Mediation Statements in Federal Courts May or May Not be Privileged and Can Be Waived

The Bankruptcy Court for the Western District of Missouri declined to recognize a mediation privilege in In re Lake Lotawana Community Improvement District, 2016 WL 7984347 (Bankr. W.D. Mo. Sept. 19, 2016), despite the fact that it conceded that other circuits have done so. Lake Lotawana did not involve a mediation with a plaintiff and an insured; however, the cases presented by the parties drew heavily from the case law in the bad faith context.

More specifically, in a Chapter 9 bankruptcy proceeding, the debtor must allege that it negotiated in good faith at a pre-petition mediation. In Lake Lotawana, the mediation failed and the debtor alleged as a prerequisite to filing a Chapter 9 proceeding that it had negotiated in good faith. In response, the creditor sought the debtor’s mediation statement and argued that the mediation statement was not privileged. In rebuttal, the debtor asserted a work product privilege and argued that the statement was privileged because it was prepared in anticipation of litigation and the mediation privileged also applied.

Courts within the Eighth Circuit, which includes Missouri, had not previously addressed the applicability of the mediation privilege. Initially the Court pointed out that only the Sixth Circuit (Kentucky. Michigan, Ohio and Tennessee) had adopted a mediation privilege. In actuality, courts in the Third Circuit (Pennsylvania), Ninth Circuit (California), and Eleventh Circuit (Georgia) also recognize a mediation privilege. The Seventh Circuit (Illinois, Indiana and Wisconsin) and the Federal Circuit have declined to recognize such a privilege. In deciding whether to adopt a mediation privilege in Missouri, the Court discussed Jaffee v. Redmond, 518 U.S. 1 (1996) which established four factors that must be satisfied before a federal common law privilege can be established. Those four factors are: (1) whether the asserted privilege is “rooted in the imperative need for confidence and trust”; (2) whether the privilege would serve public ends; (3) whether the evidentiary detriment caused by an exercise of the privilege is modest; and (4) whether denial of the federal privilege would frustrate a parallel privilege adopted by the states. The Court indicated that if the debtor attempted to use the mediation statement to prove it was acting in good faith, the debtor could re-urge its motion under the “Sword and Shield” principle.

The learning from Lake Lotawana is that, like most privileges, the mediation privilege can be waived. Insurers should be cautious in relying upon statements to mediators to prove that they were acting in good faith but rather should attempt to prove good faith by offering evidence of the offers and counteroffers that were made at the mediation.

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“Succeeds to the Interests of” Does Not Require Assumption of Obligations: D&O Policy’s Insured v. Insured Exclusion Applies to Claim Assigned to Fidelity Insurer; No Bad Faith

On February 24, 2017, the Texas Supreme Court reinstated a state trial court ruling that an “insured-versus insured” exclusion barred coverage under a D&O policy for the costs of defending a lawsuit. Because the D&O insurer demonstrated, as a matter of law, that the exclusion applied and no coverage existed, the high court also held the extra-contractual claims were properly disposed. See Great Am. Ins. Co. v. Primo, 2017 WL 749870, at *4 (Tex. Feb. 24, 2017).

The individual insured, Robert Primo, previously served as a director and treasurer of Briar Green Condominium Association in Houston, Texas. In 2008 and, shortly before resigning, Primo wrote himself two checks from Briar Green’s account totaling roughly $100,000. Briar Green asserted the funds were misappropriated. Primo, however, contended the funds were payment for management services approved by Briar Green’s board. Briar Green sought coverage from its fidelity insurer, Travelers Casualty & Surety Company, who paid the claim. As consideration for payment of the claim, Briar Green assigned its rights and claims against Primo to Travelers.

Thereafter, Travelers, standing in Briar Green’s shoes, filed suit against Primo to recover the funds. As a previous director under Briar Green’s directors and officers liability policy issued by Great American Insurance Company, Primo demanded that GAIC defend Primo. GAIC refused, citing the policy’s insured-versus-insured exclusion, which barred coverage for claims “made against any Insured by, or for the benefit of, or at the behest of [Briar Green] or . . . any person or entity which succeeds to the interest of [Briar Green].”

Aggrieved, Primo filed suit against GAIC alleging breach of contract, breach of the duty of good faith and fair dealing, fraud, negligent misrepresentation, and violations of the Texas Insurance Code. GAIC moved for summary judgment and the trial court granted the motion. A divided Fourteenth District Court of Appeal in Houston reversed, holding the trial court’s interpretation of the exclusion was too broad as Travelers was not Briar Green’s “successor” under the exclusion.

On review to the Texas Supreme Court, the Court began with long-standing contract interpretation principles, including its refusal to “insert language or provisions the parties did not use or to otherwise rewrite private agreements.” Primo, 2017 WL 749870, at *2. The policy’s “plain language controls, not what one side or the other alleges they intended to say but did not.” Id. (internal citations omitted). The Court further explained that ambiguity does not arise simply because one party suggests an alternative conflicting interpretation, but only where the policy is actually “susceptible to two or more reasonable interpretations.” Id. (internal citations omitted).

According to the Court, the exclusion meant no coverage existed for any claim made against Primo by “any person or entity which succeeds to the interest of” Briar Green. No party disputed Primo’s insured status, or that Briar Green assigned all of its claims against Primo to Travelers. Thus, the high court was tasked with determining whether Travelers “succeed[ed] to the interest of” Briar Green—if it did, the exclusion barred coverage.

Turning to the appellate court’s decision, the Court explained the lower court relied on a prior interpretation of the term “successor” as “one who not only takes another’s place, but also maintains the character of the place taken. It contemplates an assumption of both rights and obligations or ‘stepping into the shoes’ of another.” Augusta Court Co-Owners’ Ass’n v. Levin, Roth & Kasner, P.C., 971 S.W.2d 119, 126 (Tex. App.—Houston [14th Dist.] 1998, pet. denied). Applying this definition, the lower court held GAIC failed to show Travelers succeeded to Briar Green’s interests, because GAIC had not shown Travelers assumed Briar Green’s obligations, in addition to its claims and rights.

The Court disagreed with the lower court’s analysis, citing the Augusta court’s express recognition that “[t]he exact meaning of the word ‘successor,’ when used in a contract[,] depends largely on the kind and character of the contract, its purposes and circumstance, and context.” Augusta, 971 S.W.2d at 125. Unlike the contract at issue in Augusta, the Court here was faced with a D&O policy’s insured-versus-insured exclusion, which “typically provide that the insurer is not liable for claims made by one insured against another, . . . includ[ing] litigation between directors and officers and the entity which they serve.” Primo, 2017 WL 749870, at *3. The purpose of these exclusions is to prevent both collusive suits between business entities and their officers or directors, along with actions arising out of the “bitter disputes that erupt when members of a corporate . . . family have a falling out.” Id. (internal quotations omitted).

Guided by the exclusion’s context, the Court explained that under the lower court’s interpretation, an insured under a D&O policy need only assign its rights in any claim against another insured to a third party to avoid the exclusion. The Court found the meaning it gave to the term “succeeds” comported with interpretations of commentators and other courts analyzing the exclusion in the context of insureds assigning claims against co-insureds to third parties.

In closing, the Court held that the exclusion applied as a matter of law, and no coverage existed under the GAIC policy for the Travelers/Briar Green suit against Primo. Because there was no coverage, the trial court also properly disposed Primo’s extra-contractual claims. Primo, 2017 WL 749870, at *4 (citing State Farm Lloyds v. Page, 315 S.W.3d 525, 532 (Tex. 2010) (“When the issue of coverage is resolved in the insurer’s favor, extra-contractual claims do not survive.”).

In the absence of policy provisions to the contrary, it is widely accepted that nothing prohibits insurance coverage for claims brought by one insured against another insured. See, e.g., Higby Crane Service, LLC v. National Helium, LLC, 751 F.3d 1157, 1163-64 (10th Cir. 2014). As such, and for the insurance industry to properly function, it is crucial that courts honor insured-versus-insured exclusions expressly included in the parties’ contract. As explained in Primo, overly narrow interpretations threaten and erode the key motives for including these exclusions. The Texas Supreme Court effectively refused to allow an interpretation that would render the exclusion meaningless, instead viewing the exclusion in the context of the policy, and D&O insurance as a whole. Further, the Court favorably cited the trial court’s holding that, absent coverage and, because the extra-contractual claims were based on improper denial of coverage, Primo’s extra-contractual claims failed as a matter of law.

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Alaska Creates Exception to General Rule that Injured Party Cannot Sue Insured’s Carrier

The Supreme Court of Alaska in Burnett v. Government Employees Insurance Company, 2017 WL 382648 (Alaska 2017) recently decided in a 3-2 decision that an insurer who voluntarily assumed the responsibility for cleaning up an oil spill on a third party’s property caused by its insured may become liable to that third party if it does not correctly handle the cleanup operations. GEICO argued that its obligations to its insured effectively negated any responsibility to third parties for improperly performing that clean up duty. The Court, over a strenuous dissent, rejected GEICO’s argument holding that an insurer who undertakes an independent obligation to a third party creates a new and independent duty to the third party claimant. GEICO was alleged to have taken some two years after the accident to rectify the damages. While some of the delay was clearly not GEICO’s fault, there was a fact issue of whether some of the delay was the result of GEICO’s decision to assume responsibility for overseeing the clean-up operations as opposed to letting the property owner perform his own clean up and sue GEICO’s insured for such damage. In support of its decision in Burnett the majority cited Howton v. State Farm Mutual Automobile Insurance Co., 507 So.2d 448 (Ala. 1987) (per curiam) which involved a situation where State Farm had agreed to repair the claimants’ vehicle at its expense but after the repairs were made demanded that the third party plaintiff release all personal injury claims. That request prompted a lawsuit where the Alabama Supreme Court held that an independent tort committed against a third party in the course of adjusting a claim for its insured is not prohibited by case law precluding an injured third party from suing the tortfeasor’s carrier for violating an independent tort.

The Burnett dissent strongly pointed out that requiring an insurer to pursue its duties to its insured creates tension between a carrier and its insured with respect to adjustment of the insured’s claim and that if the insurer did some act which damaged the third party that the third party would have a claim against the insured for which the insurer would be responsible. The dissent also pointed out that three judges dissented in Howton and a number of other cases had rejected the reasoning in Howton, specifically the Oklahoma Supreme Court in McWhirter v. Fire Insurance Exchange, Inc. 878 P.2d 1056 (Ok. 1994); Hazen v. Allstate Ins. Co., 952 So.2d 531 (Fla.App. 2007); and Dussault ex rel. Walker-Van Burden v. Am. Int’l Grp., Inc., 99 P.3d 1256 (Wash. App. 2004) [limiting Howtow to intentional tortious acts].

While Burnett appears to be the minority view, it is certainly an area where in the “right” case a plaintiff’s lawyer might seek to expand an insurer’s duty to a third party claimant when the insurer mishandles a claim and creates more damage or independent damages to the third party claimant. Insurers may want to think long and hard before assuming responsibility for repairs, instead limiting their conduct to adjusting and monetarily paying for the claim.

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Are Attorneys’ Bills Privileged Once Litigation Ends – California Supreme Court Says No in ACLU Litigation?

The California Supreme Court recently held, in Los Angeles Board of Supervisors v. Superior Court (2016) that attorneys’ invoices may not be protected by the attorney-client privilege after litigation ends. The issue arose out of a lawsuit brought by the ACLU to obtain billing records by law firms representing the City of Los Angeles to defend litigation brought by jail inmates. The ACLU’s position was that these law firms engaged in “scorched earth” tactics.

The Court affirmed some limitations on production of these bills. The Court conceded that information could be protected if it tells the client “of the nature or amount of work occurring in connection with a pending legal event” or even an uptick in amounts spent “could reveal an impending filing or outsized concern about a recent event.” However, such information may not be protected if the litigation has terminated. At that point, the disclosure of the cumulative amount spent “may communicate little or nothing about the substance of the legal consultation.”

The Court’s core message was that “invoices for legal services are generally not communicated for purposes of legal consultation.” Or stated again, “while a client’s fees have some ancillary relationship to legal consultation, an invoice listing amounts of fees is not communicated for purposes of legal consultation.” Or again: “billing invoices are generally not made for purpose of legal representation.” None of these statements have supporting citations to law or evidence. In other words, there may be an argument in the right case that, once the underlying litigation is terminated, the purpose of the billed amount may be discoverable.

The Court ultimately cited one lower court case, Concepcion v. Amscan Holdings, 223 Cal.App.4th 1309, 1326-1327 (2014), for the proposition that “California courts have generally presumed that invoices for legal services are not categorically privileged.” But there the issue was a motion by class counsel to obtain a fee award from the court. In such cases, the courts have relied on the rule, as did the Concepcion court, that a plaintiff impliedly waives attorney client privilege when the communication goes to the heart of its claim. See, e.g., Chicago Title Ins. Co. v. Superior Court, 174 Cal.App.3d 1142, 1149 (1985).

The Court also cited two Federal decisions as evidence that that “the disclosure of billing invoices is the norm in federal courts in California,” suggesting that fee information is not privileged. But in those cases, the court held that the fee statements were not subject to attorney work-product privilege, which has a narrower scope in Federal court than in state court. Additionally, the bills are subject to in camera review in Federal court, but not in California state court. Costco Wholesale Corp. v. Superior Court, 47 Cal.4th 725, 736-738 (2009).

There are three takeaways from this decision. The first is that this case signals a radical departure from the Court’s prior trend, as exemplified by the Costco case, of giving wide berth to attorney-client privilege, and retaining that privilege beyond the termination of the litigation. The second is that the academics on the Court may not appreciate the degree to which fee bills provide information to clients, especially insurance clients. The third is that this case has significance far beyond a Public Records Act dispute.

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Alert! — Washington Supreme Court Limits “Insurance Fair Conduct Act”

Earlier this month, the Washington Supreme Court strictly limited Washington’s “Insurance Fair Conduct Act” (IFCA) private cause of action. Enacted in 2007, IFCA provides for uncapped triple-damages awards, and mandates attorney fee awards.  However, the statute’s enabling provisions restrict IFCA claimants to insureds whose claims for coverage or payment of benefits are unreasonably denied.  Therefore, as clarified in Perez-Cristanos v. State Farm Fire and Cas. Co., 2017 WL 448991, 2017 Wash. LEXIS 92, ___ Wn.2d ___ (2017), IFCA claims cannot proceed based only on alleged violations of claims regulations (for example, untimely insurer responses to the claimant’s communications), without a related denial of the insured’s coverage or benefits.

The full Cozen O’Connor Alert! is linked here.

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Fifth Circuit Provides Road Map for Review and Trial of Bad Faith Claims in Mississippi

Mississippi essentially has three levels of claim when insurance is at issue: (1) mere breach of contract, allowing recovery of contract damages; (2) breach of contract + no arguable basis for breach, which entitles recovery of consequential damages; and (3) breach of contract + no arguable basis for breach + malice/gross disregard for the rights of the insured, which entitles the recovery of punitive damages.  In Briggs v. State Farm Fire & Cas. Co., 2016 WL 7232136 (5th Cir. Dec. 16, 2016), the Fifth Circuit Court of Appeals approved the bifurcation of the trial of an insurance dispute by the district court.  In so doing, the Fifth Circuit provided a road map for how such claims should be handled for trial.

The Underlying Dispute

In 2011 a tornado damaged the Briggses’ home.  The Briggses made a claim with State Farm for property damage.  A dispute arose between the Briggses and State Farm as to the value of the loss.  The Briggses claimed that the damage to their home exceeded the $250,000 policy limit of the State Farm policy and that their home needed to be demolished and rebuilt.  State Farm contended the home damage could be repaired and valued the loss at approximately $150,000. The Briggses filed suit against State Farm, claiming that State Farm breached the insurance policy by not paying the full value of their claim, that such a breach had no arguable basis and that they were entitled to compensatory and punitive damages.

At trial plaintiffs tried to submit evidence to the jury that State Farm inappropriately relied on Xactimate to value the loss, as well as failed to use proper pricing for materials and labor.  The Briggses also claimed that State Farm used 15 different claims representatives and attempted to intimidate the Briggses.  They also sought to introduce the Mississippi “Policyholder Bill of Rights” to show State Farm improperly adjusted their claim.

The trial court instead bifurcated the claims, and held that claims for extracontractual relief would be presented, if at all, only after a jury found the existence of a breach of contract.  The trial court excluded evidence such as the “Policyholder Bill of Rights” from the breach of contract portion of the bifurcated trial.  The jury returned a verdict, finding that the Briggses were entitled to an additional $75,000 in policy benefits, which was more than the State Farm adjustment, but less than the amount sought by the Briggses.

After the contract phase of the case, the trial court reviewed the Briggses’ evidence to determine whether they had sufficient evidence to proceed with the “bad faith” portion of the bifurcated trial.  The trial court determined the evidence was insufficient to show that State Farm lacked an arguable basis for its actions and entered judgment for State Farm on the bad faith claims.

The Fifth Circuit Opinion

The Fifth Circuit affirmed. The Court of Appeals noted that the decision to bifurcate claims rested within the sound discretion of the trial court.  Because the Briggses’ claims for extracontractual relief and punitive damages both required a showing that State Farm in fact had breached the policy, the Fifth Circuit held that bifurcation was appropriate.  The Fifth Circuit confirmed that evidence such as the “Policyholder Bill of Rights” was excluded appropriately at the initial trial phase because such evidence did not relate to the Briggses’ claim for breach of contract.  Finally, the Fifth Circuit noted that the case always focused on whether or not the Briggses’ home could be repaired.  Thus, the jury verdict which “split the baby” between State Farm and the Briggses demonstrated that the claim was a mere “pocketbook dispute” over the extent of damage, making State Farm’s position at least arguable.  As such, the Briggses possessed insufficient evidence to proceed with the second portion of the bifurcated trial.


The Fifth Circuit opinion in Briggs does not announce new law so much as draw together several strands of Mississippi insurance and bad faith law to provide a road map for how a trial court should handle bad faith claims.  From the decision to bifurcate, to the types of evidence admitted, to a pre-second phase evidentiary exam, the Fifth Circuit held that the trial court in Briggs did everything right.  Litigators should consider Briggs as guidance for how to prepare and present their claims for relief and how to approach evidentiary issues.

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test-your-strengthThis author suggested, in an earlier May 2016 Bad Faith blog article, that an insurer can measure on a “strength scale” its insurance coverage defenses while it defends its insured against underlying claims and lawsuits under a reservation of rights. The “strength scale” of coverage defenses, especially when subject to ongoing updates, can become a useful decision-making tool during settlement negotiations. An insurer has a legitimate basis to assess its coverage defenses as part of the settlement process when the coverage issues may render it unclear whose money will be used to pay for a judgment or settlement: the insurer’s money, the insured’s money, or combined contributions of both.

“Bad faith” case law can be scarce, in many jurisdictions, regarding insurers that base their settlement decisions in whole or in part on insurance coverage considerations. Although Washington state has many reported decisions addressing “bad faith” breaches of an insurer’s duty to defend and/or its duty to indemnify, it has only a few cases specifically addressing the “duty to settle.” And, it has no case law setting forth specific guidelines or rules for an insurer’s settlement decisions based upon “mixed” evaluations of underlying tort claims versus insurance coverage disputes with the insured. But Washington’s often-cited treatise on insurance coverage law, and at least two federal judges in Washington, have stated that insurers are not prohibited from considering coverage issues when deciding how much money to contribute to a settlement. Berkshire Hathaway Homestate Ins. Co. v. SQI, Inc., 132 F.Supp.3d 1275 (W.D. Wash. 2015); Specialty Surplus Ins. Co. v. Second Chance, Inc., 412 F.Supp.2d 1152 (W.D. Wash. 2006) (“Second Chance”) (An insurer can lawfully protect its “monetary interest,” because the insurer has a right to be concerned with “whether it owes a settlement payment” based on a coverage dispute with the insured); Thomas V. Harris, Washington Insurance Law § 19.05 (3d ed. 2010).

These two opinions, reflecting the federal court’s prediction of Washington law and not binding precedent in the Washington state courts, adopted tests set forth in a 1991 Florida appellate case (Robinson v. State Farm, 583 So.2d 1063) as the factors involved in an insurer’s good faith consideration of its coverage concerns during the settlement process. Their five listed factors include not only “the weight of legal authority on the central coverage issues”; but also whether the insurer’s efforts to settle the liability claim were “consistent with the strength of its coverage position.” Although the similar Robinson factor may have originally focused on sufficiency of the insurer’s efforts to settle, the Washington court’s comments in Second Chance support that in Washington, a reasonable element of the analysis is whether the insurer’s proposed contribution to settlement is consistent with the insurer’s genuine coverage disputes.

Ultimately, when faced with reasonableness of settlement bad faith disputes, Washington courts permit an equal consideration of the insurer’s interests, but they also warn insurers against actions demonstrating a greater concern for their own monetary interests than the monetary interests of the insured being defended under a reservation of rights. Like many jurisdictions nationwide, Washington and Florida courts conclude that the entire context of the insurer’s decision making process will determine whether the insurer was reasonable. Therefore, insurers that engage in “mixed” evaluations of tort issues and coverage issues during settlement efforts may benefit from a review of the full factual history leading up to settlement, while they also obtain legal counsel’s confirmation of the most currently applicable legal standards.

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First Circuit Provides Guidance as to When a Notice of Claim Triggers Policy Obligations

When does receipt of a pre-suit claim notice letter trigger an insurance carrier’s obligation to provide a defense and/or indemnity? In Sanders v. Phoenix Insurance Co., the First Circuit provided some guidance to this question, holding that a pre-suit notice letter would not trigger a carrier’s obligations unless a non-response would impact the policyholder’s ability to contest liability during a following proceeding.

The Underlying Dispute

Sanders arises from a “tragic tale of unrequited love.” Ms. Anderson hired an attorney to represent her in a divorce proceeding from Mr. Sanders, her husband. During the course of that representation, Ms. Anderson and her attorney began an affair. Ms. Anderson suffered from depression and anxiety. When the affair cooled, Ms. Anderson wrote a suicide note and drank herself to death.

Mr. Sanders became the executor of Ms. Anderson’s estate (“Claimant”) and sent a demand letter to Ms. Anderson’s attorney (“Insured”). As the affair occurred partially at the attorney’s home, the attorney placed his homeowner’s carrier, Phoenix Insurance Co. (“Insurer”) on notice of the claim. Insurer denied coverage, arguing that Ms. Anderson’s death was not a covered “occurrence” and that the policy’s professional services exclusion barred coverage.

Insured alerted Insurer that he intended to mediate the claim and invited Insurer to participate. Insurer declined. Insured argued Claimant asserted claims for negligent infliction of emotional distress against him, but Insurer continued to decline coverage. Insured settled his personal liability for $500,000 and assigned his rights against Insurer to Claimant in exchange for a non-recourse agreement which precluded any collection from Insured.

The Coverage Lawsuit

Claimant, as assignee of Insured, filed suit against Insurer for allegedly engaging in unfair settlement practices. Claimant argued that Insurer breached its duty to defend Insured when it failed to respond to the pre-suit demand letter sent to Insured. Insured’s policy contained the following language:

If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, even if the claim or suit is false, we will:

. . . .

b.            provide a defense at our expense of counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate.

Insurer argued that the plain language of the policy obligated it only to investigate a claim and that no duty to defend would be triggered until a lawsuit was filed.

When Does the Duty to Defend Commence?

The First Circuit noted that the cited policy language did not contain an obligation to defend an insured prior to a suit being filed. However, the court also noted that the “no pre-suit obligation” rule was not ironclad, as some types of claims were sufficiently analogous to an actual lawsuit so as to trigger a carrier’s obligation to defend. In this regard, the court looked at claims and notice letters sent by the Environmental Protection Agency for CERCLA liability.

The First Circuit distinguished Claimant’s pre-suit demand from an EPA claim notice, stating that the defense of the policyholder would be substantially compromised if there was no response to an EPA notice letter. Specifically, the EPA could proceed unilaterally with an administrative action against a policyholder, which decision would then impact any later judicial review. Also, failure to respond to an EPA notice letter could subject a policyholder to monetary penalties regardless of the outcome of any subsequent litigation. As such, receipt of a notice letter from EPA would force a policyholder (and concomitantly its carrier) to respond.

Claimant argued that failure to respond to a pre-suit demand letter also placed a non-responding party/policyholder at risk, as failure to respond to such a letter could expose the non-responding party to additional damages, attorney’s fees and costs of suit under state law. The First Circuit held that a pre-suit demand letter was not fairly analogous to an EPA notice of claim because the policyholder’s ability to contest liability would be compromised by the latter. The types of additional damages identified by Claimant for non-response to a pre-suit demand, however, would come only after the policyholder was given the opportunity to defend; i.e. after the carrier’s duty to defend had been triggered.

Claimant also argued that, duty to defend issues aside, the indemnification obligations of the policy were triggered by the mediation settlement with Insured. The First Circuit also rejected this argument, stating that the policy contained no such language. Further, the First Circuit noted that a mediation was be an informal, voluntary proceeding. Thus, Insured’s decision to participate in mediation was simply a strategic decision, as opposed to something compelled by operation of law.

Conclusions and Thoughts

Sanders draws a reasonably bright distinction between those “claims” which trigger the obligations of a carrier and those which do not. If the “claim” is such that a non-response could impact the recipient’s liability, the “claim” may trigger a defense obligation. Most pre-suit claims or demands simply do not fall into this category, even though a failure to respond may impact some other aspect of litigation. However, if federal or state law more substantially penalizes a failure to respond, then a different result may follow. Thus, when a carrier assesses whether and how to respond to notice of a pre-suit claim or demand, the carrier may want to, and should under First Circuit case law, consider the consequences of a non-response on the subsequent assessment of a policyholder’s liability.

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Don’t Get Burned by a “Holt Demand” in Georgia

flagGeorgia has a very specific law called “Holt demands” concerning time-limited demands made against a liability insurance policy. In Southern General Ins. Co. v. Holt, 262 Ga. 267, 416 S.E.2d 274 (1992), the Georgia Supreme Court held that where the insurer has full knowledge of the insured’s liability and damages exceeding policy limits, the insurer can be subject to bad faith damages if its failure to settle within policy limits subjects the insured to a judgment in excess of those limits. In deciding whether to settle a claim within policy limits, the insurer must give equal consideration to the interests of the insured.

The Holt demand was later codified in a statute addressing only motor vehicle claims, at O.C.G.A. Section 9-11-67.1. To constitute a valid demand to an insurer under the statute, a claimant must adhere to the following: (1) the demand must be in writing; (2) the time period for accepting the demand must be clearly stated, but cannot be less than thirty days; (3) the specific amount of monetary payment requested must be included; (4) the demand must specifically outline the party the claimant is willing to release; (5) the demand must specify the type of release, if any, the claimant is willing to provide; (6) the demand must specify the claims to be released; and (7) the demand must be sent by certified mail or overnight delivery, return receipt requested.

The motor vehicle claims statute permits insurers to request further information from the claimant to evaluate the demand, and such requests are not deemed a counteroffer or rejection risking potential bad faith exposure. Further, insurers still have defenses to a bad faith claim for refusing a settlement demand where (1) the insured’s liability was not clear; and/or (2) there was no confirmation that the damages would be in excess of the policy’s limits.

Georgia courts have recently shown their willingness to hold claimants to the statute’s specific requirements before an insurer may be sued for bad faith. In September 2016, DeKalb County State Court Judge Michael Jacobs dismissed a claim based on a purported Holt demand letter in the automobile context because it “was not a clear demand, let alone a time-limited demand” that could expose the insurer to bad faith for failure to timely respond. Hughes v. First Acceptance Insurance Company of Georgia, Inc., No. 14A52088 (DeKalb State Ct., Sept. 20, 2016). The court specifically found that there was no evidence the insurer knew or reasonably should have known the complex claims against the insured could have been settled within the policy limits. In October 2016, the claimants appealed this decision to the Georgia Court of Appeals, and the record for review was issued November 21, 2016. At the end of November 2016, the appeal remained pending.

Faced with a settlement demand in Georgia, an insurer acts reasonably when it does not place its interests above that of its insured. The following checklist is also helpful in responding to “Holt demands” in Georgia, and may help the insurer in any defense of a claim or lawsuit for refusal to settle a claim:

  1. Review the demand letter and document your review, itemizing the statutory requirements either met or not met.
  2. Either respond timely to the letter or seek an extension of time to respond.
  3. Request the information that you don’t already have but is necessary to assist in evaluating the demand, including liability assessment reports from defense counsel, accident, police, or other causation reports and information, expert analysis, school records, medical records, medical bills, medical liens, subrogation claims by health insurers, workers’ compensation, Medicare/Medicaid payments, and other relevant facts and/or testimony.

Consult with coverage counsel to ensure you have properly responded and met applicable requirements.

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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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