Bad Faith Claims: Extra-Contractual Liability in Georgia

FEBRUARY 05, 2015 / LOCATION: ATLANTA, GA

Fred Valz will be co-presenting “Plaintiff and Defense Perspectives”, as part of a number of sessions in The Seminar Group’s  Bad Faith Claims: Extra-contractual Liability in Georgia seminar, to be held in Atlanta on Thursday, February 5th and Friday, February 6th, 2015.

The full two-day seminar is available live and on demand, and offers:

GA CLE: 11.7 Credits, including 1.0 Hour of Ethics and 1.0 Hour Professionalism
GA Insurance: 14.0 Hours
IRMI: 7.0 Hours of CRIS Recertification Credits

Event Details/Registration

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Preparing and Defending the Claim Representative’s Deposition

Deposition graphicFor many insurance claim representatives, the claims process and the litigation process go hand-in-hand. In fact, some representatives are only assigned claims that have evolved (or devolved, depending on your perspective) into litigation. In a bad faith case, the most crucial and compelling witness is often the claim representative who handled (or supervised the handling) of the underlying injury or damage claim. A claim representative may be familiar with the litigation process based on their claimshandling experience, but it is not until they are called to testify that they truly begin to appreciate the importance of their role in the company. At that point, claim representatives become the face of the insurance company, and often it is their performance in a deposition that determines the ultimate value and outcome of a case.

When the success of a bad faith case hinges on a claim representative’s deposition performance, there is no substitute for thorough preparation. At a minimum, the preparation session should include a lengthy discussion between the representative and counsel for the insurance company. Whether this discussion should be conducted in person or can be accomplished remotely will depend on many factors, including the claim representative’s degree of experience in the insurance field, the level of comfort with the deposition process, and who the opposing counsel is. If the representative is new to the job or fi eld, has rarely or never been deposed, or does not perform well under the pressure of the deposition hot-seat, then the discussion should be in-person and in a setting that mimics the actual deposition.

This will likely mean going through the claims notes and other documents in the claims fi le with a fine-tooth comb, pointing out areas where the opposing counsel is likely to take issue with the file handling. Efforts should be made to question the representative in a tone and to a degree that he or she is likely to be questioned in deposition. It is essential that the representative is prepared to handle questions that are factually inaccurate, suggestive of the answer that opposing counsel is seeking, or that are aggressive or accusatory without becoming flustered, defensive, or emotional.

In order to adequately prepare the adjuster, counsel for the insurance company should understand the theme of the plaintiff’s case and the significance of the particularrepresentative’s role. For example, is the plaintiff trying to prove that the insurer had decided to deny the claim before fully investigating the facts? This theme frequently appears in bad faith cases arising from denials of coverage arising out of possible fraud in the presentment of the claim or material misrepresentation in the insurance application. Is the plaintiff attempting to prove that the representative was poorly trained and, as a result, mishandled the claim? This is a central theme in cases involving missed time limit demands. Identifying the theme of the plaintiff’s case is essential to anticipating the questions that the representative will face and helping him or her understand how to best respond. A claim representative who is well prepared for deposition can atone for a multitude of sins that may have occurred in the course of the file handling. Poise and confidence in answering difficult questions may compensate (to some degree) for a missed entry in the claim notes or a day-late response to a time limit demand.

Join us at our Insurance Coverage and Bad Faith Seminar THIS THURSDAY, September 11, 2014, when we will discuss thoroughly how to prepare for deposition, how to avoid common pitfalls,and other issues related to the claim representative’s deposition.

This article was featured in the 2014 Summer Carlock, Copeland & Stair Quarterly newsletter.

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2014 Insurance Coverage and Bad Faith Seminar

Join us September 11, 2014 from 10 a.m. to 5:30 p.m. for a complimentary day of exploration into the complexities of Insurance Coverage and Bad Faith, and the beauty of the “Imaginary Worlds”, 28 fantastic living sculptures at the Atlanta Botanical Garden.

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Five hours of credit, two tracks, and eight sessions in a beautiful location.

Topics include: Preparing for Bad Faith Depositions; Emerging Bad Faith Traps and Trends; Fraud; the Tripartite Relationship and the Duty to Defend; Cyber and Coverage;and a deep dive into homeowners’ policies,CGL, trucking, and auto/UM.

Register today as space is limited.
Registration includes lunch, admission to the gardens, and a private reception.

 

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First Lattes, Then Legal Precedent: Waiver Of Attorney-Client Privilege In Bad Faith Cases

What happens in Washington may not stay in Washington.  Earlier this year, the Washington Supreme Court addressed the scope of the attorney-client privilege and work product for an insurer defending against a bad faith claim brought by its insured. See Cedell v. Farmers Ins. Co. of Washington, 176 Wash. 2d 686, 295 P.3d 239 (2013).  In that case, the insured filed suit against his homeowners insurer for bad faith when it refused to pay his fire loss claim for a year after the loss. The insurer retained coverage counsel to assist in its evaluation of the claim. During discovery, the insurer produced a heavily redacted copy of its claim file, including a privilege log that cited the attorney-client privilege and work product as bases for more than 200 redactions and withholdings. The insured filed a motion to compel, claiming that the attorney-client and work product privileges did not apply in bad faith litigation. The insurer moved for a protective order.

The trial court conducted an in cameralock and chainreview of the redacted documents and decided that the attorney-client privilege would never apply because “[i]n the context of a claim arising from a residential fire, the insurer owes the insured a heightened duty—a fiduciary duty, which by its nature is not, and should not be adversarial.” The trial court also found that the insured was entitled to the insurer’s work product and awarded sanctions and attorney’s fees against the insurer.

On appeal, the Washington Supreme Court held that when an insured brings a first-party bad faith claim against its insurer, attorney-client privilege and work product protection are presumptively not relevant to claims adjustment communications.  The court in Cedell outlined a process by which the insurer may overcome this presumption:

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Seminar: Handling Complex Auto Insurance Coverage Disputes, 10/24

Carlock Copeland Attorneys Charlie McDaniel and Erica Parsons will speak at this National Business Institute Seminar offering 6 CEU or CLE hours on multiple coverage, uninsured motorist offsets, medicare set-asides and more. The seminar is designed for professionals who want to develop further proficiency in handling complicated auto insurance coverage situations, this legal course examines select, sophisticated coverage issues and brings them to life with hypothetical situations and strategies for handling them. You’ll learn how to:

  • Accurately allocate loss in insurance claims involving multiple tortfeasors.
  • Stay up to date on the latest decisions regarding uninsured motorist offsets, stacking policies and “anti-stacking” policy language.
  • Find out how the new CMS rules change Medicare set-asides and affect your settlements.
  • Stay current on the latest case law and legislative decisions influencing auto insurance coverage.
  • Examine complex subrogation issues involving ERISA, Medicare, Medicaid, and workers’ compensation.
  • Discover which bad faith actions invoke trebling of stipulated covenant judgments.
  • Determine when working with a difficult client has crossed an ethical line.
  • Exchange tips and concerns with colleagues and our experienced faculty.

Charlie’s presentation, “Stacking Insurance Coverage and Uninsured Motorist Claims,” will cover:

  • Stacking of Commercial and Personal Policies
  • When is a Negligent Motorist Considered Underinsured?
  • Uninsured Motorist Offsets: When is the Insurer Entitled to Setoff?

Erica’s presentation, “Bad Faith Trends,” will cover:

  • When Does Denial of Coverage Become Bad Faith?
  • Stipulated Covenant Judgments
  • Treble Damages

Register today to attend!

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Discoverability of Insurers’ Claims Files in Bad Faith Cases

Suits alleging negligence or bad faith arising from an insurer’s failure to settle or defend a claim, invariably include requests for the insurer’s claims file related to the coverage determination.  Unfortunately, two recent Federal Court decisions add little clarity to determine the proper scope and extent to which these claim files are discoverable.

On December 3, 2012, the United States District Court for the Northern District of Georgia, in Camacho v. Nationwide Mut. Ins. Co., 287 F.R.D. 688 (N.D.Ga.,2012) ordered production of the claims file and permitted depositions of claims personnel, but precluded discovery of certain privileged communications and protected the mental impressions, conclusions, opinions, or legal theories of counsel and insurance representatives pursuant to the work product doctrine.  The United States District Court for the Southern District took a very different approach to the issue when it issued its order in Marshall v. Safeco Ins. Co. of Indiana, CV112-113 (S.D. Ga. 5/14/13 (order not available on Westlaw)) and barred production of the claim file.

In Camacho, plaintiffs filed suit against Nationwide alleging negligent and bad faith failure to settle their claims against its insured in their underlying state court action.  Id. at 691.  A dispute arose over discovery of the claim file.  Following submission of a “Joint Brief on Discovery,” filed by the parties, the court issued a 16-page order.

First, the court ruled that a joint defense/common interest doctrine precluded Nationwide from claiming any protection under the attorney-client privilege over its communications with the law firm retained to defend the insured in the underlying tort action, and unrelated to issues of coverage.  Second, the court ruled that communications between the insurer’s in-house claims counsel and defense counsel in the underlying lawsuit were not privileged and that documents in the insurer’s claims file originating after it rejected the settlement demand were subject to discovery.  However, the court held that the insurer’s own communications with its in-house claims counsel were protected by attorney-client privilege and that the mental impressions, conclusions, opinions, or legal theories of counsel and insurance representatives were protected by the work product doctrine.  Third, the court granted plaintiff’s request to depose Nationwide’s insurance representatives regarding facts of which Nationwide had knowledge and considered in its investigation and handling of the Camacho wrongful death claim.

Lastly, Nationwide was permitted to re-depose plaintiffs “for the limited purpose of discovering whether plaintiffs possess[ed] facts, independent from their communications with their attorneys, surrounding the terms of the settlement demand, i.e. whether plaintiffs had any knowledge of the basis underlying the 10 day settlement deadline and whether the demand was made on behalf of the estate or only on behalf of . . . the survivor.”  Id. at 698.

A far different result occurred in Marshall v. Safeco Ins. Co. of Indiana, where the insured brought a first-party claim for bad faith when his insurer denied coverage under his homeowner’s policy following a fire at his home.  The insurer originally suspected arson, though an investigation of the fire produced no evidence to support the suspicion.  A few days later, the insurer retained a special investigator to investigate alleged material misrepresentations made by the insured.  More than a year after the loss and after the insured eventually filed suit, the insurer denied the claim on the grounds that the insured failed to disclose prior claims for minor roof damage and water intrusion at the time he applied for coverage.

Following a motion to compel production of the claim file, the court ruled that “the issue of ‘bad faith’ was one properly addressed at trial and not at the time of the insurance company’s denial of a claim or during its investigation of the claim, such that an insured’s allegations of bad faith did not compel production of the insurance company’s claim investigation file.” Accordingly, the court denied plaintiff’s motion and even awarded attorney’s fees to the defense.

As these cases illustrate, the issue of how much and what portions of a claim file are discoverable may turn on the nature of the claim (i.e. first- or third-party), the posture of the coverage issue, or perhaps just the luck of the draw with respect to the judge or court.

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Federal Court Requires Heightened Degree Of Specificity In Denial Letters

Last year, the Georgia courts warned insurers that they would not be permitted to rely on coverage defenses that were not specifically outlined in the reservation of rights letter. Hoover v. Maxum Indemnity Co., 291 Ga. 402 (2012).  The rationale is that an insured should be fairly informed of its rights when the insurer is still in control of the defense of a case.  Georgia courts have not spoken directly to the specificity required in a denial of coverage.  Indeed, such stringent requirements would seem unnecessary; if the insurer is denying coverage outright, rather than reserving its rights, the insured is responsible for his own defense once coverage is denied.

However, a recent opinion issued by the United States District Court for the Northern District of Georgia strongly suggests that the same rules of specificity apply to coverage denials.  Moon v. Cincinnati Ins. Co., 2013 WL 300872 (N.D.Ga. 2013).  In Moon, lessees of a residence brought a bad faith action in state court against the lessor’s liability insurer because the insurer refused to defend the lessees in an underlying tort lawsuit arising out of a child’s drowning in a swimming pool at the residence while the lessee was babysitting. The insurer initially issued a bi-lateral reservation of rights (signed by the lessees) but later denied coverage, stating as the only basis for the denial the fact that the lessees were not insureds under the lessor’s policy.  The bad faith action was removed to federal court.

In considering the parties’ cross-motions for summary judgment, the court looked at the issue of whether the insurer was confined to the coverage defenses specifically outlined in its denial letter or whether it could avail itself of other defenses.  Relying on the Hoover analysis, the court in Moon ruled that the insurer

chose to deny coverage outright as opposed to seeking a declaratory judgment action after filing its reservation of rights. A reservation of rights is only available to an insurer who undertakes a defense while questions remain about the validity of coverage. Thus, the reservation of rights was extinguished when [the insurer] denied coverage because a reservation does not exist so that an insurer who has denied coverage may continue to investigate to come up with additional reasons on which the denial could be based.

Id.  The court then ruled that that the insurer had failed to “properly reserve its rights [to assert additional defenses] when it denied [the insured’s] claims on [specific grounds] and refused to undertake a defense” and was thus constrained to the coverage defenses specifically asserted in the denial letter.

At present, it does not appear that this issue is pending before any state trial or appellate courts – leavingMoon as the only legal authority on point.  While federal trial court opinions are not binding precedent on the state courts of Georgia, they may be considered persuasive authority and insurers, as well as coverage counsel, should keep a weathered eye on the horizon for new developments along this line.

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Important Things to Know About Declaratory Judgment Actions in Georgia

Declaratory judgment actions are important tools for insurers.  A declaratory judgment action allows an insurer to obtain a ruling on whether a loss is covered under its policy without subjecting itself to a bad faith suit for failure to defend or failure to indemnify.  There are several important things to know about declaratory judgment actions in Georgia.     

1.  If a claim has been denied, the insurer cannot file a declaratory judgment action in a Georgia state court.

The Georgia courts have concluded that once an insurer denies coverage for the claim, no “justiciable controversy” exists.  Thus, the courts have held that the Georgia Declaratory Judgment Act bars a declaratory judgment action if the insurer has already denied coverage. See Adams v. Atlanta Cas. Co., 225 Ga.App. 482, 484 S.E.2d 302 (1997)

Georgia’s federal courts, however, have construed the federal Declaratory Judgment Act more broadly, and have generally found that an insurer may bring a federal declaratory judgment action even if it has already denied coverage to the insured. See, Am. Ins. Co. v. Evercare, 699 F.Supp.2d 1355 (N.D. Ga. 2010);Liberty Mut. Ins. Fire Ins. Co. v. Coker, No. 3:11-CV-66, 2011 WL 5553033 (M.D. Ga. Nov. 15, 2011)

2.  The insurer should seek to stay underlying litigation after filing a declaratory judgment action.

In Richmond v. Georgia Farm Bureau Mutual Insurance Co., 140 Ga.App. 215, 231 S.E.2d 245 (1976), the Georgia Court of Appeals outlined the proper course of action for an insurer that institutes a declaratory judgment action.  Under Richmond, the insurer should seek to stay any pending underlying litigation against the insured until the coverage issues have been decided.  The motion to stay the underlying case serves several valuable functions, including preventing counsel hired to defend the insured from continuing to accrue fees and preventing the underlying litigation from going to trial before the declaratory judgment action is ready for disposition.

3.  Discovery disputes are likely to arise.

Discovery disputes often arise in declaratory judgment actions.  These disputes generally occur when an insured seeks production of the insurer’s claims notes made in the course of its investigation of either a first-party or third-party claim.  The insurer may be able to successfully argue that the claims notes are irrelevant where the issue is one of interpretation of the policy language.  The insurer may also be able to successfully argue that the claims notes are protected by the attorney-client or work product privileges.  However, the insurer should be aware that it may have to produce certain portions of its claims notes, and adjusters and other employees who make entries in the claims notes should be cognizant of that fact once a coverage question arises.

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Seminar: Insurance Coverage & Bad Faith Seminar for Claims Professionals

2013InsCovEventwebWe are pleased to announce Carlock, Copeland & Stair we will be hosting an Insurance Coverage & Bad Faith Seminar for claims professionals at the Atlanta Botanical Garden on September 19, 2013.  Topics will include:  insurance coverage and bad faith litigation;  coverage in construction defect claims; first party claims; excess carrier involvement in excess exposure cases; and the ethics of using social media in claims investigations.

Not only will the seminar include five hours of continuing education, but you are also invited to attend a private reception, enjoy full access to the gardens, discover a special exhibit: “Imaginary Worlds – Plants Larger Than Life”, and indulge in an Atlanta Botanical Garden signature event, Cocktails in the Garden.

Space is limited. Register now.

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Summary Judgment Denied to Insurer on Bad Faith Claim

In Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp., the Georgia Court of Appeals affirmed the denial of the insurer’s motion for summary judgment on the issue of bad faith under O.C.G.A. § 33-4-6.

The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”). Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP offered to its customer.

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  As a result of Warranty Specialists actions, AGCO paid the claims and then sued Warranty Specialists, seeking relief pursuant to O.C.G.A. § 33-4-6.  The Georgia Court of Appeals affirmed the trial court’s denial of summary judgment to Cassidy Davis on the bad faith claim arising under O.C.G.A. § 33-4-6.

In its motion, Cassidy Davis argued that AGCO was legally barred from recovering for bad faith because AGCO had not made a demand for payment pursuant to O.C.G.A. § 33-4-6 and thus failed to trigger any duty for Cassidy Davis.  Cassidy Davis relied upon the language of the master liability policy that the insurer ‘agrees to indemnify [AGCO] for all sums which [AGCO] shall be held legally liable to pay in respect to the contractual liability’.  Cassidy Davis argued that the phrase, “legally liable,” meant a judgment must be obtained.  And, since no judgment was obtained at the time demand for payment was made – no payment was due and Cassidy Davis could not be in bad faith – as a matter of law.

The Court of Appeals, however, found that ‘indemnify’ “has been defined as ‘to reimburse another for a loss suffered because of a third party’s or one’s own act or default.’”  The court also noted that indemnify has also been defined as “’a duty to make good a loss, damage or liability incurred by another.’”  The Court rejected the argument that a judgment was a condition precedent.

As a judgment against AGCO was not required before a demand for payment could be made, AGCO’s demand for reimbursement satisfied the provisions of O.C.G.A. § 33-4-6.  According to the Court of Appeals, the term ‘indemnify,’ as used in the contract of insurance “is broad enough to include any liability, not just liability resulting from a judgment.”  Thus, Cassidy Davis was not entitled to summary judgment on the bad faith claim.

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