Insurance Companies…Let them talk among themselves

Who could resist reading an opponent’s emails and files? I certainly can’t. And it’s all legal. This is the third in an installment of blogs about a treasure trove of information from the files of insurance companies. As you may know from reading these blogs, this has come about because of litigation between two insurers on a case that I tried with a result that left them pointing fingers at each other. The case is going on in federal court and is obviously a matter of public record. Hence the treasure trove of documents that are available to the public.

What have we learned from the litigation involving the excess insurer against the primary insurer? The excess insurer’s case boils down to the following: why didn’t you settle this case with Attorney Feinberg and resolve it within your policy limits? Instead, the primary insurer let the case go to trial and the jury’s verdict (all collected) far, far exceed the primary policy limits. Those primary limits provided the first layer of insurance limits in an amount far from sufficient to satisfy the verdict.

Usually, insurers respond to pressure. A tool for plaintiffs is to have their lawyer put pressure on the excess insurer who would then put pressure on the primary insurer to pay a significant sum of money to settle the case. That textbook approach was undertaken by me in this instance. But they didn’t listen. (Please keep in mind that an excess insurer provides coverage on top of the primary layer.) In this situation, one would have thought that the excess insurer’s pressure would have made a difference. To be sure, there is a strong disagreement as to how much pressure was exerted. Note that we are not involved with two separate insurers for two separate defendants.

A savvy plaintiff’s lawyer emphasizes to the excess insurer its risk. Insurance companies are risk averse or at least you would think. What is the duty that a primary care insurer owes to an excess insurer? It is addressed in case law in Massachusetts from about twenty years ago:

“The test is not whether a reasonable insurer might have settled the case within the policy limits, but rather whether no reasonable insurer would have failed to settle the case within the policy limits. This test requires the insured (or its excess insurer) to prove that the plaintiff in the underlying action would have settled the claim within the policy limits and that, assuming the insurer’s unlimited exposure (that is, viewing the question from the point of view of the insured), no reasonable insurer would have refused the settlement offer or would have refused to respond to the offer.”

The case is The Hartford Casualty Company vs. The New Hampshire Insurance Company 417 Mass 115 (1994).

This can get somewhat technical. The bottom line is there is a duty on the primary insurer. But the standard isn’t to act as a reasonable insurer. Rather the insurer must act in a way that ‘no reasonable insurer” would act. Granted, that’s a fairly indulgent standard for the primary insurer. Would no reasonable insurer have failed to settle the case within the policy limits?

I will not get overly specific about that standard because it could be construed as a difficult standard for the excess insurer to reach in a dispute between the insurers. Nevertheless, there is some obligation on the primary insurer. They must act in a way that’s better than no reasonable insurer. Thus your attorney, in a serious personal injury case, should be contacting that excess insurer, if one exists, to let them know that 1) they don’t want to contribute to a settlement and that could happen if the primary insurer does not settle within its limits and 2) they should make it clear to the primary insurer that the primary insurer does have a standard of behavior or a standard of conduct – however defined- in which to conform.

I welcome that kind of discussion among several insurers for the defendants. These insurers offer insurance policies for the particular defendant, one being primary and the other(s) being excess policy(ies). A dispute among them can only inure to the benefit of the plaintiff. To the extent that two insurers are talking, at least one of them should make clear to the other that there could be an excess judgment. An ugly process could unfold. Fortunately that ugly process, if it were to unfold, would be between the two insurance companies and would not affect the injured party in the underlying case.