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Posts Tagged ‘policy limits’

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].

998s: The Stealth Policy Limit Demand

Posted on: February 7th, 2019

By: Tim Kenna & Kristin Ingulsrud

In personal injury practice, the claimant’s attorney will sometimes serve a statutory offer to compromise in tandem with service of the summons and complaint. This strategy has a two-fold impact on the case. The first is that if the plaintiff obtains a better result at trial, it may seek costs and prejudgment interest at 10%. The second is that the 998 be relied upon as a policy limit demand. In both cases, the running of the defendant’s time to accept the 998 triggers the consequences of a failure to settle. An insurer’s rejection of a valid policy limit demand can result in extracontractual exposure. Licudine v. Cedars-Sinai Medical Center, No. BC499153, 2019 Cal. App. LEXIS 2*, directly addresses the requirement that an early 998 is only valid if the offer is reasonable under the totality of the facts. The relevant factors are (1) how far into the litigation the 998 offer was made, (2) the information available to the offeree prior to the lapse of the 998 offer, (3) whether the offeree let the offeror know it lacked sufficient information to evaluate the offer, and (4) how the offeror responded. The court struck plaintiffs request for millions in prejudgment interest following a verdict far in excess of the 998 on the ground that it was premature because Cedars had not had an adequate opportunity to evaluate damages.

Licudine is relevant to the 998 used as a policy limit demand. The factors considered by Licudine also apply to the determination of the validity of conditional policy limit demands in general. See Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 798 (insurer should request additional time to respond to policy limit demand if further investigation of facts needed). Following trial, the results of a motion to tax costs could determine whether the 998 was valid as a policy limit demand. In either event, the case is critical of the premature demand for settlement designed to “game the system.”

If you have any questions or would like more information please contact Tim Kenna at [email protected] and Kristin Ingulsrud at [email protected].

In the Land of Insurance Coverage, Specificity is King

Posted on: December 13th, 2018

GA Court of Appeals Finds Insurer Must Cover Millions in Damages Because of Policy Ambiguities

By: Brandon Howard

Whenever a court suspects an insurance policy is “ambiguous,” anxiety strikes the minds of both coverage counsel and insurers alike. For coverage counsel, combating an alleged ambiguous provision of a policy typically occurs on the back-end, after an incident has occurred and the claimant or plaintiff has already made underlying allegations of liability. As a result, coverage counsel can only advise clients or litigate matters within the framework of any given insurance policy’s established language. Yet, as policy issuers, insurers are uniquely positioned to monitor trends in litigation, on the front-end, in an effort to anticipate and revise policy language which may appear ambiguous in light of unique or uncommon facts. By proactively taking on vague policy provisions, a prudent insurer may avoid unanticipated exposure and a public battle over any alleged ambiguities during litigation.

Recently, in Nat’l Union Fire Ins. Co. v. Scapa Dryer Fabrics, Inc., 2018 Ga. App. LEXIS 634 (Ga. Ct. App. Oct. 26, 2018), the Georgia Court of Appeals demonstrated how a pair of ambiguous policy provisions can expose an insurer to millions of dollars in unanticipated liability. In that case, over a period of five years, the primary insurer, National Union, issued commercial general liability policies to an entity selling asbestos-containing dryer felts (Scapa). Three of the policies had $1 million occurrence/aggregate limits, while the last two policies purported to cap the insured’s liability limits for any one occurrence at $7.2 million. Citing the policies’ non-cumulation and limit erosion provisions, National Union argued that its duty to indemnify Scapa was discharged when the Scapa’s liability reached $7.2 million. Scapa, however, argued that both the non-cumulation and limit erosion provisions were ambiguous, thus allowing it to “stack” the limits of each of the primary policies, for a total coverage limit of $17.4 million.

On appeal, the Georgia Court of Appeals held that Scapa was allowed to stack the coverage limits of the five National Union policies because the policies’ non-cumulation clauses were ambiguous. The policies provided that if “[Scapa] has been provided with more than one policy by [National Union] covering the same loss/losses, the limit of liability stated in the schedule of this endorsement is the total limit of [National Union’s] liability for all damages which are payable under such policies. Any loss incurred under this policy shall serve to reduce and shall therefore be deducted from the total limit of [National Union’s] liability.” Confronted with this language, the Court concluded that the non-cumulation provision is ambiguous because “[it] does not indicate whether the limit applies to [each discriminate] policy period only or to the aggregate period under the original and renewed policies.” Construing the policy in favor of the insured, the Court held that the non-cumulation provision did not apply in the aggregate and, therefore, Scapa could stack its policy limits to gain an additional $10.2 million in coverage beyond what National Union contended was due.

On the issue of policy limit erosion, the Court also sided with Scapa. National Union had argued that, under its policies, the liability limits were eroded by the costs expended to defend Scapa against liability. For support, Scapa pointed to the policy, which provides that the limits of liability are reduced by “all expenses incurred by [National Union], . . . in any claim, suit[,] or other action defended by [National Union].” The Court noted, however, that National Union’s limits “[are] eroded only by the total sums that National Union ‘become[s] obligated to pay due to’ any bodily injury or . . . property damage.” The erosion provision, according to the Court, “is ambiguous as to whether such expenses include defense costs National Union is obligated to pay solely as part of its contractual duty to defend (as opposed to those sums it is legally obligated to pay by reason of the liability imposed upon Scapa by law for damages).” Again, construing the policy in favor of the insured, the Court held that National Union’s limits were not eroded by the costs incurred defending Scapa.

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

Georgia Supreme Court Grants Certiorari In Failure to Settle Case

Posted on: June 25th, 2018

By: Bill Buechner

The Georgia Supreme Court recently granted an insurer’s petition for certiorari in a bad faith failure to settle case to consider what constitutes an offer to settle a claim within policy limits and whether an insurer’s duty to settle arises only when the claimant presents a valid offer to settle within policy limits.  First Acceptance Ins. Co. of Georgia, Inc. v. Hughes, 2018 Ga. LEXIS 407 (June 4, 2018).

In Hughes, the insured caused an automobile accident that resulted in his death and injured others, including the claimants (a mother and her minor child, who sustained a traumatic brain injury).   The limits on the policy were $25,000 per person and $50,000 per accident.   After the insurer sent a letter to the claimants’ counsel (and other injured parties) requesting a settlement conference, the claimants’ counsel sent a response letter to the insurer on June 2, 2009 stating that they were “interested in having their claims resolved within your insured’s policy limits and in attending a settlement conference[.]”  The 6/2/09 letter from the claimants’ counsel also explained that the claimants had uninsured/underinsured motorist coverage in the amounts of $100,000 per person and $300,000 per accident.  The 6/2/09 letter continued:

Of course, the exact amount of UM benefits available to my clients depends upon the amount paid to them from the available liability coverage.  Once that is determined, a release of your insured from all personal liability except to the extent other insurance coverage is available will be necessary in order to preserve my clients’ rights to recover under the UM coverage and any other insurance policies.  In fact, if you would rather settle within your insured’s policy limits now, you can do that by providing that release document with all the insurance information as requested in the attached, along with your insured’s available bodily injury liability insurance proceeds.

The accompanying letter from the claimants’ counsel, also dated June 2, 2009, requested various insurance information within 30 days and stated that “[a]ny settlement will be conditioned upon [the] receipt of all the requested insurance information.”

Counsel for the insurer did not consider the letter from the claimants’ counsel as an offer to settle within policy limits and thus did not respond to the letter.   On July 10, 2009 (38 days later), the claimants filed a lawsuit.  On July 13, 2009 ( 41 days later), counsel for the claimants sent a letter to the insurer stating that the 6/2/09 offer to settle within policy limits was withdrawn.  The claimants thereafter obtained a jury verdict in July 2012 awarding $5,334,220 in favor of the minor child.

An administrator for the insured’s estate filed a lawsuit against the insurer asserting that the insurer negligently or in bad faith had failed to settle the minor child’s claim within policy limits.   The trial court granted summary judgment in favor of the insurer, but the Court of Appeals reversed and concluded that there were material issues of fact as to whether the 6/2/09 letters from the claimants’ counsel offered to settle the minor child’s claims within policy limits and whether the offer included a 30-day deadline for a response.  Hughes v. First Acceptance Ins. Co. of Ga., Inc., 343 Ga.App. 693, 697, 808 S.E.2d 103 (2017).

The Georgia Supreme Court granted the insurer’s petition for certiorari and stated that it was particularly concerned with (1) whether there were material issues of fact as to whether the 6/2/09 letter from the claimants’ counsel offered to settle the minor child’s claim within the policy limits and established a 30-day deadline to accept the offer; and (2) whether the insurer’s duty to settle arises “when it knows or reasonably should know settlement within the insured’s policy limits is possible with an injured party or only when the injured party presents a valid offer to settle within the insured’s policy limits?”

The Georgia Supreme Court’s rulings on these issues likely will have a significant impact on Georgia insurers and their exposure to negligent or bad faith failure to settle claims.  Oral argument has been scheduled for September.

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