Statute, Chapter 93A, and Insurance Practices Statute, Chapter 176D, arising from the settlement of the underlying lawsuit. Sedgwick was the third-party claims administrator handling the estate’s claim against the nursing home. With policy limits of $1 million, in the course of the litigation the estate had made demands of $500,000 (twice) and $1 million (again twice). Sedgwick’s best pre-trial offer was $300,000, which the estate declined.

In 2014, a jury awarded the estate $1.4 million in compensatory damages and $12.5 million in punitive damages. After the trial in the underlying suit, the estate served a demand letter on Sedgwick seeking $40 million under Chapters 93A and 176D, alleging the claims administrator had failed to make a reasonable offer of settlement once liability of the nursing home became “reasonably clear.” Sedgwick offered $2 million in response. The estate then filed suit against Sedgwick in Massachusetts federal court alleging unfair settlement practices in violation of Chapters 93A and 176D.

After a bench trial, the Court concluded Sedgwick did not violate Chapters 93A or 176D because it made two “reasonable” offers to settle the estate’s pain and suffering claims prior to trial, and Sedgwick had no obligation to make an offer to settle the wrongful death claim, because causation was fairly disputed and therefore liability on that claim was not “reasonably clear” at any point in the litigation.

The estate argues on appeal that the trial Court misconstrued the significance and timing of the evidence available to Sedgwick as it was evaluating the underlying case, focusing on a particular expert report disclosed by the estate in 2013. Based on the report, the estate argues liability should have been “reasonably clear” long before Sedgwick made an initial pre-trial offer. Sedgwick argues the Court correctly concluded liability was not “reasonably clear,” in part because the estate’s expert report was not disclosed in full until the spring of 2014.

The insurance coverage bar will be paying close attention when the First Circuit issues its decision.

If you have any questions or would like more information, please contact Ben Dunlap at [email protected].