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February 2018

Submitted by: Brad Box

 

Another look at Time-Limited Settlement Offers

 

Brad Box

Rainey, Kizer, Reviere & Bell, PLC, Memphis TN

 

(click here to download .pdf of this section update)

 

In Hughes v. First Acceptance Insurance Company of Georgia, Inc., the Georgia Court of Appeals addressed whether the insurer acted reasonably in failing to respond to a “time-limited settlement offer.”  After the insurer failed to respond, the parties involved in a motor vehicle accident with the insured proceeded to a jury trial, resulting in a verdict for the parties in excess of the policy limits, for which the insured’s estate was liable.  The insured caused a five-vehicle accident, resulting in his death and injuries to others, including a mother and child.  Hughes v. First Acceptance Ins. Co. of Ga., 808 S.E.2d 103, 105 (Ga. Ct. App. 2017).  The liability limits of the insured’s policy with First Acceptance Insurance Company of Georgia, Inc. were $25,000 per person and $50,000 per accident.  Id.  After the accident, counsel for the mother and child contacted First Acceptance to notify it that he would send a demand letter once his clients finished treatment.  Id.   First Acceptance subsequently sent two letters to all injured parties, seeking participation in a settlement conference.  Id.  Four months later, counsel for the mother and child sent two letters to counsel for First Acceptance.  Id.

 

Both of these letters provide the basis for the plaintiff’s claims for failure to settle, punitive damages, and attorney fees against the defendant insurer.  The first letter acknowledged First Acceptance’s previous communications, stated the mother and child’s interests in resolving their claims within the insured’s policy limits and in attending a settlement conference, referenced the second letter, which counsel described as the letter of representation and insurance information request, and included the uninsured/underinsured motorist coverage.  Id.  The first letter further stated that, once counsel for the mother and child determines the available UM benefits, then “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.”  Id.  It continued, “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.”  Id.  The second letter requested the insurance information from First Acceptance within 30 days and stated, “Any settlement will be conditioned upon [the] receipt of all the requested insurance information.”  Id.  Counsel for the mother and child asserted that these letters constituted an offer to settle their claims and a 30 day deadline for a response.  Id.

 

Counsel for First Acceptance received the letters but did not provide the insurance information or follow up with counsel for the mother and child, so counsel for the mother and child sent a letter withdrawing its offer to settle and filed a personal injury action against the insured’s estate.  Id. at 105-06.  Counsel for the mother and child rejected further offers to settle their claims within First Acceptance’s policy limits, and the mother and child eventually obtained a jury verdict of over $5 million against the estate.  Id. at 106.  The administrator of the estate and plaintiff in this action filed suit against First Acceptance, alleging that First Acceptance negligently or in bad faith failed to settle the mother’s insurance claim and seeking recovery of the judgment over the policy limits, punitive damages, and attorney fees.  Id.  The trial court granted summary judgment to First Acceptance on all claims, and the plaintiff appealed to the Georgia Court of Appeals.  Id.

 

The ordinarily prudent insurer is the standard to determine whether the insurer is liable under a claim for negligent or bad faith refusal.  Id. (quoting Cotton States Mut. Ins. Co. v. Brightman, 580 S.E.2d 519, 521 (Ga. 2000)). “An insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person's attorney.”  Id. at 109 (quoting Holt, 416 S.E.2d at 276).  Generally, the issue of bad faith depends on whether the insurer acted reasonably in responding to a settlement offer.  Id. (quoting Cotton States, 580 S.E.2d at 521).  The insurer must give equal consideration to the interests of the insured in avoiding liability for an excess judgment when deciding whether to settle a claim within the policy limits.  Id. (quoting  S. Gen. Ins. Co. v. Holt, 416 S.E.2d 274, 276 (1992)).  When the plaintiff bases liability on the insurer’s negligent or bad faith refusal, the insurer may be liable “if, but only if, such ordinarily prudent insurer would consider that choosing to try the case rather than accept an offer to settle within the policy limits would be taking an unreasonable risk that the insured would be subjected to a judgment in excess of the policy limits.”  Id. (quoting Baker v. Huff, 747 S.E.2d 1, 7 (Ga. Ct. App. 2013)).  The insurer’s adherence to the ordinarily prudent insurer standard is a question for the jury.  Id. (quoting Baker, 747 S.E.2d at 7).  Moreover, “[t]he possibility of settling other claims within the policy limits and the insurer's knowledge of such possibility are not dispositive of the failure to settle claim in this case,” but they are factors for a jury to consider in determining whether the insurer acted reasonably in response to a settlement offer.  Id. at 107.  See Fortner v. Grange Mut. Ins. Co., 686 S.E.2d 93 (Ga. 2009).

 

The Court of Appeals held the circumstances created genuine issues of fact regarding whether the letters created a time-limited settlement offer and whether the insurer acted reasonably in responding to such an offer.  Id. at 109.  The Court affirmed the trial court’s summary judgment ruling on punitive damages based upon the plaintiff’s failure to support his claim with any evidence of willful or wanton conduct by the insurer; negligence, without evidence of willful or wanton conduct, is not enough to impose punitive damages.  Id. at 108.  See Ga. Code Ann. § 51-12-5.1(b).

 

 

 


 

 

December 2017

Submitted by:  G. David Godwin

 

 

Extra-Contractual Section Success! Unanimous Reversal and Remand Won in Colorado Court of Appeals

 

 

Terence Ridley, a partner in the national litigation firm Wheeler Trigg O’Donnell LLP (WTO), and former  FDCC Director, recently argued and won a case in the Colorado Court of Appeals.  The appellate court reversed and remanded the case for a new trial, and affirmed a sanctions award against the plaintiff’s counsel. The defendant’s insurer hired Ridley to handle the appeal after the trial judge directed that the defendant be found at least 51% liable, leading the jury to award the plaintiff over $1,000,000.

 

The case, Claycomb v. Fox (2016CA1333), involved a two-vehicle accident in 2012. The plaintiff claimed that WTO’s client pulled out in front of him, and that the resulting collision caused severe injuries to the plaintiff. At the close of evidence at trial, the plaintiff moved for a directed verdict that the defendant was at least 51% liable as a matter of law. The trial court agreed and instructed the jury to find the defendant more than 50% liable. The jury then awarded almost 1.3 million to the plaintiff, finding that defendant was 80% liable, the plaintiff 20% comparatively at fault.

 

Post-verdict in the trial court, WTO won sanctions against the plaintiff’s counsel for filing frivolous post-trial motions. On appeal, WTO argued that the judge erred by determining as a matter of law that the defendant was at least 51% liable, because the allocation of fault was a question of fact for the jury – not a question of law for the judge. A three-judge panel unanimously agreed. The Court of Appeals vacated the verdict and remanded for a new trial, while also affirming the sanctions on opposing counsel.

 


November 2017

Submitted by: G. David Godwin

 

 

Upcoming Events

For the Winter Meeting at Amelia Island, the Extra-Contractual Section is pairing up with the Appellate Section for the presentation: “Reversal of Misfortune: How to Establish Favorable Precedent Affecting Bad Faith Litigation.”  The presentation will develop an understanding of the benefits of employing a proactive approach creating favorable precedent, under which emerging insurance bad-faith issues are identified early and an active trial and appeal strategy is pursued in cases with the best facts and in the best jurisdictions. Our all-star panel consists of Vicki Roberts, Laurie Hepler and Scott Hofer.  Look for it once the schedule is published and we hope you will join in the discussion.

 

For the Annual meeting, July 29-August 3, at Wailea Beach Resort & Spa on the island of Maui, we are working with the ADR section on a joint presentation.  We are currently developing the topic and assembling a panel.  We welcome any ideas, and if you are interested in speaking, please let us know.

 

Projects

 

Insurance Expert Resource:  We are working on a project to update the resource list of bad faith experts.  This will include known plaintiff as well as go-to defense experts.  In order to make it as useful as possible, we need contributions from everyone.  So if you have a current list that you are willing to share, please forward it to Wystan Ackerman at wackerman@RC.com .

 

FDCC Amicus Brief:  A huge thanks to all E-C section members for your contribution to the brief prepared by the FDCC for submission to the Supreme Court of Nevada in the matter Century Surety Company v. Dana Andrew, Case No. 73756.  The brief offers the Court a 50-state survey on the issue: “Whether, under Nevada law, the liability of an insurer that has breached its duty to defend, but has not acted in bad faith, is capped at the policy limit plus any costs incurred by the insured in mounting a defense, or is the insurer liable for all losses consequential to the insurer's breach?”  The Court has not yet ruled on the FDCC’s Motion for Leave to File the brief.  If it is accepted, it will be available at the Court’s website.

 

Recent Insurance Coverage Case Law

In National Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 2017 NY Slip Op 06513 (N.Y. Sup. Ct. App. Div. Sept. 19, 2017), a power-generating turbine was taken out of operation because of excessive vibrations caused by a crack in the turbine's rotor.  The insured sought coverage for its losses under its property insurance policy tower.  The unit was taken out of operation during the policy period and had been functioning properly until that time, notwithstanding the pre-policy crack in the rotor.  It was undisputed that the crack started prior to the inception of the policy and continued to lengthen during the policy period.  Notably, the unit functioned in line with an alarm and trip system with protocols established when the insurance policy was underwritten and was functioning properly under these protocols until the date it had to be taken off line because of the excessive vibrations caused by the expanding crack.

 

In affirming the grant of partial summary judgment to the insured and against the carriers, the court stated that the insured's property sustained a physical loss or damage during the policy period.  A key factor in finding for the insured was the lack of any provision in the policy excluding physical loss or damage originating prior to the commencement of the policy period.  The appellate court also affirmed the finding of time-element damages for the entire period when the unit was not available to generate electricity (8 months).  The court noted that New York case law does not generally provide business interruption losses beyond the time needed to physically restore the property, but that those cases (retail) were not applicable here.  Because the unit was not available for power generation for the 8-month period, the insured was unable to earn future capacity revenues during the liability period.  The court rejected the application of the time element exclusion that provides no coverage for any increase in loss due to retroactive or future changes in capacity or bonus payments in effect at the time of loss.  Those payments were defined in the policy to be those paid in return for attaining or exceeding certain production levels.  Here, the insured was a regulated entity that sold at actual production capacity, not when it attained or exceeded specific production levels.  According to the court, the carriers did not meet their burden to show that the exclusion applied.

 

This summary first appeared in http://www.inredisputesblog.com/ .

 

 

 

 

October 2017

 

Extra-Contractual Section Success! Unanimous Reversal and Remand Won in Colorado Court of Appeals

 

Terence Ridley, a partner in the national litigation firm Wheeler Trigg O’Donnell LLP (WTO), and former FDCC Director, recently argued and won a case in the Colorado Court of Appeals.  The appellate court reversed and remanded the case for a new trial, and affirmed a sanctions award against the plaintiff’s counsel. The defendant’s insurer hired Ridley to handle the appeal after the trial judge directed that the defendant be found at least 51% liable, leading the jury to award the plaintiff over $1,000,000.

 

The case, Claycomb v. Fox (2016CA1333), involved a two-vehicle accident in 2012. The plaintiff claimed that WTO’s client pulled out in front of him, and that the resulting collision caused severe injuries to the plaintiff. At the close of evidence at trial, the plaintiff moved for a directed verdict that the defendant was at least 51% liable as a matter of law. The trial court agreed and instructed the jury to find the defendant more than 50% liable. The jury then awarded almost 1.3 million to the plaintiff, finding that defendant was 80% liable, the plaintiff 20% comparatively at fault.

 

Post-verdict in the trial court, WTO won sanctions against the plaintiff’s counsel for filing frivolous post-trial motions. On appeal, WTO argued that the judge erred by determining as a matter of law that the defendant was at least 51% liable, because the allocation of fault was a question of fact for the jury – not a question of law for the judge. A three-judge panel unanimously agreed. The Court of Appeals vacated the verdict and remanded for a new trial, while also affirming the sanctions on opposing counsel.

 

 

JUNE 2017


South Carolina Federal Court Compels Cedent to Produce All Communications With Its Reinsurer In Bad Faith Action

Most courts hold that communications and other documents between an insurer (the “cedent”) and its reinsurer are generally not relevant and not discoverable in a coverage action with a policyholder. Courts often note that reinsurance information reflects a business decision by the primary insurer to spread risk or to satisfy statutory reserve requirements, neither of which are typically relevant to coverages issues raised by a specific claim under the policy. However, a bad faith claim can present an exception to the rule.

One recent example is ContraVest Inc. v. Mt. Hawley Ins. Co., No. 9:15-cv-00304-DCN, 2017 U.S. Dist. LEXIS 48638 (D.S.C. Mar. 31, 2017). In that action, a claimant-assignee of a policyholder’s insurance claim brought a lawsuit against the insurer for declaratory judgment, bad faith, breach of contract, and unjust enrichment. The dispute concerned an owners association lawsuit against the policyholder (a developer) for construction defects. The insurer refused to defend and denied coverage for the claim. The policyholder settled the claims and assigned its rights and claims against the insurer to the owners association who filed the coverage action. During discovery the owners association sought production of all of the insurer/cedent’s communications with its reinsurers for all of the insured’s claims made under the pertinent policies. Despite this broad request not limited to the claim at issue, the magistrate judge issued a report and recommendation compelling the insurer/cedent to produce the communications. The district court affirmed the ruling, finding that communications with the reinsurer were relevant and probative of the insurer/cedent’s good faith to the extent the communications provided an explanation for granting or denying portions of the insured’s claims or otherwise described the handling of the insured’s claims. Because the owners association alleged that the insurer/cedent had changed its interpretation of the policies once it was evident that it would have to provide coverage, the insurer/cedent’s prior handling of claims under the same policies was relevant and, consequently, discoverable.

ContraVest is a good example of how carefully crafted bad faith allegations can open doors to the discovery of reinsurance information usually found to be irrelevant. Insurers facing such claims should include in their litigation strategy a plan to limit the scope of their communications with reinsurers and avoid allowing the court to decide the issue. This may entail an agreement with the policyholder for a limited production or a search for communications regarding specific issues raised in the litigation. Developing such a strategy requires an early analysis of reinsurer communications to provide sufficient foundation as to what must be protected.

more Calendar

5/20/2018 » 5/23/2018
15th Annual Litigation Management College Graduate Program

5/20/2018 » 5/23/2018
24th Annual Litigation Management College

6/14/2018
Midwest Regional Corporate Counsel CLE

3/24/2019 » 3/28/2019
2019 FDCC Winter Meeting - Austin, Texas

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