Don’t Let a Little Concealer Ruin Your Coverage Defenses

May an insurer in New York delay asserting (or conceal, according to Estee Lauder) a late notice defense without waiving it? According to the New York Court of Appeals a jury should decide whether the insurer manifested a clear intent to abandon the defense. Estee Lauder, Inc. v. OneBeacon Insurance Group, LLC, 2016 WL 4792170 (N.Y. Ct. App. Sept. 15, 2016).[1]

concealorEstee Lauder initiated this coverage action in 2005, claiming that OneBeacon was obligated to defend and indemnify Estee Lauder for environmental claims relating to Estee Lauder’s alleged dumping of hazardous waste.[2] From 1999 to 2002, OneBeacon sent various reservation of rights and declination letters to Estee Lauder. In the 1999 and 2000 letters, OneBeacon generally reserved all rights to deny coverage. In the November 1999 letter, OneBeacon specifically reserved the right to deny coverage to the extent that Estee Lauder failed to provide timely notice of the claims. Then, in 2002, OneBeacon sent a series of denial letters in which it did not assert late notice.

Despite having omitted the defense from its later denial letters, OneBeacon raised late notice as a defense in its initial answer. However, later in the proceedings, OneBeacon’s amended answer again omitted the defense. When OneBeacon sought leave to reinstate the late notice defense, Estee Lauder argued that OneBeacon had waived the right to assert it.

The trial court granted OneBeacon’s request to amend, finding that OneBeacon had not waived its late notice defense. In support, the court noted that in New York when an insurer expressly reserves all rights to deny a claim, it does not waive the right to later deny coverage on a particular ground merely because it was not referenced in a later disclaimer.

The Supreme Court, Appellate Division, First Department disagreed and held that OneBeacon had waived the late notice defense because its 2002 disclaimer letters failed to make reference to the defense.[3] The court noted that under New York law, an insurer intends to waive a coverage defense, as a matter of law, where other defenses are asserted, but the insurer fails to raise a defense about which it was aware. Because OneBeacon admitted to having knowledge of its late notice defense long before it sent the 2002 disclaimer letters, the appellate court found OneBeacon had waived the right to raise late notice as an affirmative defense in the coverage action.

On September 15, 2016, the New York Court of Appeals reversed, finding that because OneBeacon raised the defense in early letters to Estee Lauder, a jury should decide whether OneBeacon waived the defense by manifesting an intent to abandon it when it was omitted from later declination letters.[4] Therefore, the court reversed the First Department and ruled that OneBeacon should be allowed to amend its answer to assert the late notice defense.

Practice Tip

When an insured argues that an insurer failed to timely or consistently assert a late notice defense in New York, counsel must first consider whether the more stringent requirements of 3420(d) apply. If 3420(d) does apply, failure to assert the defense within 30 days may preclude the insurer from relying on it. If 3420(d) does not apply, the court may find an issue of fact as to whether the insurer clearly manifested an intent to abandon the defense. Thus, it is important to be clear that the insurer is reserving, and not waiving, its defenses.

The Court of Appeals reversed the intermediate court’s ruling that an insurer who raises certain defenses, but fails to assert another, is deemed to have intended to waive that defense as a matter of law. Even so, an insurer is well advised to include every policy defense of which it is aware in all coverage letters and pleadings.

[1] Unless Insurance Law 3420(d) applies (imposing a more stringent standard on the timing of an insurer’s assertion of coverage defenses under certain circumstances); but that is for another article.

[2] Estee Lauder Inc. v. OneBeacon Ins. Grp, LLC, No. 602379/05, 2006 WL 5110780 (N.Y. Sup. Dec. 11, 2006).

[3] Estee Lauder Inc. v. OneBeacon Ins. Grp., LLC, 130 A.D.3d 497, 498, 13 N.Y.S.3d 415, 416 (1st Dept. 2015).

[4] Estee Lauder Inc. v. OneBeacon Ins. Grp., LLC, 2016 WL 4792170 (N.Y.)

Relevant Case History

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Texas Supreme Court to Decide Whether a Policyholder Can Recover Damages When The Carrier Does Not Breach the Policy

According to both the appellant and the appellee, the Texas Supreme Court already decided this issue. Each, of course, finds a different answer.

Cause No., 14-0721, USAA Texas Lloyds Co. v. Gail Menchaca, in the Texas Supreme Court, arises from an unusual fact pattern and some unusual jury findings. Trial plaintiff Gail Menchaca suffered damage to her home as a result of Hurricane Ike. USAA investigated the loss and found some covered damage, but concluded that the repair costs fell below the applicable deductible and therefore issued no payment. Menchaca then sued USAA, asserting claims for breach of contract and several extra-contractual claims, including a failure to adequately investigate her loss. However, Menchaca alleged no damage from those extra-contractual claims, other than the loss of policy benefits.

At trial, the jury concluded that USAA did not breach its insurance policy obligations, but found that USAA failed to conduct an appropriate investigation and awarded Menchaca damages of $11,350.00. USAA argued to the trial court that without an “independent injury,” the jury finding of “no contract breach” precluded a finding of extra-contractual liability. By “independent injury,” USAA argued that Menchaca must show some harm other than the loss of policy benefits. The trial court disagreed, and entered judgment for Menchaca, including an award of $130,000 in attorney’s fees.

gavel-clip-artOn appeal, the intermediate court disregarded the jury finding of “no breach,” contending that the submitted question was so confusing as to make the answer disregardable. As a result, the intermediate court affirmed the trial court.

In its writ of review with the Texas Supreme Court, USAA has argued that its alleged failure to adequately investigate Menchaca’s storm damage did not cause a loss of policy benefits, and that it cannot support a damage award for a failure to investigate the claim. Arguing common law supports the recovery of damages for a failure to investigate, Menchaca claimed that case law requiring an “independent injury” applies only where no coverage exists. Here, she argued, the policy covered the loss though it did not exceed the deductible.

The Texas Supreme Court granted USAA’s petition for review and scheduled oral argument for October 11, 2016. The Menchaca case presents a number of important issues to insurance practitioners, including questions regarding the pleading of claims, the predicate for submission of extra-contractual claims, damages recoverable for extra-contractual violations, and potential changes to the Texas Pattern Jury Charge for first party claims. Stay tuned for additional developments in this interesting case.

Menchaca Petitioner’s Brief

Menchaca Respondent’s Brief

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Missouri Federal Court Identifies Roadblocks For An Excess Carriers’ Claim For Attorney Fees Against Primary Carrier

The court’s decision in Axis Specialty Insurance Company v. New Hampshire Insurance Company highlights the scope of recovery available for an excess carrier seeking to recover against a primary carrier. Emboldened by the recent Missouri Supreme Court decision recognizing the right of an excess carrier to sue a primary carrier for failure to reasonably settle an underlying claim in Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818 (Mo. Banc 2014),  Axis Specialty sought to recoup not only its excess indemnity payment but also its attorney fees incurred in monitoring and eventually settling the underlying lawsuit as well as its attorney fees in pursuing its equitable subrogation and the assigned claims for bad faith and vexatious litigation.    In Scottsdale, the primary carrier ultimately paid its limits to settle the underling claim but in the underlying case in Axis Specialty, the case went to the jury which rendered a large excess verdict.

Although not directly addressed in the underlying opinion, one must assume that the case could have been settled within the primary and first layer of excess.  Thereafter, Axis paid its limits to satisfy the judgment but then took an assignment from the insured of its bad faith and vexatious litigation claims and then sued New Hampshire for its excess payment plus attorney fees.

The issue identified by the federal court was “whether an excess insurer who pays a third-party claim on behalf of its insured after a primary insurer refused in bad faith to settle the claim has a right to equitable subrogation to obtain the amount paid from the primary insurer.”

roadblockNew Hampshire defended by asserting anti-assignment and lack of standing arguments and opposed Axis Specialty’s claims for attorney fees.  New Hampshire argued that since both the insured and Axis was asserting the same claim which the insured had assigned to Axis, the insured had no claim to assign and that since the insured had assigned away its claim, Axis had no claim to make against New Hampshire.  The federal court had little difficulty in rejecting New Hampshire’s anti-assignment and lack of standing arguments.

However, with respect to Axis’s claim for attorney fees incurred in monitoring and eventually settling the underlying lawsuit as well as for pursuing the assigned bad faith claim and for vexatious litigation, the court, granted New Hampshire’s motions for summary judgment on both Axis’s direct claim and its consequential damages claim on the basis for there is no statutory law permitting the recovery of attorney fees in a lawsuit in which the excess carrier was not a party.  With respect to New Hampshire’s motion for summary judgment on Axis’ claim for prejudgment interest, the court denied such on the basis that it was premature.

The learning of this case is that an excess carrier which seeks to recover attorney fees may have to look for different avenues of recovery in seeking its damages and attorney fees if state statutes do not directly authorize recovery of attorney fees.   Perhaps offering summary judgment evidence on the amount of time claims personnel expended on monitoring the claim or even asserting a claim for punitive damages if the conduct suggests such a claim, are ways to help in making the insurer whole.

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California Supreme Court Invites Suits against Defendants Doing Any Business in California

In a hotly contested 4-3 decision, the California Supreme Court in Bristol-Myers Squibb Company v. The Superior Court of San Francisco County, 2016 WL 4506107 greatly expanded the concept of specific jurisdiction to allow a non-resident plaintiff to file suit in California courts against any defendant who conducts or transacts any business in California, even though the plaintiff purchased that defendant’s product in another state.   The Court broadened the scope of specific jurisdiction to overcome the requirements of International Shoe Co. v. Washington, 326 U.S. 310 (1945), finding that a tangential use of the forum constitutes a “substantial” connection between plaintiff’s claim and the defendant’s forum activities.

PrescriptionThe product in question was Plavix, developed and manufactured by Bristol-Myers Squibb outside of California.  BMS was sued in California by 678 plaintiffs, of which 592 were residents of other states who had obtained the drug outside the state.  BMS moved to quash service on it by the non-resident plaintiffs.  Its affidavit in support of the motion showed that BMS is incorporated in Delaware, is headquartered in New York City, and maintains substantial operations in New Jersey.  Fifty-one percent of its 6500 employees work in New York and New Jersey.  BMS employs 164 people in R&D in California (unrelated to Plavix) and 250 sales representatives.  The development and manufacturing of Plavix did not take place in California, nor was any work relating to its labeling, packaging, regulatory approval or advertising or marketing performed by its employees in California.  California sales of Plavix constitute 1.1 percent of the company’s total nationwide sales revenues of all products.

In opposition, plaintiffs showed that over a six year period, BMS sold 187 million Plavix pills with a sales revenue of nearly $918 million.  Plaintiffs also argued that Plavix was sold to California residents pursuant to a “common nationwide course of distribution” and that the product defect and representations made about the product were common issues sufficient to justify specific jurisdiction over the non-resident defendant by non-residents who had not purchased Plavix in California.

The Supreme Court adopted the plaintiffs’ position, stating that BMS had been given “fair warning” because it conducted business in California; the injuries to the non-residents were sufficiently related to BMS conduct in California even though they did not arise directly from its conduct in California; it was not unreasonable to require BMS to litigate in California; and BMS did not offer any evidence to establish the cost of litigating in California versus other relevant forums.

The lesson of Bristol-Myers is that insurers who underwrite product manufacturers may now find themselves and their insureds embroiled in multi-party class action litigation in plaintiff friendly California, losing the benefit of tort reform measures.  Moreover, it will be imperative that defendants now mount a more aggressive defense showing the additional costs of litigating in California than in the forum states of the plaintiffs.  As the dissent suggests, the decision will increase rather than reduce multiplicity of litigation because MDL litigation is not available in state courts, and there are no mechanisms to prevent multiple class actions in different states.

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Expanding When Liability is “Reasonably Clear”: Massachusetts Court Chips Away at Bad Faith Counterarguments

Earlier this month, a Massachusetts Appellate Court affirmed a trial court’s award of bad faith damages in a case where it found the insurer’s approach to a claim to be “at best inattentive, if not incompetent.”  Although the state appellate court in McLaughlin et al. v. American States Insurance Co. ultimately denied an award of multiple damages, its award of attorneys’ fees and costs, along with loss of use of funds damages, shows the limits of arguing no bad faith because the insured’s liability was not “reasonably clear” under Massachusetts’s bad faith statutes.  The Court’s decision, even though unpublished, serves as yet another reminder of the importance for insurers to properly investigate claims and objectively analyze whether an insured’s liability is reasonably clear.

The underlying litigation arose out of a botched landscaping project on coastal property.  The homeowners hired the insured subcontractor to install a well as part of the project.  The homeowners claimed that the subcontractor was negligent for failing to take into account, or at least warn of, the possibility that the well may become inundated with seawater because of its proximity to the coast.  The lack of freshwater caused damage to decorative and ornamental landscaping paintings that had also been installed.  After the homeowners settled their claims against the two other defendants, the claims against the subcontractor went to trial, where he was found liable.

The homeowners (third party claimants) then filed suit against the subcontractor’s insurer for failure to conduct a reasonable investigation of their claim and failure to make a reasonable offer of settlement after liability of its insured (the subcontractor) became reasonably clear, in violation of the unfair claims handling and settlement practices of Massachusetts law.

Massachusetts’ claims settlement statute, G.L.c. 93A, §2(a) taken together with G.L.c. 176D, §3(9)(f), provides that an insurer is liable if it fails to promptly settle claims within the thirty-day period set forth in G.L. c. 93A, § 9(3) or as soon thereafter as liability and damages make themselves apparent.  In practice, this caveat, i.e. when “liability has become reasonably clear,” protects insurers from paying out claims not yet substantiated in the underlying litigation.  The insurer asserted that it was not liable for bad faith because liability was not “reasonably clear” when the claim was under investigation.  According to the insurer, its determination was supported by the fact that although judgment was entered against the insured, the jury did not award any monetary damages.  The insurer also claimed that liability was not reasonably clear because other defendants were named in the suit.  The Court rejected both of these arguments holding that the term “reasonably clear” does not turn on whether the insured will eventually be liable for monetary damages, and is independent of how a jury will ultimately view the insured’s liability.  In addition, the presence of other tortfeasors is not pertinent to the analysis and does not absolve an insurer of its statutory obligation to make an offer when liability of its insured is clear.

In addition to finding the insurer liable for unfair claims settlement practices, the Court also held the insurer failed to conduct a reasonable investigation under G. L. c. 176D, § 3(9)(d).  The Court’s holding was primarily based on the fact that the insurer did not consult an expert in hydrology to independently assess the merits of the homeowners’ claims.

Expert AdviceSo what does this mean?  Under the holding of McLaughlin, to avoid bad faith damages, insurers at a minimum must objectively assess their insureds’ liability and where they recognize the need for expert assistance in assessing their insured’s liability, engage an independent expert to assist them in making an independent or neutral assessment of the insured’s potential fault.

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“Low-Ball” Settlement Offer On Its Own Is Insufficient To Support A Claim for Bad Faith Under Pennsylvania Law

A low-ball settlement offer on its own is not enough to state a claim for a bad faith according to a federal district court for the Eastern District of Pennsylvania which granted the insurer’s motion to dismiss the insured’s claim for alleged violation of Pennsylvania’s bad faith insurance statute, 42 Pa.C.S. §8371. See West v. State Farm Insurance Company, 2016 U.S. Dist. LEXIS 106783 (E.D.Pa. Aug. 11, 2016). The statute provides that in an action on an insurance policy, if the court finds that the insurer acted in bad faith toward its insured, the insured may be awarded interest on the amount of the claim from the date the claim was first made by the insured, punitive damages, court costs and attorneys’ fees,. 42 Pa.C.S. §8371. The statute does not identify what constitutes bad faith on the part of the insurer.

Money            In West, the insured alleged that State Farm acted in bad faith in handling his uninsured motorist claim.  State Farm offered to settle the claim for $1,000 despite receiving medical bills in excess of $8,200. The insured argued that State Farm’s “low-ball” offer on its own was sufficient evidence of bad faith. The court disagreed, explaining that Pennsylvania law requires an insured to show more. Specifically, an insured must allege facts that show the insurer “lacked a reasonable basis for denying benefits under the policy” and the insurer “knew or recklessly disregarded its lack of [a] reasonable basis in denying the claim.” 2016 U.S. Dist. LEXIS at *5. An insurer’s low (even facially unreasonable) estimate of its insured’s damages, without more, does not rise to the level of bad faith.

While the court granted the insured’s request to file a second amended complaint, the insured may be out of luck if he is unable to allege additional facts.  We will continue to monitor the case to see whether the insured can meet the heightened pleading standard imposed by the court.

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The recent California decision Barickman v. Mercury Casualty Company, 2016 WL 3975279, (Calif. App. – July 25, 2016), previously reported in Cozen’s bad faith blog on July 28, 2016, is worth revisiting on a bigger picture issue.  Low policy limit demands are often more dangerous than high policy demands.  This is because often times less experienced adjusters are assigned to lower policy limit cases and may not have recognized some of the red flags presented in Barickman and more importantly may not have recognized the need for legal advice.  In Barickman, those red flags were as follows:  (1) serious injuries; (2) clear liability; (3) low policy limits; (4) policy limits demand made with short time fuse to respond; (5) numerous extensions of time for adjuster to make decision granted by plaintiff’s counsel; and (6) a quirky legal question not frequently seen by adjusters.  The more red flags on a claim, the more urgency there should be for an adjuster to promptly seek legal advice on quirky legal issues.

In response to notification of the claim, and after determining that the claimants had been seriously injured and that there was a policy limits settlement demand from a low limit policy, the adjuster rightly recognized the need to offer those limits of $30,000 and in fact did so quite promptly.  In response to the policy limits offer the plaintiffs’ lawyer added the following language to the standard release:   “This does not include court-order restitution.”  At that point in time, the settlement negotiations went awry.

Lawyer SearchThe adjuster’s concern was whether his insured would receive credit against the order of restitution and the plaintiffs’ lawyer wanted to make certain that the settlement did not extinguish the restitution award.  The adjuster received several letters from the plaintiffs’ lawyer explaining the reasons for the request for the additional language but for whatever reason the adjuster was concerned that the insured would not receive credit for the insurer’s payment.  Rather than seeking legal advice from an experienced insurance coverage attorney, the adjuster contacted the insured’s mother and her daughter’s criminal lawyer seeking an answer to his question.  Additionally, the adjuster sought legal advice from plaintiffs’ counsel on whether payment of the policy limits would go to reducing the restitution order.  Shortly thereafter the insured, through her mother, demanded that the policy limits be paid.  Unfortunately, the final deadline for payment had come and gone, being replaced by a personal injury lawsuit and an agreed judgment for $3 million with the subsequent assignment of that claim and the insured’s bad faith claim.  Despite Mercury’s best arguments the agreed judgment was upheld.

The obvious learning from this decision is that if an adjuster is dealing with a policy limits demand and a quirky legal issue of first impression to him/her, then he/she should seriously consider seeking legal advice from an experienced insurance coverage attorney, not the plaintiffs’ lawyer or the insured’s criminal lawyer.  As a practical matter, had the adjuster sought legal advice on this quirky issue from an experienced coverage lawyer, he could have short-circuited the months of uncertainty regarding this issue and there would most probably have been a more successful outcome for the insurer.

Update: Barickman v. Mercury Casualty was certified for publication on August 15, 2016. Cite as 16 C.D.O.S. 8932.

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Insurers’ Beware: Defending Bad Faith Claim May Lead to Waiver of Privileged Communications

On July 27, 2016, the United States District Court for South Carolina ordered an insurer to turn over its privileged communications. The Court explained that the insurer waived the protections afforded under the attorney-client privilege and work product doctrine by asserting it acted in good faith in the defense of its insured. See State Farm Fire & Casualty Co., et al. v. Admiral Ins. Co., 2016 WL 4051271 (D. S.C. July 25, 2016). While this is a district court opinion and may be subject to appeal, insurers should still be cognizant of the issue.

James McElveen filed suit after he was seriously injured during a fraternity hazing event hosted by Maurice Robinson and Phi Beta Sigma Fraternity. Robinson tendered the suit for defense and indemnification to Phi Beta’s insurer, Admiral Insurance Company. Admiral denied coverage. Robinson’s homeowners’ insurer, State Farm Fire & Casualty Company, provided him a defense. Admiral settled McElveen’s claims against Phi Beta and others prior to trial, leaving Robinson as the lone defendant. The case was tried and verdict was entered against Robinson. State Farm ultimately settled the judgment for $975,000.

State Farm then filed suit against Admiral for a declaratory judgment that Admiral must reimburse State Farm for the settlement and all fees and costs incurred in the underlying defense. State Farm alleged that Robinson was entitled to a defense and indemnification under the Phi Beta policy, and that Admiral acted in bad faith in denying coverage. Part of the damages claimed by State Farm included damages for the emotional distress and humiliation Robinson allegedly sustained from the media attention related to the trial.

Admiral countersued State Farm for bad faith. State Farm apparently had the opportunity to settle the case within its policy limits of $300,000 prior to trial. Admiral alleged that State Farm’s wrongful refusal to settle caused Robinson’s claimed emotional distress damages in having to go to trial. In answering the counterclaim’s allegations, State Farm admitted it owed Robinson a duty to act in good faith and asserted “it did so.”

attorney-client privilegeAdmiral sought discovery related to State Farm’s decision not to settle, and its communications with Robinson discussing the consequences. State Farm objected that the information sought was protected by the attorney-client privilege, work product doctrine, and common interest doctrine.  Although the Court agreed, it nonetheless ordered State Farm to produce the requested information.  The Court, relying on a South Carolina district court case involving an insurer’s communications with its own counsel, explained that by asserting that it did act in good faith in handling the claims asserted against Robinson, State Farm put its communications with Robinson at issue and therefore waived the attorney-client privilege and work product protections.  In other words, the court held that the insurer could not use the substance of the communications with its insured as both a sword (we acted in good faith) and a shield (but we are not going to tell you what we said to our insured).

So what does this mean? How can an insurer defend against bad faith allegations and protect its privileged communications? Potentially, the insurer should maintain communications with the insured separate from communications that include the insurer’s counsel.  The Court’s ruling indicates that an insurer must proceed with caution, at least in South Carolina.

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When a Policy Limits Offer is Not Enough: A Cautionary Tale of a Failure to Settle Case

In a recent unpublished decision, the California Court of Appeals upheld a $3 million judgment against an auto liability insurer that rejected proposed language in a settlement agreement, notwithstanding the insurer’s policy limits offer. Barickman v. Mercury Opinion, 2016 WL 3975279 (Cal. Ct. App. 2016) (unpublished). Although unpublished and not binding precedent, Barickman raises several claim handling issues which may be useful for carriers to consider.

Barickman arises from a personal injury claim in which the insured, Timory McDaniel struck two pedestrians while driving under the influence. McDaniel fled the scene but was later apprehended. She reported the claim the following day to her insurer Mercury Casualty Company as an accident without further detail. Within eight weeks of receiving notice and following its investigation of the claim, Mercury offered policy limits of $15,000 to each injured party. While the offer was pending, a criminal court sentenced the insured to three years in prison and ordered her to pay approximately $165,000 in restitution. The injured parties accepted the $15,000 settlement, but countered with the additional language, “This does not include court-ordered restitution.”

Mercury sought to clarify whether the new language precluded an offset of the policy limits payment against the restitution order. While waiting for input from the insured’s mother, acting as her attorney in fact, and from the criminal defense counsel, the plaintiffs’ demand expired. Criminal counsel responded a few days later instructing Mercury not to accept the offer to the extent it waives the right of offset, citing a newly published decision of People v. Vasquez, 190 Cal.App.4th 1126 (2010) (insurance settlement as a matter of law reduces a criminal restitution order).

Plaintiffs filed suit.  After suit was filed, the insured’s mother requested that the policy limits be paid regardless of the qualifying language added by plaintiffs to the release.  Mercury did not do so, and there was conflicting evidence regarding its discussions with plaintiffs’ counsel, both before and after suit was filed.  Mercury appointed defense counsel, but the case ultimately resulted in a $3 million consent judgment. The insured assigned all of her rights against Mercury in exchange for a covenant not to execute on the judgment against her.

ConflictThe plaintiffs then filed claims for breach of contract and bad faith against Mercury, seeking recovery of the full $3 million consent judgment. The parties submitted the case to a referee to determine all issues of law and fact.

The referee determined that Mercury’s policy limits offer was not enough to defeat the bad faith claim. Mercury had unreasonably rejected the modified policy limits settlement instead of accepting or further amending the release to clarify the parties’ mutual intent. Further, the referee determined the modified release language was superfluous and should not have affected the deal, because as a matter of law, a release in a civil case would not release a defendant from the criminal court’s restitution order, and did not disturb the insured’s right to offset. The Court of Appeals affirmed.

Barickman raises several considerations for carriers faced with similar issues. First, Brickman stands for the proposition that even a timely policy limits offer may be insufficient to defeat a bad faith claim based on failure to settle. California’s test is whether the insurer’s conduct was unreasonable under all of the circumstances. Graciano v. Mercury General Corp., 231 Cal.App.4th 414, 427 (2014). In Barickman, the California Court of Appeals noted there were “significant issues of credibility, as to whether Mercury did all within its power to effect a settlement” once plaintiffs proposed the modified release. Barickman highlights the importance of memorializing settlement negotiations in writing, especially where the other party takes a difficult or unclear position on settlement language. Barickman’s referee appeared to place greater evidentiary weight on plaintiffs’ email correspondence after the settlement had fallen through, than on Mercury’s claim notes during the negotiations.

Next, particularly where defense counsel has not yet been retained, involving outside counsel at the onset of the negotiations may help evaluate the legal effect of certain settlement terms in the given jurisdiction. Coverage counsel may further help clarify the insurer’s duties in responding to a settlement demand. The court in Barickman seemed particularly swayed by the fact that case law would have clarified that insurance proceeds reduce restitution orders as a matter of law.

As a final consideration, the Barickman parties elected to submit all issues of law and fact to a referee. Distinct factual issues and legal precedent typically warrant careful evaluation of the benefits, drawbacks, and options of available forums, whether state court; federal court; retired judge or referee.

Update: Barickman v. Mercury Casualty was certified for publication on August 15, 2016. Cite as 16 C.D.O.S. 8932.

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Don’t Mess with the Texas Prompt Payment of Claims Act: One Court’s Appraisal Result

Texas Appraisal Blog Post - Clip ArtVirtually all property insurance policies contain an appraisal clause, which outlines the appraisal procedure in broad terms. Those broad terms sometimes do not provide much guidance about the process, or about the effect which an appraisal award may have. A case in point is Graber v. State Farm Lloyds, 2015 WL 11120532 (N.D. Tex. 8/6/15).

In Graber, plaintiff purchased a homeowner’s policy from State Farm Lloyds. Plaintiff claimed that the home suffered covered damage as a result of a hailstorm. State Farm Lloyds inspected the home and concluded covered hail damage was present in certain areas of the home. On this basis, State Farm Lloyds issued a payment to plaintiff for damage to those itemized areas. Plaintiff was unsatisfied with the payment and requested a reinspection.  State Farm Lloyds appointed a new inspector, reinspected the property and issued a supplemental payment on the claim. Plaintiff remained unsatisfied and sent a notice letter under the Texas Deceptive Trade Practices Act. State Farm Lloyds conducted a third inspection, but found no additional covered damage. Plaintiff then filed suit, claiming that State Farm Lloyds breached the terms of the insurance policy by failing to make full payment on the hail claim. Plaintiff also alleged, among other things, that State Farm Lloyds was liable for statutory penalties for not paying the claims in a timely manner under Texas Insurance Code section 542, commonly known as the Texas Prompt Payment of Claims Act. After litigating for approximately nine months, Plaintiff invoked appraisal under the terms of the insurance policy. Read more ›

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Avoiding Insurance Bad Faith
Cozen O’Connor represents insurance clients in jurisdictions throughout the U.S. against statutory and common law first- and third-party extracontractual claims for actual and consequential damages, penalties, punitive and exemplary damages, attorneys’ fees and costs, and coverage payments. Whether bad faith claims are addenda to a broader coverage matter or are central to the complaint, Cozen O’Connor attorneys know how to efficiently respond to extracontractual causes of action. More
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