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Posts Tagged ‘#insurer’

The Enforceable Unwritten Exclusions and their Business Risks

Posted on: May 31st, 2019

By: Rob Cutbirth

Claim experience on a local or national basis, or generalized soft or hard insurance market conditions, can affect an insurer’s decision on pricing and offered coverage terms. Premiums and underwriting guidelines may change to address market or loss experience concerns. Coverage benefits may be expanded or contracted to address competition or fiscal concerns. One often forgotten constant that continues to impact insurer/insured and insurer/broker relationships, however, are public policy coverage limitations imposed by statute or court-defined public policies.

“Implied” coverage exclusions are commonly triggered in D&O, E&O, and EPL claims, where covered forms of conduct can implicate “intentional” or “self-dealing” acts, or restitutionary, remedial or punitive damages, “excluded” as a matter of public policy not identified in a policy or its endorsements. Definitions of “loss” or “damage” may state no coverage exists for amounts deemed uninsurable under the law governing the application of the policy to a given claim, even experienced brokers and insureds are often unaware of such limitations, let alone how they impact an insurer’s right to assign counsel, manage the claim, and/or limit its settlement or judgment contributions. This can be particularly confusing given the fact insurers often address these issues differently, even when confronted with similar claims in the same jurisdiction.

As claims and coverage counsel, we often advise clients to take the following steps to avoid harm to important business relationships, and improve the efficient handling of claims:

  • Identify and raise with the insured and its broker any applicable public policy limitations at the earliest possible date, recognizing that educated brokers can be a positive resource (or at least an informational resource) for insureds who may be “surprised” about the existence of coverage limitations outside of the four corners of the policy. Because public policy limitations are almost never raised during the underwriting process, but they can override express policy terms in a given jurisdiction (i.e., California Insurance Code Section 533 overrides standard policy form language on indemnifiable conduct and damages), early and clear communications may be needed to avoid and argument of waiver or estoppel, where the insured maintains that it “relied” on the policy’s coverage provisions in its participation in the claim and its defense.
  • Raise relevant and applicable public policy limitations with recognizing that doing so does not necessarily create a right to “independent counsel.” In many jurisdictions, implied public policy limitations relate only to indemnifiable damages (not defense considerations) that do not implicate or create a right to separate counsel. These issues should be carefully evaluated and addressed, however, to ensure that conflict of interest issues are properly evaluated and addressed with the insured in order to avoid ongoing conflicts on representation that can impair efficient claim management.
  • In advance of mediations or settlement conferences, particularly given inconsistencies in how insurers are addressing public policy limitations in those pre-judgment settings, expectations on contributions and/or allocation of settlement amounts should be addressed in writing in advance of such proceedings with the insured in order to help avoid “surprises” and disputes that can derail productive settlement opportunities.  Insurers should also consider filing “coverage briefs” or having pre-conference separate discussions with a mediator/settlement conference judge to help ensure that they understand the factual and legal basis for any allocation or contribution demands that might be made or rejected by the parties.

The “unwritten” exclusions that can limit coverage rights present challenges to all concerned. They cannot be overlooked in terms of their financial and relational impact for both insurers and insureds, with the use of skilled claims and/or coverage professional important to successfully navigating their impact on challenging claims.

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

Court Rules No Coverage For Pa. Law Firm’s Malpractice Suit

Posted on: November 26th, 2018

By: Barry Brownstein

An insurer does not have to cover a Pennsylvania law firm in a professional malpractice suit that a client filed after the firm allegedly used privileged information to benefit its attorneys’ side business in a real estate development.

The United States District Court for the Western District of Pennsylvania granted Westport Insurance Corp.’s motion for summary judgment in its case against Hippo Fleming & Pertile Law Offices (“HFP”) and attorney Charles Wayne Hippo Jr., agreeing with the insurer that the dispute over a shopping center development was exempted from coverage by the outside businesses exclusion in the firm’s professional liability policy.

Gregory Morris and Morris Development, one of HFP’s longtime clients, alleged that HFP had used information disclosed to the firm under attorney-client privilege to benefit a project by its side businesses, Templar Development and Templar Elmerton. Westport’s insurance policy contained a clear and unambiguous exclusion for lawsuits stemming from any of the policyholders’ outside businesses, and Hippo had not disclosed his involvement in the Templar companies when applying for the policy.

HFP argued that since the underlying lawsuit’s first two allegations of legal malpractice and breach of contract stemmed from the firm’s attorney-client relationship to Morris, Westport had a duty to defend them under the professional liability policy. The court, however, said it was Hippo’s dual role that gave rise to the claims against him.

The court emphasized that the plain language of the complaint in the underlying suit entirely discredits defendants’ argument that counts I and II are based solely on HFP’s role as Morris’s attorney. Counts I and II of the complaint allege that Hippo committed legal malpractice and breach of contract by simultaneously acting as Morris’s attorney and a competing real-estate developer. Therefore, the court held that Westport has no duty to defend because each claim in the underlying suit falls unambiguously within the policy’s outside business exclusion.

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

The Bad Faith Trap: Evidentiary Concerns In Defending “Failure To Settle” Claims

Posted on: October 19th, 2018

By: Phil Savrin

It is commonly known in our industry that even an insurer that has accepted coverage for a liability claim can nevertheless be exposed to liability beyond the limits of the policy if it fails to settle the claim. The reason for this rule is that an insurer’s contractual agreement to protect the insured’s financial interest extends to safeguarding the insured from a judgment outside the monetary coverages of the policies. Many courts hold that the insurer cannot “gamble” with the insured’s money, which it could be doing in circumstances where the liability exposure exceeds the limits of the policy. As with many such aspirations, however, the devil is in the details in terms of how the rule is applied.

The easy case is where the insured is clearly liable for the claim asserted and the damages clearly exceed the limits of the policy. In that circumstance, it is only a matter of time before a judgment is entered in excess of the limits of the policy. At the other end of the spectrum, where it is clear that the insured is not liable – or that the damages are clearly within the limits of the policy – the insurer is “gambling” with its own funds and should not be exposed to an extra-contractual claim. The challenging case falls between these two extremes, where a jury is not expected to find liability, or award damages exceeding the policy limits, but might do so.

However the insurer may have gotten there, if it is facing an extra-contractual claim then it is likely that the unanticipated has occurred. For this reason, clever (some might say crafty) attorneys may try to make the offer difficult to accept or may not provide full and complete information, with the goal of setting up the insurer for a bad faith claim down the road or gaining leverage during settlement discussions. This tactic may be employed particularly where the limits are woefully insufficient such that there is no other means of a financial recovery.

To counter these efforts, any demand for policy limits should be regarded as the time bomb that it is. If the decision is made not to accept the demand, an explanation should be provided as to why liability or damages are uncertain as well as coverage concerns that may need to be taken into consideration. If applicable, the response to a demand can include requests for evidence or witnesses to be produced for examination and leave open the possibility of further settlement discussions as the investigation proceeds. The letter should be prepared as though it is being presented to a jury, for that may be precisely its purpose; because hindsight is 20-20, being able to clearly reconstruct the “lay of the land” is critical to defending the reasonableness of the decision at the time it was made in these challenging situations.

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

Is Georgia Game for Growing Bad Faith Liability?

Posted on: July 17th, 2018

By: Jessica Samford

As discussed in my last blog on bad faith, seeking bifurcation can be a proactive means to distinguish the issue of coverage from the issue of bad faith and appropriately manage the all too often unwieldy discovery process before it’s too late.  A recent case in Georgia is an interesting illustration of an insurer’s attempt to bifurcate issues after the discovery stage in a bad faith failure to settle claim in particular and is yet another cautionary example for insurers to carefully consider the increasing potential for extracontractual liability in Georgia.  Whiteside v. GEICO Indem. Co., 2018 U.S. Dist. LEXIS 87868, *3-*4 (M.D. Ga. May 25, 2018).

In that case, the trial court declined to bifurcate the issues of liability and proximate cause of damages at the trial stage as requested by Geico, which sought to have a jury determine whether or not Geico could be held liable for bad faith failure to settle before being presented with evidence of the default judgment entered against Geico’s insured of almost $3 million and causation of same.  Separation of liability and damages issues was not warranted according to the trial court because facts relating to Geico’s claim handling were relevant to both, and Geico’s concerns could be handled through proper jury instructions, special interrogatories, and the verdict form.  See also Whiteside v. GEICO Indem. Co., 2018 U.S. Dist. LEXIS 52761 (M.D. Ga. Mar. 29, 2018).  The trial court did, however, bifurcate the claim for punitive damages from the rest of the jury trial.

The result was a jury verdict of $2 million against Geico for failing to settle in response to a bicyclist’s demand for the $30,000 policy limit based on medical bills of almost $10,000 following a motor vehicle accident.  Previously, Geico had argued there was no coverage due to the insured’s failure to notify Geico of the subsequent lawsuit she was served.  Whiteside v. GEICO Indem. Co., 2017 U.S. Dist. LEXIS 203617, *6, 2017 WL 6347174 (M.D. Ga. Dec. 12, 2017).  Notwithstanding such a flagrant breach of the policy’s notice conditions, the trial court did not see coverage as being an issue since that coverage defense did not exist at the time Geico responded to the demand by offering to settle for about half the limits instead.

These unusual circumstances are certainly noteworthy, and extracontractual damages such as these are becoming less uncommon in Georgia bad faith cases.  FMG’s Insurance Coverage and Bad Faith BlogLine has already geared up to cover the Georgia Supreme Court’s upcoming rulings after granting cert on the scope of what triggers failure to settle liability in Georgia, not to mention the proposed changes to the Restatement of the Law of Liability Insurance and their impact.  Whatever is in the cards for extracontractual liability in Georgia, the risks presented by settlement demands should be evaluated in light of these current trends.

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

Does Insurer Have Duty to Defend Non-Covered Lawsuit When Insured Proclaims Innocence?

Posted on: November 23rd, 2015

By: Bill Buechner

An insurer’s duty to defend is generally determined by comparing the allegations in the complaint to the insurance policy.  If the allegations in the complaint arguably or potentially bring the claim within coverage, the insurer has a duty to defend the lawsuit, even if the allegations are false or unfounded.  Conversely, if the allegations in the complaint unambiguously demonstrate that the claims asserted are not covered under the policy, then the insurer does not owe a duty to defend.  Many states, including Georgia, provide for an exception to this rule when the insured informs the insurer of “true facts” that would bring a claim within the scope of coverage.  In that situation, the insurer has an obligation to conduct a reasonable investigation into the insured’s contentions and then determine whether there is a potential for coverage, in which case a duty to defend is triggered.   See, e.g., Colonial Oil Industries, Inc. v. Underwriters Subscribing to Policy Nos. T031504670 and T031504671, 268 Ga. 561, 491 S.E.2d 337 (1997).

When confronted with a lawsuit for which there is no coverage on its face, an insured sometimes will attempt to obtain a defense by informing the insurer that it denies the allegations in the complaint that are outside of coverage and then claim that the “true facts” therefore demonstrate that it is entitled to a defense.  Such an argument has some appeal on the surface, and a federal court in Georgia recently found a duty to defend in part on this basis.

Although there is relatively little case law directly addressing this issue, the logical conclusion of such an argument is that any insured could claim an entitlement to a defense in a lawsuit asserting only non-covered claims simply by denying the allegations in the lawsuit and demanding that the insurer provide a defense based on these “true facts.”   Obviously, that is not the intent of the typical insurance policy.  At least one court has rejected this “I didn’t do it” theory for a duty to defend a lawsuit asserting only non-covered claims. Nationwide Property & Cas. Ins. Co. v. O’Neill, 2013 WL 5972471, at *1 n.1 (M.D. Ga. 2013).

When confronted with such a tactic, an insurer should confer with coverage counsel before deciding whether to continue disclaiming coverage or whether to defend under a reservation of rights and then file a declaratory judgment action.