X. Litigation Tips And Techniques

X. Litigation Tips And Techniques

A. Pre-litigation 'Musts'

1. Locate All Insurance Policies

Locate all insurance policies, including old ones. Old insurance policies are extremely valuable because they tend to provide insurance coverage for any damage or injury that took place during the policy period, no matter when the damage or injury is discovered. If a particular policy cannot be found, secondary sources may be used to demonstrate that the policy was purchased. The search for insurance policies should include a review of:

internal accounting records and outside accountants' files for evidence of premium payments;

legal records and lawyers files, paying special attention to claims files;

known insurance policies for references to other policies;

insurance policies of other parties also facing potential liability in the same matter;

records of affiliated or predecessor companies;

workers compensation records to determine if an insurance company defended the workers compensation claim, since workers compensation and liability insurance are often purchased from the same insurance company;

if possible, records of companies which would have required submission of a certificate of insurance from your company before engaging in business with it, for instance, railroad company records or state and federal government records;

a search of the London insurance market for London brokers records.

There are several companies, known as insurance archaeologists, which specialize in locating old insurance policies. These companies may be able to locate missing insurance policies on a cost-effective basis. And never forget, despite repeated insurance company arguments to the contrary, that insurance companies should have copies of the insurance policies purchased from them.

2. Give Notice To the Insurance Company

Giving notice is absolutely critical. Give notice early and often. A policyholder should contact its insurance agent or broker and have them give written notice to all possibly implicated insurance companies. Do not rely on the broker's or agent's word that there is no insurance coverage. To repeat, insist that the insurance broker or agent immediately forward written notice of the claim to all potentially involved insurance companies. When all is said and done, verify that the agent or broker has promptly forwarded the notice.

The insurance industry has developed standardized forms for giving notice. "Plain vanilla" type notice, without extensive detail, is best. When first giving notice of an event or happening which may lead to a claim, all that needs to be provided to the insurance company is a copy of the document that the policyholder received alleging its liability. The first notice of claim should also state that additional insurance policies may be involved and request that the insurance company provide a list of all policies which have been sold to the policyholder. Additionally, the notice should request that the insurance company provide a defense, or agree to pay for defense costs, provide indemnification for any past or future liabilities, and advise the policyholder of all possible legal and factual bases that would support a finding of insurance coverage. Again, make sure that notice is given to all potentially involved insurance companies. Other items which may be included when giving notice, if readily available, are a general description of the product or event giving rise to the liability, what happened, when, where, how the policyholder is involved, and what insurance policies the policyholder believes were purchased from the insurance company. Bear in mind, however, that initially providing extensive detail may delay the policyholder from promptly getting notice out to the insurance companies. If providing detail delays giving notice, it can only work to the insurance companies advantage. Incomplete notice can be corrected. Late notice, often times, cannot.

Do not wait to give notice. Notice should be given as soon as a claim is made or threatened against the policyholder, or as soon as the policyholder senses that an event or happening may result in a claim against it.

3. Contending With The Reservation of Rights Letter

If the insurance company denies insurance coverage outright, send a letter to the insurance company disagreeing with the denial. Most insurance companies, however, do not deny insurance coverage without undertaking some type of investigation. Thus, instead of an outright denial, most insurance companies will send the policyholder a reservation of rights letter. The letter is a long, tersely worded statement which sets forth a panoply of reasons explaining why insurance coverage may be denied.

When contending with a reservation of rights letter and requests for information from the insurance company regarding the claim, the goal should be to cooperate with the insurance company as much as possible without giving up any rights. The insurance company should be considered an adversary. Any information or documents subject to the attorney-client privilege or prepared in anticipation of litigation should not be given to the insurance company. This includes conversations and correspondence between a policyholder and its lawyer, and, in some instances, materials prepared for the policyholder by the policyholder's lawyer.

Answering the insurance company's questions should not unduly burden the policyholder with financial expense or consumption of time. For example, if an insurance company wants to see a large set of documents, the policyholder should not bear the expense of having the documents copied and shipped to the insurance company. Rather, the insurance company should be invited to review the documents at the policyholder's office.

In addition, keep records of when documents and information are provided to the insurance company, as well as the expenses incurred in providing them. Under many insurance policies, the insurance company is required to reimburse the policyholder for cooperating with the insurance company.

4. Keep In Contact With The Insurance Company

The policyholder should establish a system of periodic reports to keep the insurance company informed of what is happening and of the status of each claim. In addition, the policyholder should forward proposed settlement agreements to the insurance company, before agreeing to them.

5. Complain To The State Insurance Commissioner

Complain to the office of the state insurance commissioner when it appears that the insurance company is stalling or not acting in good faith.

B. 'Must Have' Documents:

The following lists that documents that must be obtained in any bad faith claim.

1. Insurance policy.

2. All correspondence to and from the insurance company.

3. All correspondence to and from broker.

4. Underwriting file.

5. Underwriting manuals.

6. Underwriting guidelines.

7. Underwriting training materials.

8. Claims file.

9. E-mail and any other means of electronic communication or correspondence.

10. Insurance company web page.

11. Claims manuals.

12. Claims guidelines.

13. Claims training manuals.

14. Insurance company sales materials, advertisements and brochures.

15. Insurance company financials certified by the state insurance department.

16. Insurance company annual reports filed with the SEC on form 10-K. If possible, obtain a "glossy" insurance company annual report to stockholders.

17. Insurance Company Codes of Ethics, Ethical Guidelines, and training materials.

18. Another good place to "look for coverage" is in the drafting and regulatory history of insurance regulations. Review insurance company vs. insurance company cases.

C. 'Must Have' Depositions

1. Underwriters.

Remember: Underwriters believe that they sell policies to provide coverage. On the other hand, an "ignorant" underwriter can be an excellent witness.

2. Underwriting supervisor.

3. Claims handlers.

4. Claims supervisor.

5. Broker -- to avoid trial surprises.

6. Insurance company executives

Video depositions cost more, but save time.

D. 'Must Ask' Deposition Questions

Remember President Eisenhower's rule:

You learn more with your ears open than with your mouth open.

1. Mark the claims file as an exhibit. Does the claims file contain a written record of every significant event?

Same for underwriting file.

2. Does the claims file contain a copy of every document and every notation and every piece of information that was ever in it?

Same for underwriting file.

3. Identify and find out what happened to any missing materials.

4. Identify every person mentioned in the files. Where are they now?

5. What is good faith?

6. Go through the claims file and ask for all documents showing that insurance company looked for coverage.

7. Know what your compensatory damage expert and your bad faith expert are going to say and get as much foundation for their testimony from the insurance company witnesses as possible.

8. Prepare for an opening statement by getting the insurance companies to admit to the miracles that insurance is supposed to provide.

9. Personal and company membership in anti-policyholder trade associations.

10. Establish company management changes and ownership changes to lay the foundation for changes in "claims paying philosophy."

11. Work on negating the "bad policyholder" defense. For example, Stonewall does not cover polluters and drunken drivers. This is the "reprehensible conduct" defense and must be approached with care. One approach is to ask claims people about "taking care" of the victims of "tortfeasors."

12. If you could handle the claim all over again, would you do it the same way? Ask this of every witness.

E. Where Not to Look For Coverage

Policyholders are often "demonized" in the traditional legal press. This unfortunate fact should make policyholder counsel wary of relying on the "wisdom" of treatises. One insurance law professor explains the internal, often subtle bias of insurance law legal treatises as follows:

It may be significant that Mr. Appleman was the former head of the Legal Department of the State Farm Insurance Companies in the 1930s when he found "much of the insurance field in chaotic condition," and this may have influenced his treatise's general philosophy of emphasizing the more predictable and more uniform Formalistic contractual approach to the interpretation of insurance policies. . . . As a former insurance defense attorney while writing his impressive insurance law treatise from 1939-47, Mr. Appleman arguably may not have been a strong advocate of Legal Functionalism in the academic or legal community. Furthermore, his law school training may, or may not, have predated the rise of Legal Realism as a jurisprudential model in American law school classrooms of the 1930s.

Likewise, Couch's Cyclopedia of Insurance Law, in its discussion of the interpretation of insurance contracts, has no mention whatever of the Keeton Functionalist doctrine of reasonable expectations, other than a tangential discussion of dealing with ambiguous contract provisions. See, e.g., 1-2 GEORGE J. COUCH, CYCLOPEDIA OF INSURANCE LAW §§ 1:4, 15:16 (Mark S. Rhodes, rev. 2d ed. 1984).

Little is known of George J. Couch except that he was born in 1881, that he was a member of the New York Bar, and that he wrote his insurance law treatise from 1929-31, a time which predated the Keeton Functionalist reasonable expectations approach, and which arguably predated the predominant view of Legal Realism in American law schools. Subsequent authors and revisers to the Couch treatise include Ronald A. Anderson, a member of the Pennsylvania Bar, and Mark S. Rhodes, a member of the Illinois Bar. Both revising authors have paid little, if any, attention to the Keeton Functionalist reasonable expectations doctrine in the Cyclopedia of Insurance Law, 2d edition.

The views expressed in legal treatises can change. A well-known example of this occurred when a commentator discussed the, then-new "polluters'" exclusion in 1973. Professor Long observed in his treatise, the Law of Liability Insurance, that the polluter's exclusion clause was a restatement of the occurrence definition contained in standard CGL insurance policies. A later commentator, proposing the opposite view of the same exclusion, a pro-insurance industry solution, suggested "DESTROY LONG." Professor Long's comments disappeared from later versions of his treatise.

Use treatises and journals with care.

F. Jury Charges -- Do Not Reinvent Wheels

With one eye on the appellate courts, obtain and use charges that have been used in reported cases. Most lawyers who handled old cases will dig through old files to retrieve old charges and requests to charge. With the best of luck, both the requests to charge and the actual charge can be obtained. Tell the trial judge the case in which the charges were used.

Usually it is not advisable to try to advance the state of the law in jury charges. Remember that the insurance company is going to appeal.

Superb places to look for pro-policyholder jury charges are in the legislative recitations given by legislatures when enacting laws regulating insurance and claims practices. Another excellent source is the recitals written by state insurance regulators when proposing and adopting insurance claims handling regulations.

G. Trial Evidence -- Bulldogs or Pussycats?

Try a bad faith case on the assumption that the policyholder is going to win AND THE INSURANCE COMPANY TO GOING TO APPEAL.

Again, keep an eye on the appellate courts. They are inventing new and different ways to nullify insurance coverage and to eliminate bad faith damages against insurance companies.

With respect to evidence, if the insurance company objects to the policyholders' evidence, think hard about pressing it. When the insurance company offers an outrageous document, demonstration, or piece of testimony, the policyholder may be much better served by letting the evidence in. Many items of evidence can be "flipped" and used against the insurance company.

H. Avoiding Bifurcation

Fight bifurcation with facts! Juries are not dumb. The argument for bifurcated trials rests on the erroneous assumption that juries can not assimilate judicial instructions in the context of complex civil litigation. In fact, research shows the opposite to be true. Recent empirical studies of juror competence indicate that juries are "capable of deciding even very complex cases." Accordingly, insurance company arguments concerning alleged prejudice are without merit.

Contrary to the typical insurance company assertions, judicial economy and efficiency is not be promoted by bifurcation. Despite a common factual basis, policyholder's bad faith claims are not dependent on the success of their underlying policy claims. Rather, bad faith claims often contain different elements and are viable regardless of the outcome of the policy claim. Bifurcation can only result in enormous waste, duplication, delay and excess cost.

Moreover, "trial-splitting devices [such as bifurcation] prevent the jury from hearing relevant and essential information. . . To preserve the jury's role as the ultimate finder of fact, the jury must hear the evidence in its full context."

A bifurcated trial would prejudice a policyholder's claims, as the "empirical research suggests that an advantage is accorded to the defendants when civil trials are bifurcated." The prejudice and increased expense to policyholders and the Court that would result from bifurcation is far greater than any speculative prejudice that insurance companies might face by allowing a policyholder to proceed with all of its claims. Indeed, any concerns of prejudice raised by the insurance companies can be easily cured by limiting instructions to the jury. In contrast, proceeding with a single lawsuit rather than multiple lawsuits best promotes justice, avoids prejudice and promotes judicial economy.

I. Consider Malicious Defense

The tort of malicious defense derives from the recognized tort of malicious prosecution. Simply put, malicious defense provides that defendants should be liable for the malicious assertion of false and baseless defenses.

Until recently, the tort of malicious defense had been nearly universally rejected by the courts. New Hampshire has recently expressly adopted malicious defense and New York has implicitly recognized the tort as a valid cause of action for plaintiffs.

These decisions indicate that more courts may begin to take notice of this tort.

In Aranson v. Schroeder, the Supreme Court of New Hampshire held:

when a defense is commenced maliciously or is based upon false evidence and perjury or is raised for an improper purpose, the litigant is not made whole if the only remedy is reimbursement of counsel fees. It follows that upon proving malicious defense, the aggrieved party is entitled to the same damages as are recoverable in a malicious prosecution claim.

The court noted that malicious defense should be construed as a limited and closely scrutinized cause of action to avoid precluding defendants from raising a potentially legitimate defense for fear of being sued.

Aranson set forth a standard of liability for malicious defense:

One who takes active part in initiation, continuation, or procurement of defense of civil proceeding is subject to liability for all harm proximately caused, including reasonable attorney fees, if he or she acts:

(1) without probable cause;

(2) with knowledge or notice of lack of merit in such actions;

(3) primarily for purpose other than securing the proper adjudication of the claim and defense thereto, such as to harass, annoy or injure, to cause unnecessary delay or needless increase in the cost of litigation;

(4) previous proceedings were terminated in favor of party bringing malicious defense action; and

(5) injury or damage is sustained.

In Aranson, the Supreme Court of New Hampshire accepted the plaintiffs' argument that malicious defense would provide a remedy for false defenses just as malicious prosecution already provides a remedy for false claims. The plaintiffs argued that, under present law, false evidence is condemned from the plaintiff's side but tolerated from the defendant's side. The plaintiffs maintained that both forms of misconduct should be treated in the same manner. The New Hampshire Supreme Court agreed:

Is a plaintiff less aggrieved when the groundless claim put forth in the courts is done defensively rather than affirmatively in asserting a worthless lawsuit for improper purposes? We think not.

Similarly, in Aufrichtig v. Lowell, the New York Court of Appeals recognized a slight variation of malicious defense. In this case, the plaintiff's physician provided an insurance company with a perjured affidavit. The insurance company submitted this affidavit to the United States District Court.

On the eve of trial, the physician admitted that the affidavit had no basis in fact. When the Federal District Judge learned of the false affidavit, he urged the plaintiff to settle with the insurance company due to the physician's conflicting statements.

The plaintiff then instituted a claim against the physician. The Aufrichtig court found that the physician may have breached his duty to provide truthful medical information as part of the physician-patient relationship and denied the physician's motion for summary judgment. Thus, the holdings of Aufrichtig and Aranson are in line with each other; both hold that the presentation of false evidence is actionable.

Moreover, if a non-party witness can be held liable for presenting false evidence, then a party defendant should also be liable for similar activity. Insurance companies, like doctors, are fiduciaries. Both have special obligations and duties to their clients. It may be possible to make an especially strong argument to apply the tort of malicious defense to all fiduciaries in order to best protect the sanctity and purpose of the fiduciary relationship. The crime-fraud exception to the attorney-client privilege, for instance, does just that.

BAD FAITH IN INSURANCE COVERAGE DISPUTES AND THE PUBLIC NATURE OF INSURANCE -- UNDERSTANDING THE RECOVERY TOOLS AVAILABLE TO POLICYHOLDERS

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last modified Dec 29, 2003 / 12:53 AM, GMT