By William Pillsbury
There are no perfect strategies to settlement and much will depend on the nature of the opposing party. The simple reality is that some parties do not want to settle. There are some insurance companies who are well-known to simply show no interest in settlement prior to the eve of trial. In addition, the attorneys can become themselves an impediment to settlement when they get caught up in collateral arguments, such as discovery disputes, instead of focusing on the primary issues that will lead to settlement. Nonetheless, there are some basic strategies that will help reach settlement with insurance companies: Control the Lawyers (and Other Non-Principals) – Allowing outside attorneys, including the insurance company lawyers, to become tangled in unproductive arguments only serves to slow down or entirely halt the progress of the negotiations and delay resolution. It is important to remember that, as mentioned above, the insurance company and its lawyers have an interest in delaying settlement. Therefore, while your team can provide advice behind the scenes, keep the business people involved in all aspects, and try to maintain a principal-to-principal line of communication. Avoid Open-Ended “Standstill Agreements” – Parties sometimes agree to delay or suspend litigation to allow time for settlement negotiations. While a “standstill agreement” can be a useful tool to resolve a claim and control litigation expenses, it is important to realize, however, that a standstill can reduce the policyholder’s settlement leverage. A standstill must have a clearly defined deadline that provides a realistic period for the policyholder to provide necessary information, for the insurance company to review the information and respond, and for negotiations to proceed. Any period longer than reasonably necessary to complete this process simply results in more time that the policyholder does not get paid. Be Prepared, Cooperative, and Persistent – Prepare thoroughly. A good starting point is to collect and organize some basic information, such as all potentially applicable insurance policies and related documents, and evidence of all relevant costs and expenses. Having this information in hand helps to realistically understand and evaluate the value of the claim, and means you have the proof necessary to substantiate the claim. Do not give the insurance company a reason to not pay your claim. Promptly respond to the insurance company’s reasonable requests for information, ask for clarification if you do not understand a request, follow-up on requests to which the insurance company has not responded, document all of your communications with the insurance company, maintain a professional and courteous demeanor, and be persistent. The last letter should be from the policyholder. Try to Accommodate Reinsurance Companies – Insurance companies are often concerned about whether their reinsurance companies will cover amounts that they pay a policyholder. Whenever possible, honor requests that assist your insurance companies in getting reimbursed from their reinsurance companies. Being cooperative in this respect maximizes the amount of money that you may be able to recover. Calculate Each Insurance Company’s Exposure – When a large claim involves multiple insurance companies, as most do, each insurance company’s exposure should be calculated separately. For “long-tail claims,” e.g., those involving multiple years of coverage such as environmental and asbestos claims, the calculation methods can be infinite. Evaluate each insurance company’s potential liability. Negotiate With One Company at a Time – Generally, negotiations that bring all of the insurance companies together at the same time may not result in prompt settlements. Because the issues in these negotiations are numerous and complex, settlements often take place separately with each insurance company. There are certainly exceptions to this rule, particularly where the claim involves a single year of coverage. Properly Document Settlement – As you progress through negotiations and near a resolution to the claim, make sure that you consider a few additional issues and properly document the settlement:
- Focus on the Scope of the Release
- Beware of Indemnification Provisions
- Examine Allocation Issues
- Do Not Bind Future Acquisitions
While each policyholder’s claim is unique, it is important to be mindful of some general issues that can be helpful when facing a dispute with your insurance company. Above all else, obtain and organize the facts, evaluate the strength and value of the claim, develop and pursue a strategy, and don’t give up.
Some policies include specific requirements for mediation or arbitration to resolve any claims. Initially, binding mediation and/or arbitration is not often the best option for the policyholders. Many mediators and arbitrators will have a much closer connection to the insurance industry and, thus, potentially will have an inherent bias towards the position of the insurance company. However, if mediation or arbitration is inevitable, it is important to research arbitrators and to try to ensure that whoever is chosen or the panel that is chosen will not be to strongly predisposed against you. In addition, a “splitting the baby” result, a fairly common outcome in mediation and arbitration, is often a major loss for a policyholder facing a large claim. As such, to the extent possible, it is best to avoid mandatory mediation or arbitration provisions. This issue highlights another key tip – preparing for insurance claim conflicts begins with the purchase of the policy. Specifically, it is very important that when purchasing insurance, a policyholder is familiar with what their needs are and what the policy they are purchasing offers. To the extent possible, a policyholder will want to avoid mandatory mediation and arbitration, but if that is not an option, it will be important to have some ability to select the panel and avoid a situation where the insurance company is effectively picking its own judge. Another negative aspect of mediation/arbitration is the reality that courts have become highly deferential to the outcomes in those matters. This deference is a benefit if you are the victor, but in a system generally favoring the insurance company and ending up with splitting the baby results, having no ability to effectively appeal decisions can be a real harm to the policyholder. On the other hand, if the cost of a lengthy litigation is simply not possible and obtaining some money, even if not a full recovery, is important, arbitration or mediation can be beneficial. The panels often move much faster than courts and discovery is significantly stream-lined. In addition, many insurance cases are resolved through papers alone, because the interpretation of policies is a legal question, so the costs of a hearing or trial may be averted. While these lower costs do come with the risks discussed above, it is worth considering if finances are limited. Finally, unlike binding mediation or arbitration, non-binding mediation can be quite helpful, but only if all sides come to it prepared and serious in trying to find a fair resolution. Non-binding mediation can often provide a good starting point for settlement discussions and will be helpful for all sides in evaluating cases. On a related note, non-binding mediation is greatly benefitted by having a representative from the insurance company, not just its counsel, attend the mediation. Including this representative eliminates the insurance company’s counsel “filter” and allows the policyholder to make its case to the insurance company directly. In addition, if the mediator is skeptical of the insurance company’s position, having a representative hear those concerns can be a great asset.
Settlement v. Mediation Tactics and Settlement Conference Tactics
In many ways, the tactics outlined in the introduction apply equally to mediation or settlements. However, with mediation, the importance of being prepared, cooperative, and persistent can be even more important. A mediator will naturally be swayed if he believes a policyholder is trying to pull a fast one or if he perceives an insurance company is putting up unnecessary roadblocks, so the ability to present a strong case while showing that you have fully cooperated will be a good starting point in any mediation. In addition, you want to be sure that any material provided to a mediator is organized and persuasive. As for the actual discussions, a party attending a mediation should be prepared for a frank discussion of the weakness of its case. Unlike in settlement where posturing is often the only response, being prepared to address the weakness in your own case is a good plan before a mediator (or if you are having a third-party assist in settlement).
Effective Motion Strategies
Because insurance coverage often hinges on policy interpretation, most cases can be resolved, either in full or in significant part, through motion practice. In fact, in many cases, the questions before a court are questions of law that are rightfully in the hands of the court, not the eventual finder of fact. As such, motions for summary judgment should be anticipated and a party should be preparing from the outset of the litigation for seeking summary judgment. As for its interplay with settlement, the filing of a motion for summary judgment or the cross-filing of summary judgment motions provides an excellent time for settlement discussions. All sides are aware that the court could make a decision that ends the litigation for their side, so parties may be more willing to settle. Knowing this, it is important that any summary judgment motion be strong and well-researched. Similarly, a party should prepare a strong response to the other side’s filing. If one side does not find the other side’s summary judgment arguments strong, it will have little motivation to settle. In addition to motions for summary judgment, policyholders should utilize discovery to seek the claims and underwriting files of an insurance company. Not all courts view these files as relevant, but these files will often provide excellent evidence of the meaning of a policy and, because insurance company’s prefer that this information not be made public, pushing for this evidence through motion practice can be an effective weapon to persuade a stubborn insurance company to begin negotiating.
Arguing “Actual Controversy”
Actual Controversy is the notion that a case cannot be brought until there is an existing dispute between the parties. Often an “actual controversy” argument comes up when a policyholder files a declaratory judgment or breach of contract action before the insurance company has provided a final decision to coverage. The policyholder probably filed hoping to speed up the process of the insurance company’s investigation, but potentially delayed the process with a premature filing. On the other hand, while the defense of “actual controversy” can be helpful in dismissing a claim, an insurance company who makes this argument must be cognizant that an eventual denial of coverage without some intervening basis being supported will be perceived as gamesmanship. It is possible that a court could even view an insurance company who requests additional time to make a determination and gets a case dismissed for lacking “actual controversy” and then denies coverage for reasons already known to the insurance company has abused the process of the court or acted in bad faith. Policyholders should hold off on filing prior to denial of coverage, but, if the filing is done based upon extreme delays by the insurance company, the insurance company should be careful in relying in a technical argument knowing that it will be heading back to court in the near future.
Arguing “Ambiguity in Policy”
One of the more common arguments for policyholders is that the language in a policy is ambiguous. In many states, ambiguity is beneficial to the policyholder because, as the drafter of the policy, ambiguities will be interpreted against the insurance company (meaning interpreted in a way that finds coverage). In addition, most policies are incredibly complex and include bizarre terminology which makes them readily susceptible to an argument of ambiguity. As such, ambiguity is often a primary argument by policyholders. The challenge with this argument is that under most states, including Pennsylvania, arguing ambiguity opens the door to parol evidence. Parol evidence can take many forms, but the primary concern for many companies will be the depositions of various decision-makers trying to show what the intent of the parties was. In addition, the discovery costs will be greatly increased when ambiguity is argued, because of the seeking of parol evidence. Therefore, a policyholder should be careful in making an ambiguity claim and be mindful of what the likely evidence that will come out. If you have any questions or would like more information on insurance claims due to fire and smoke please contact Mr. Pillsbury at: firstname.lastname@example.org | 267.338.1321 Mr. Pillsbury is a principal and member of Offit Kurman’s Insurance Recovery Practice Group. He represents businesses in a wide range of litigation issues, including efforts to recover money owed to them from their insurers. His clients include state transportation agencies, hotels, restaurants, nursing homes, bio-tech firms, school district joint insurance funds, and individuals. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn.