Capriccio

Have you found the ballet blog yet …. how many hours could you waste on that one?  And what’s there about YOU?

Start googling!!!!!!!!!!!!!!!!!!!!!!!!!

Or, hey, why not start restructuring so people get paid a salary and actually do their job?  instead of jerking innocent people around and riding them for your bonuses?

So, what’s your bonus this year?  Illegitimus non carborundum est.

Attention Travelers: Hows that RSS Working for you?

Hang up calls?  Really.  More fun than doing your job?  Don’t call me again.  That’s harrassment. 

Agents and Bonuses — Conflict and Travelers Involved

 

For me the question becomes that if you accept the premise that La Bayadere was an opium dream do you costume differently AND is a 21st century opium dream fundamentally different from an 18th century opium dream?

INTERVIEW-Insurers’ payments to brokers a ‘conflict’

By Ed Leefeldt

11 June 2007

Reuters News

NEW YORK, June 11 (Reuters) – U.S. insurers who pay brokers to send them business – and brokers who take the money – still have a “potential conflict of interest,” regardless of whether the sums are disclosed, New York state’s top insurance regulator said on Monday.

New York Insurance Commissioner Eric Dinallo said in an interview that recent efforts by some insurers to disclose how much they paid brokers made the payments more obvious, but “may still create an incentive for steering.”

Insurance brokers are supposed to help business clients obtain the best insurance at the lowest price. For years insurance companies paid “contingent commissions” to brokers who steered business their way.

Former New York State Attorney General Eliot Spitzer — now the state’s Governor — forced the three largest insurance brokers to stop taking contingent commissions and many big insurers from offering them.

But this year property insurers Chubb Corp. and Travelers Companies Inc. introduced “supplemental commissions,” which reward brokers for the volume of business they bring.

The commissions would be based on past rather than current performance. Insurers say this is legal because the business client is now aware of the payments.

But Dinallo, who worked as a prosecutor under Spitzer, said, “This solves the problem of transparency, but not the other core problem, which is the conflict of interest. There is still a potentially strong incentive to steer business to insurers who pay commissions.”

To date, Willis Group Limited , the third-largest broker, is the only major broker that has said it will not take the money. Marsh & McLennan Cos. and Aon Corp. , the world’s biggest brokers, said they are considering new plans.

Dinallo said his department is still studying the issue. Since New York state serves as headquarters for many of the world’s largest insurers and brokers, including American International Group Inc. , any regulation by his department would have national implications.

Spitzer named Dinallo to head a panel of prominent financial and insurance industry figures in May that will overhaul the state’s financial regulations by June 30, 2008.

Contingent commissions were one reason the three brokers settled Spitzer’s charges in 2005, each paying a hefty fine.

Marsh paid $850 million to settle with Spitzer, who said employees of the largest broker by market capitalization had conspired with insurers to rig bids to make sure certain insurers won big contracts.

Dinallo is not alone in questioning the supplemental commissions.

“We think this new model is the same as the previous model,” said Terry Fleming, representing the 10,000 members of the Risk And Insurance Management Society, who place insurance for most of the Fortune 500 companies.

“We are disappointed to learn that some brokers are apparently reconsidering their pledge to refuse to accept these fees.”

Follow the Money/Bonus

 

President gets a bonus, executives get a bonus, supervisor gets a bonus, claims adjuster gets a bonus, the agent gets a bonus – all incentives to exploit the vicitim.  And they did.

Reps. John D. Dingell (D-MI), Chairman of the Committee, and Bart Stupak (D-MI), Chairman of the Oversight and Investigations Subcommittee, wrote letters to two of the top long-term care insurance carriers, Conseco, Inc. and Penn Treaty American Corp., to request documents relating to their claims handling policies and practices.

NY Times Article that Precipitated Congressional Investigation

National Desk; SECTA

Aged, Frail and Denied Care by Their Insurers

By CHARLES DUHIGG

26 March 2007 The New York Times

CONRAD, Mont. — Mary Rose Derks was a 65-year-old widow in 1990, when she began preparing for the day she could no longer care for herself. Every month, out of her grocery fund, she scrimped together about $100 for an insurance policy that promised to pay eventually for a room in an assisted living home.

On a May afternoon in 2002, after bouts of hypertension and diabetes had hospitalized her dozens of times, Mrs. Derks reluctantly agreed that it was time. She shed a few tears, watched her family pack her favorite blankets and rode to Beehive Homes, five blocks from her daughter’s farm equipment dealership.

At least, Mrs. Derks said at the time, she would not be a financial burden on her family.

But when she filed a claim with her insurer, Conseco, it said she had waited too long. Then it said Beehive Homes was not an approved facility, despite its state license. Eventually, Conseco argued that Mrs. Derks was not sufficiently infirm, despite her early-stage dementia and the 37 pills she takes each day.

After more than four years, Mrs. Derks, now 81, has yet to receive a penny from Conseco, while her family has paid about $70,000. Her daughter has sent Conseco dozens of bulky envelopes and spent hours on the phone. Each time the answer is the same: Denied.

Tens of thousands of elderly Americans have received life-prolonging care as a result of their long-term-care policies. With more than eight million customers, such insurance is one of the many products that companies are pitching to older Americans reaching retirement.

Yet thousands of policyholders say they have received only excuses about why insurers will not pay. Interviews by The New York Times and confidential depositions indicate that some long-term-care insurers have developed procedures that make it difficult — if not impossible — for policyholders to get paid. A review of more than 400 of the thousands of grievances and lawsuits filed in recent years shows elderly policyholders confronting unnecessary delays and overwhelming bureaucracies. In California alone, nearly one in every four long-term-care claims was denied in 2005, according to the state.

”The bottom line is that insurance companies make money when they don’t pay claims,” said Mary Beth Senkewicz, who resigned last year as a senior executive at the National Association of Insurance Commissioners. ”They’ll do anything to avoid paying, because if they wait long enough, they know the policyholders will die.”

In 2003, a subsidiary of Conseco, Bankers Life and Casualty, sent an 85-year-old woman suffering from dementia the wrong form to fill out, according to a lawsuit, then denied her claim because of improper paperwork. Last year, according to another pending suit, the insurer Penn Treaty American decided that a 92-year-old man had so improved that he should leave his nursing home despite his forgetfulness, anxiety and doctor’s orders to seek continued care. Another suit contended that a company owned by the John Hancock Insurance Company had tried to rescind the coverage of a 72-year-old man when he was diagnosed with Alzheimer’s disease four years after buying the policy.

In court filings, all three companies said the denials had been proper. They declined further comment on the cases, though Bankers Life and John Hancock eventually settled for unspecified amounts.

In general, insurers say criticisms of claims-handling are unfair because most policyholders are paid promptly and some denials are necessary to root out fraud.

In a statement, Conseco said the company ”is committed to the highest standards for ethics, fairness and accountability, and strives to pay all claims in accordance with policy contracts.” Penn Treaty said in a statement, ”We strive to treat all policyholders fairly, and to deliver the best, most efficient evaluation of their claim as possible.”

But policyholders have lodged thousands of complaints against the major long-term-care insurers. A disproportionate number have focused on Conseco, its affiliate, Bankers Life, and Penn Treaty. In 2005, Conseco received more than one complaint regarding long-term-care insurance for every 383 such policyholders, according to data from the insurance commissioners’ association. Penn Treaty received one complaint for every 1,207 long-term-care policyholders. (The complaints touch on a variety of topics, including claims handling, price increases and advertising methods.)

By comparison, Genworth Financial, the largest long-term-care insurer, received only one complaint for every 12,434 policies.

Conseco is among the nation’s largest insurers, collecting premiums worth more than $4.2 billion in 2006, of which long-term-care policies contributed 21 percent. Penn Treaty focuses primarily on long-term-care products and collected premiums of about $320 million in 2004, the last year the company filed an audited annual report.

In depositions and interviews, current and former employees at Conseco, Bankers Life and Penn Treaty described business practices that denied or delayed policyholders’ claims for seemingly trivial reasons. Employees said they had been prohibited from making phone calls to policyholders and that claims had been abandoned without informing policyholders. Such tactics, advocates for the elderly say, are becoming common throughout the industry.

”These companies have essentially turned their bureaucracies into profit centers,” said Glenn R. Kantor, a California lawyer who has represented policyholders.

Yet these concerns have been ignored by state regulators, advocates say, and have gone unnoticed by federal lawmakers who recently passed incentives intended to promote purchases of long-term-care policies, in the hopes of forestalling a Medicare funding crisis.

Conseco and Bankers Life ”made it so hard to make a claim that people either died or gave up,” said Betty J. Hobel, a former Bankers Life agent in Cedar Rapids, Iowa.

”When someone is 70 or 80 years old,” she said, ”how many times are they going to try before they just give up?”

A Race to Sell Policies

When Mrs. Derks bought her long-term-care policy from a door-to-door salesman in 1990, she was unaware that she represented the insurance industry’s newest gold mine.

Her husband had died eight years earlier of a stroke, leaving her to run a barley farm in northern Montana, where she lived with her three children and her aging mother. As she watched her own parent decline, Mrs. Derks became preoccupied with sparing her children the expense of her final years.

”She was terrified that she would bankrupt us or get sent to a public nursing home,” said Ken E. Wheeler, her son-in-law.

At the time, long-term-care policies, which can cover the costs of assisted-living facilities, nursing homes and at-home care, were becoming one of the insurance industry’s fastest-growing products. Companies like Conseco, Bankers Life and Penn Treaty were aggressively signing up clients who were not in the best health at rates far below their competitors’ in order to win more business, former agents said. From 1991 to 1999, long-term-care sales helped drive total revenue gains of roughly 500 percent each at Penn Treaty and Conseco, including its affiliate Bankers Life.

Cracks in the business, however, soon started to appear. Insurance executives began warning they had underestimated how long policyholders would live after entering nursing homes. The costs of treating Alzheimer’s, Parkinson’s and diabetes ballooned.

As insurers began realizing their miscalculations, they persuaded insurance commissioners in California, Pennsylvania, Florida and other states to approve price increases of as much as 40 percent a year.

By 2002, Conseco’s long-term-care payouts exceeded revenue. Those and other disappointing results prompted the company to file for bankruptcy, from which it emerged 10 months later.

That same year, Mrs. Derks entered Beehive Homes, a cheery, 12-bed center one block from the Prairie View elementary school. In the previous four years, she had been hospitalized more than two dozen times. She had once lain unconscious in her living room for a day and a half. Her physician ordered her into an assisted-living center.

Initially, Conseco told Mrs. Derks’s daughter, Jackie Wheeler, that her claim would go through smoothly, Mrs. Wheeler said. The family began paying Beehive Homes’s $1,900 monthly fee.

But three months after submitting her claim, Mrs. Derks received a letter from Conseco saying she had waited too long, and her earliest costs would not be reimbursed. Two months later, she received another letter denying her entire claim because she had not submitted proof of illness.

Yet a copy of Mrs. Derks’s policy, sent to the Wheelers by Conseco in 2004 and reviewed by The Times, mentions no requirement for proof of illness. The policy requires only that the confinement be ordered by a physician, and it allows for a notice of claim to be sent ”as soon as reasonably possible.”

Mrs. Derks’s daughter called Conseco and explained that her mother could not recall the date or people’s names and had started multiple fires by forgetting to turn off the stove. She sent letters stating that her mother needed assistance to dress, eat, go to the bathroom and inject insulin.

”This is medically necessary!!!” reads a form signed by Mrs. Derks’s physician in 2004. ”This has been filled out three times! This person needs assistance!”

Seven months later, Conseco sent another letter, this time denying Mrs. Derks’s claim because her policy ”requires a staffed registered nurse 24 hours per day.” Her policy does not mention such a requirement.

Conseco also sent letters denying Mrs. Derks’s claim because her policy had an ”assisted living facility rider,” and because Mrs. Derks ”does not have an assisted living facility rider.” In all, the family received more than a dozen letters from the company. Many contradict one another, and frequently cite requirements that are nowhere mentioned in Mrs. Derks’s policy.

”There was always a new step in the runaround,” Mrs. Wheeler said. ”It felt like everything was designed to make me just go away.”

Over two years, Mrs. Wheeler estimated, she called the company about 100 times. Twice a month, she sent envelopes stuffed with medical records. Some afternoons, she spent hours making calls. After one conversation, Mrs. Wheeler slammed down the phone and started to cry. Then she drove to Beehive Homes, where her mother was surrounded by faded photos of her childhood and boxes of adult diapers.

”I wouldn’t tell her about the problems we were having with Conseco, because I knew it would cause her so much worry,” Mrs. Wheeler said.

Eventually, the Wheelers sold part of their John Deere dealership to raise money to pay for her mother’s care. In October 2006, they sued.

Conseco, asked by a reporter about the company’s handling of the Derks claim, declined to answer, citing the pending litigation. In court documents, the company denied Mrs. Derks’s allegations without specifying why her claim was denied.

”We did everything they asked,” Mrs. Wheeler said. ”And this company just treats us like dirt.”

Tales of Bureaucracy

Inside the large Conseco headquarters in Carmel, Ind., scores of employees receive the flood of documents and calls that arrive each day. At times, according to depositions and interviews, that deluge became so overwhelming that documents were lost, calls went unreturned and mistakes occurred.

Some employees describe vast mailrooms where documents appear and disappear. One call-center representative said he was afforded an average of only four minutes to handle each policyholder’s call, no matter how complicated the questions. Employees said they were instructed not to say when the company was behind in processing paperwork, even when the backlog extended to 45 days. Workers were prohibited from contacting each other by phone, although such calls might have quickly resolved obstacles, according to depositions.

Conseco, asked in detail about the company’s policies, declined to respond.

Bureaucratic obstacles were pervasive, according to interviews with 10 former Conseco employees and depositions of more than a dozen others. Robert W. Ragle, a former Bankers Life branch manager, once contacted the claims department on behalf of a client, and ”they just laughed us off the phone,” he said. ”Their mentality is to keep every dollar they can.” Mr. Ragle was dismissed by Bankers Life in 2002. He sued for wrongful termination and settled out of court.

In lawsuits, complaints and interviews, policyholders contend that Conseco, Bankers Life or Penn Treaty denied claims because policyholders failed to submit unimportant paperwork; because daily nursing notes did not detail minute procedures; because policyholders filled out the wrong forms after receiving them from the insurance companies; and because facilities were deemed inappropriate even though they were licensed by state regulators.

In depositions conducted on behalf of angry policyholders, Conseco employees described bureaucratic obstacles that prevented payment of claims. Those depositions were sealed in settlement agreements but were obtained by The Times.

In a 2006 deposition, a Bankers Life and Conseco claims adjuster, Teresa Carbonel, testified that she denied claims because of missing records but was prohibited from calling nursing homes or physicians to request the documents. She also testified that when a claim was denied, she was forbidden to phone a policyholder, but instead used a time-consuming mailing system.

Ms. Carbonel’s testimony, recorded during lawsuit on behalf of a 94-year-old policyholder, Rhodes K. Scherer, also disclosed that if policyholders did not mail requested documents within 21 days, Conseco might abandon their claim, sometimes without informing them.

In the case of Mr. Scherer, who was institutionalized after a bathroom fall, it was difficult to obtain a response, Ms. Carbonel said, because the company’s requests were mailed to his home address, rather than the nursing center where the company had been notified that he had moved. Ms. Carbonel, who is no longer with the company, did not return calls. Conseco declined to comment on her testimony.

In another deposition, Conseco’s then-senior manager for long-term- care claims, Jose S. Torres, testified that Conseco would sometimes withhold payments until it received documents not required by customers’ policies. In Mr. Scherer’s case, Mr. Torres said, the company refused to pay his nursing home costs unless he sent copies of the home’s license, payment invoices and medical records, even though those documents had no bearing on approving his claim.

Mr. Scherer’s claim ”was handled not in the best way, but it was handled according to the processes and procedures placed at the time,” Mr. Torres testified. ”Mistakes are going to be made, you know.”

Other executives testified that when Conseco appeared to have lost important documents in Mr. Scherer’s claim, no investigation was initiated. Shawn Michael Schechter, a Conseco claims supervisor who left the company in 2005 on positive terms, according to the deposition, testified that the handling of Mr. Scherer’s claim violated the principle of good faith, which requires insurance companies to treat customers fairly.

”The claim adjuster could have made that very easy and not have put the burden back onto the policyholder,” he testified.

Mr. Torres did not return calls. Mr. Schechter declined to answer questions.

Mr. Scherer died in 2004 without receiving benefits from Conseco. His estate settled with the company in February for an undisclosed amount, according to a lawyer representing the estate.

Conseco declined to discuss its complaint history or individual cases, citing confidentiality agreements. In its statement, the company said that in 2006, Conseco paid nearly $2.3 billion on 9.8 million claims in all types of insurance sold by the company.

The company added: ”Conseco, through training, education and process improvements in all of its insurance companies, is continuously focused on enhancing service and resolving any problems expeditiously. The Conseco Insurance Group’s overall insurance department complaints decreased 20 percent from 2005 to 2006.”

Depositions of executives at Penn Treaty also point to questionable practices. In a 2005 lawsuit, a Penn Treaty senior vice president, Stephen Robert LaPierre, testified that the company rejected one claim without informing the policyholder why, asked for information that was not required to process a claim, gave incomplete information about a claim’s status and said the company was delaying payment because of an investigation while failing to take steps that might have resolved the inquiry.

Mr. LaPierre declined to discuss his testimony. Penn Treaty settled the lawsuit by paying the policyholder an unspecified amount, the policyholder’s lawyer said.

Penn Treaty said in a statement that evaluating a company by measuring its complaints was flawed, and that since 2003, the company has denied an average of less than 1.7 percent of the up to 8,000 claims it received every year because of reasons related to policyholder eligibility. ”From time to time, Penn Treaty is compelled to investigate fraud or questionable billing activities,” the company added.

To answer the previous question my position is yes, the reality of the menace in the 21st century is enhanced.  The romanticism remains the same.   Compare Nijinsky’s prowess with someone like Faroukh Rusimatov and the answer become unequivocably, yes.

Few Regulatory Inquiries

Few of the cases or complaints filed against Conseco, Bankers Life, Penn Treaty or other insurers have received much attention, in part because many lawsuits filed against long-term-care insurers have been settled with the requirement that depositions, documents and settlement terms be kept confidential. Frequently, say policyholders’ lawyers, the companies have been willing to pay millions of dollars in exchange for confidentiality.

Furthermore, despite the complaints against long-term-care insurers, few states have conducted meaningful investigations.

Ron Gallagher, a deputy commissioner with the Pennsylvania Insurance Department, said, ”I don’t know that we have a real problem with improper claim denials.”

Yet data from the National Association of Insurance Commissioners show that from 2003 to 2005, Pennsylvania received more complaints regarding Conseco, Bankers Life and Penn Treaty than any other state. Mr. Gallagher said he might begin a new review of those companies.

Other states with large numbers of long-term-care complaints, including California, Missouri, Maryland, Indiana and Washington have not begun investigations, or have reviewed only small numbers of policies.

As a result, other seniors may end up like Mrs. Derks.

While she was waiting for her lawsuit to proceed, Medicaid began contributing to Ms. Derks’s care. Taxpayers now pay Beehive Homes about $32 daily for her care.

”Long-term-care insurance is supposed to result in less pressure on Medicaid, not more,” said Ms. Senkewicz, the former executive at the insurance commissioners’ association.

For Mrs. Derks’s family, things have already broken down.

”How many other people are out there who don’t have a family to fight for them and have just given up?” asked Jackie Wheeler. ”This company should be ashamed.”

Golden Opportunities

Articles in this series are examining how businesses and investors seek to profit from the soaring number of older Americans, in ways helpful and harmful.

Photos: Conseco denied long-term-care payments for Mary Derks, who has early-stage dementia, hypertension and diabetes. She bought the policy to avoid burdening her family, but it sold part of its farm-equipment dealership to pay for her care. (Photo by Anne Sherwood for The New York Times)(pg. A16); Jackie Wheeler with her mother, Mary Derks, who bought a long-term-care policy from Conseco, which denied coverage. (Photo by Anne Sherwood for The New York Times)(pg. A1)

Chart: ”One Woman’s Experience”

Mary Rose Derks has paid premiums on a long-term-care policy for 17 years but has yet to receive reimbursement for any care at her assisted living home.

Mrs. Derks paid Conseco over 12 years, expecting the insurer to reimburse the cost of her care when the time came.

After moving into assisted living, Conseco denied her claims; others have paid for her care.

Mrs. Derks’s annual care has been paid for by:

Chart shows who Mrs. Derks’s annual care has been paid for by:

Mrs. Derks and her family

Insurance Payments To Conseco

Assisted Living At Beehive Homes

Medicaid

Assisted Living At Beehive Homes

Mrs. Derks’s claims .

NOV. 2003 — Mrs. Derks’s daughter submits a claim to Conseco on behalf of her mother. She continues to do so about twice monthly.

MAY 2004 — Mrs. Derks’s daughter submits a claim with a doctor’s note saying, ”This has been filled out three times! This person needs assistance!”

OCT. 2006 — Mrs. Derks sues Conseco. The case is still pending.

. . . and Conseco’s denials

FEB. 2004 — Conseco denies the claims, saying the Derks did not submit ”proof of loss” in time. This requirement is not mandated by the policy.

APRIL, AUG. AND NOV. 2004 — Conseco denies the claims saying Beehive Homes does not meet certain requirements in the policy. These requirements are not in the policy.

DEC. 2004 AND JUNE 2005 — Conseco denies the claims, contradicting a previous denial.

(Sources by court filings; Jackie Wheeler, daughter of Mrs. Derks)

Chart: ”Industry Snapshot”

Of the largest long-term care insurers, Conseco Senior Health, Bankers Life and Casualty, and Penn Treaty American have the highest rate of complaints.

Long-term care insurers: Genworth Life Insurance

Cumulative premiums received (in billions, through 2005): $10.3

Complaints filed as a share of policies* (2005): 0.01%

Long-term care insurers: John Hancock Life Insurance

Cumulative premiums received (in billions, through 2005): 6.8

Complaints filed as a share of policies* (2005): 0.01

Long-term care insurers: Conseco Senior Health+

Cumulative premiums received (in billions, through 2005): 6.6

Complaints filed as a share of policies* (2005): 0.29

Long-term care insurers: Continental Casualty

Cumulative premiums received (in billions, through 2005): 6.5

Complaints filed as a share of policies* (2005): 0.02

Long-term care insurers: Bankers Life and Casualty+

Cumulative premiums received (in billions, through 2005): 6.2

Complaints filed as a share of policies* (2005): 0.05

Long-term care insurers: Metropolitan Life Insurance

Cumulative premiums received (in billions, through 2005): 4.2

Complaints filed as a share of policies* (2005): 0.01

Long-term care insurers: Penn Treaty American

Cumulative premiums received (in billions, through 2005): 3.6

Complaints filed as a share of policies* (2005): 0.09

Long-term care insurers: Unum Life Insurance

Cumulative premiums received (in billions, through 2005): 3.2

Complaints filed as a share of policies* (2005): 0.00

Long-term care insurers: MetLife Insurance

Cumulative premiums received (in billions, through 2005): 3.2

Complaints filed as a share of policies* (2005): 0.01

Long-term care insurers: Life Investors Insurance

Cumulative premiums received (in billions, through 2005): 2.3

Complaints filed as a share of policies* 2005: 0.03

*Experts estimate that most insurance consumers never file formal complaints. Not all complaints regard claims handling.

+Bankers Life and Casualty is owned by Conseco.

(Source by National Association of Insurance Commissioners)(pg. A16)

GOLDEN OPPORTUNITIES: Long-Term Trouble

Congressional Committee Requests: the job performance evaluation and bonus criteria for claims processors and customer service representatives.

 

Jay Fishman, the chief executive of Travelers, which is one of the biggest commercial insurers in the United States, got a $6.5 million bonus last year. In 2005, he got $3.75 million from an executive bonus pool that would have been smaller if the board’s compensation committee had counted “certain 2005 natural disasters,” according to its proxy. Hurricanes Katrina, Rita and Wilma contributed to $2.19 billion in catastrophe claims that year.

Travelers insurance Chairman and Chief Executive Jay S. Fishman received total compensation valued at $15.7 million last year, a period when calm weather fueled big profits for one of the nation’s largest commercial insurers, the company said in an Securties and Exchange Commission filing Friday.

Fishman’s pay included a $1 million base salary and $6.5 million in non-equity incentive plan compensation. The Travelers Cos. Inc. also granted him restricted shares and options with an estimated value of $7.7 million, according to the company’s proxy filed on Friday.

In awarding executive bonuses, the Travelers compensation committee decided that he and other executives had “substantial success” in meeting the company’s goals for the year.

The Associated Press calculates total compensation including salary, bonus, incentives, perks, and the estimated value of stock options and awards granted during the year. It also includes above-market returns on deferred compensation, although Travelers said Fishman received no such compensation.

Fishman’s pay included $267,639 for personal use of the company plane, which Travelers said it requires for security reasons. The company said that beginning this year Fishman, at his request, has begun reimbursing the company for personal travel on the company plane.

St. Paul-based Travelers also paid $164,055 for use of a company car and driver for Fishman.

The proxy also disclosed that Fishman owns or has the right to buy about 3 million shares of the company’s stock. Those would be worth $155.9 million based on Friday’s closing price of $51.68.

Link Here Committee Letter - Succinct Discovery Requests Here

UPDATE 2-US panel probes Conseco, Penn long-term care policies

24 May 2007 Reuters News

WASHINGTON (Reuters) – A congressional committee Thursday launched an investigation into allegations of deceptive business practices by Conseco Inc. and Penn Treaty American Corp., two major providers of long-term care insurance.

The U.S. House of Representatives Energy and Commerce Committee said data from state insurance regulators indicate an “unusually high” number of policyholders have complained of improper denials of valid claims.

The panel asked both companies to turn over documents about state administrative proceedings and court lawsuits about denial of claims for payment for long-term care services.

The committee also asked Conseco and Penn Treaty to submit the job performance evaluation and bonus criteria for claims processors and customer service representatives. All information is due in three weeks.

Penn Treaty said it would cooperate with the inquiry, and noted that it approved more than 95 percent of new claims submissions during the past three years. “The company has built its reputation as an industry leader with policyholders and agents due to its strong record of approving and paying claims expediently and fairly,” it said in a statement.

Conseco said it would respond promptly to the committee’s request. “We agree that every long-term care policyholder deserves assurance that their claim will be handled timely and in accordance with the terms of their contract,” a Conseco spokesman said.

“People who invest in long-term care policies and pay their premiums faithfully should be able to rely on those policies when the need arises,” Rep. John Dingell, a Michigan Democrat who heads the panel, said in a statement.

“As Congress considers ways to preserve the solvency of the Medicare Trust Fund and the long-term viability of the Medicaid program, we must ensure that people get what they pay for when they purchase long-term care coverage and are not forced to use publicly-financed programs,” he added.

Elderly Americans whose claims for long-term care are denied by their insurance carriers must exhaust their assets to pay for nursing home care until they are eligible for the U.S. government’s Medicaid coverage.

Conseco collected more than $4.2 billion in 2006 premiums and about one-fourth of that was for long-term care policies, the committee said. Penn Treaty collected more than $300 million in annual long-term care insurance premium revenues, it said.

INSURANCE-CONGRESS/ (UPDATE 2)|LANGEN|RNA|FUN

Document LBA0000020070524e35o001r6

Travelers Triples Profits

Property and casualty companies, a group that includes State Farm, Chubb, and Travelers, tripled their profits to $65 billion in the past six years. The comeback started after 2001, when claims for asbestos and medical malpractice rocked the big players, and 9/11 raised fears of more terrorist attacks. The insurers responded by raising their rates even as claims began to drop, thanks to tort reform in a number of states. So the insurers prospered despite the damage wrought by Katrina and other hurricanes in 2005 In 2006 the skies turned clear: The insurers boosted their rates as much as 100% for catastrophe insurance on the coasts yet experienced few damaging storms.

C-L-A-S-S A-C-T-I-O-N from a class act

she is tired of being jerked around.

five-thirty means five thirty.

she’s had it.

if we could have had a car for five days;

if a call could have settled this;

if this could have been handled in a week like it should have been;

if it was not because of some end of the year bonus;

if she went through all she went through so someone could get a bonus instead of being paid a decent salary;

then class action is the right thing to do.

it’s her call now.

Beware of the fury of a patient man.  – John Dryden

Metropolitan Corporate Counsel
July 2007
Northeast Edition
Using Insurer “Bad Faith” In Multi-State Coverage Litigation

BYLINE: John AgarRobertson, Freilich, Bruno & Cohen LLC.

John Agar is Of Counsel with the Newark, New Jersey law firm of Robertson, Freilich, Bruno & Cohen LLC. He routinely represents policyholders in complex insurance coverage disputes.

SECTION: Pg. 28 Vol. 15 No. 7

LENGTH: 1875 words

HIGHLIGHT: Please email the author at jagar@rfbclaw.com with questions about this article.

In a typical multi-state coverage action, a conflicts analysis based on states’ particular interests in having their laws apply to a claim often yields acceptable results for issues that can be discretely divided by location. The analysis may yield less desirable results, however, or, even become so balky as to defy use, for issues like bad faith claims handling. Two types of problems can arise. A court may face difficult conceptual problems if it attempts to apply different state laws to a pattern of insurer conduct that relates to claims in many states. Alternatively, the court may apply a single state’s law, e.g., the law of the place of contracting. This law, which will apply to conduct in many states, may provide limited remedies for bad faith, and fewer usable precedents.

One strategy for developing a multi-state bad faith claim is the use of reference to standards of conduct embodied in certain laws which, in fact, are relatively uniform across the country, specifically, the Unfair Claims Settlement Practices Acts in the various states. As discussed below, use of these laws seldom results in an award of punitive damages; indeed, they generally do not provide a private right of action for the policyholder. Nonetheless, they can be used to help establish a standard of conduct for common law bad faith claims that may support coverage claims where, as is frequently the case, an insurer has attempted to “mend the hold.”

The “mend the hold” doctrine has been described as a “corollary of the duty of good faith” that the law imposes on the parties to a contract.1 As Judge Posner describes the doctrine in the Seventh Circuit’s Harbor Insurance Company case:

A party who hokes up a phony defense in the performance of his contractual duties and then when that defense fails (at some expense to the other party) tries another defense for size can properly be said to be acting in bad faith.2

Policyholders must frequently address the fact that the insurer has “mended the hold,” or engaged in analogous types of conduct: e.g., issuance of a “permanent” reservation of rights that is never followed by a claim determination, or denial of a claim based on non-existent or merely perfunctory claim investigation. Reference to standards embodied in unfair claims handling practices acts can help a policyholder identify the insurer’s wrongful conduct at the outset of the litigation and develop allegations relating to that conduct into an element of the claim, if not necessarily as a claim for extra-contractual damages. It can help the policyholder develop strategies for discovery, and to articulate its attack on claim denials based on inadequate investigation, and on defenses based on theories that have been rejected under the relevant law.

The National Association of Insurance Commissioners (“NAIC”) has drafted a model Unfair Claims Settlement Practices Act3 that, in one form or another, has been adopted in at least 45 states.4 The model Act identifies fourteen claims settlement “practices” which are violations under the model Act when committed “with such frequency to indicate a general business practice.”5 As NAIC noted in the “Legislative History” of the Act, “In the past it has been difficult for regulators and insurers to solve problems because there were no ground rules.”6

The part of the Act that has been most often adopted into state law is a list of claims handling practices, many of which are all too familiar to policyholders in large coverage actions. These practices include:

“Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies”;

“Refusing to pay claims without conducting a reasonable investigation”; and

“Failing to affirm or deny coverage of claims within a reasonable time after having completed [the] investigation related to such claim or claims.”7

Pursuant to the Act, NAIC also adopted a more specific “Unfair Property/Casualty Settlement Practices Model Regulation.”8 The model Regulation or related regulations have been adopted in about half the states.9 While many of its provisions relate specifically to first-party property claims, Section 4 of the model Regulation, relating to “File and Record Documentation,” includes a number of requirements especially relevant to the concerns of policyholders seeking coverage for third-party claims, who often find that discovery provides them with fragmented, disorganized claim files:

“Detailed documentation shall be contained in each claim file in order to permit reconstruction of the insurer’s activities relative to each claim”;

“Each relevant document within the claim file shall be noted as to date received, date processed or date mailed”;

“For those insurers that do not maintain hard copy files, claim files must be accessible from Cathode Ray Tube (CRT) or micrographs and be capable of duplication.”10

Significantly, the model Regulation defines “documentation” as including, but not limited to, not only pertinent communications, but also “notes” and “work papers.”11

Taken together, the model Act and model Regulation establish reasonable ground rules for the procedural side of the insurer’s claims handling activities. They also provide persuasive standards for evaluating those activities in coverage litigation.

Attention to claims handling procedure from the very start of coverage litigation can have significant benefits for the policyholder. It can enable the policyholder to focus its discovery, dispositive motions and in limine motions on clearly identifiable conduct, rather than on grand issues relating to the insurer’s ultimate intent, and whether it has acted as a responsible corporate citizen. Especially where the policyholder claims that the insurer has wrongfully refused to provide a defense, this focus is likely to put the insurer in the awkward position of having to explain, for example: how it initially evaluated the claim (or why it failed to do so); what information it believed would help resolve the claim (and why its claims handlers are never able to identify that information); and what type of cumulative information was developed as the file was passed through the inevitable succession of claims handlers. If no information was accumulated, and no one developed any “institutional memory” of the claim, then claims handling activities effectively did not exist.

As suggested above, a focus on the insurer’s claims handling proficiency may also help the policyholder limit the insurer’s ability to “mend the hold,” by forcing the insurer to stand by the determinations of its claims handlers. In essence, the model Act and Regulation require the insurer to develop and provide evidence of proficiency in handling claims and reaching claim determinations. An insurer that fails to handle claims in a competent manner should be precluded from using the court and/or their coverage counsel as de facto claims handlers.

The most significant limitations in the Act and the model Regulation are that they were not intended to provide a private cause of action, and obviously cannot result in an award of punitive damages.12 Although a few state laws do provide a statutory right of action for bad faith claims handling, the general standards under the model Act and Regulations were intended to function as a regulatory scheme to be enforced by state insurance commissioners.13 Consequently, in coverage litigation, insurers are likely to be successful in resisting discovery relating to their general business practices. Even where a private right of action exists, the costs and difficulties of discovery, and of proving a general pattern of violative behavior, may present practically insuperable barriers to obtaining a bad faith determination.

Another significant limitation in the usefulness of the model Act and Regulation for policyholders is the fact that relatively few states have adopted the provision of the Act that provides that a single flagrant violation of the Act constitutes a violation.14

Notwithstanding these limitations, reference to the model Act and Regulation in the context of a common law claim of bad faith can be the Archimedes lever that helps move large coverage litigations onto the playing field where the insurer’s failure to satisfy its duty of good faith and fair dealing with its policyholder can be addressed as an integral part of the claim.15

Significantly, this duty is implicit in every contract, including every insurance contract.16 As the Restatement (Second) of Contracts explains, good faith in the performance of a contract “emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.”17 As policyholders know, bad faith has many manifestations, including “evasion of the spirit of the bargain, lack of diligence and slacking off, [and] willful rendering of imperfect performance.”18 Too often, however, it has been difficult for policyholders in large coverage actions to make a clear issue of bad faith that merely permeates the insurer’s claims handling but has not been investigated by the relevant agency. Use of the Model Act and Regulation from the start of litigation can allow the policyholder to develop a record of the insurer’s misconduct and make visible to the court insurer behavior that might otherwise go unremarked and unnoticed.

Footnotes

1 Harbor Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 373 (7th Cir. 1990).

2 Id.

3 Unfair Claims Settlement Practices Act (“Model Act”), in NAIC Model Insurance Laws, Regulations and Guidelines, 900-1 to 900-10 (2005).

4 Id. at 900-5 to 900-8 (list of states adopting the Act or related legislation or regulations).

5 Id. at 900-3, Model Act, 3.B. Under Section 3.A., commission of even a single act can be a violation if the act is “committed flagrantly and in conscious disregard of this Act.” However, the vast majority of states that have adopted the Model Act have not included this provision. See Steven Plitt and Christie L. Kriegsfeld, The Punitive Damages Lottery Chase is Over: Is there a Regulatory Alternative to the Tort of Common Law Bad Faith and Does it Provide an Alternative Deterrent, 37 Ariz. St. L. J. 1221, 1249 (Winter 2005).

6 Id., Legislative History.

7 Model Act, at 900-2, sections 4C, 4F and 4G.

8 Unfair Property/Casualty Claims Settlement Practices Model Regulation (“Model Regulation”), in NAIC Model Insurance Laws, Regulations and Guidelines, 902-1 to 902-18 (January 1997).

9 Id. at 902-11 to 902-14.

10 Id. at 902-2, Model Regulation, sections 4.B, 4.C and 4.D.

11 Id., section 3.E.

12 Model Act, at 900-9 (Legislative History); Model Regulation, at 902-15 (Legislative History).

13 See, e.g., Taylor v. Standard Ins. Co., 28 F. Supp. 2d 588, 590 (D. Haw. 1997).

14 See, e.g., Lees v. Middlesex Ins. Co., 229 Conn. 842, 849, 643 A.2d 1282, 1285 (1994).

15 See, e.g., Miglicio v. HCM Claim Management Corp., 288 N.J. Super. 331, 672 A.2d 266 (Law Div., Atlantic Co. 1995).

16 E.g., Germania Ins. Co. of N.Y. v. Rudwig, 80 Ky. 223, 232 (Ky. App. 1882).

17 Restatement of the Law (2d) of Contracts (1981), 205.

18 Id., comment d.

Copyright (c) 2001 by the Florida Bar
The Florida Bar Journal
November, 2001
75 Fla. Bar J. 44
FEATURE: THE PRICE OF PEACE OF MIND: RECOVERY OF MENTAL DISTRESS DAMAGES IN BAD FAITH CLAIMS IN FLORIDA

by Jeffrey M. Liggio and P. Scott Russell IV

Jeffrey M. Liggio was admitted to The Florida Bar in 1982 and graduated from the University of Miami in 1982 with a J.D, cum laude. He is a Florida board certified civil trial lawyer and is a nationally certified civil trial advocate. Mr. Liggio is a partner in Liggio, Benrubi and Williams with his practice being devoted almost exclusively to the representation of plaintiffs in insurance claims, bad faith, and a variety of personal injury and wrongful death claims. P. Scott Russell IV has practiced as a civil trial and appellate attorney in Jacksonville since 1988. Before cofounding Dunlap & Russell, P.A., in 1995, Mr. Russell was a shareholder in Gentry and Phillips, P.A. His practice has been devoted almost exclusively to the representation of plaintiffs in personal injury and wrongful death cases arising from traffic accidents, medical negligence, and product defects, as well as associated bad faith claims.

TEXT:
 [*44]  The purpose of this article is to explain why the Third District’s decision in Otero v. The Midland Life Insurance Company, 753 So. 2d 579 (Fla. 3dDCA 2000), should be reversed to permit the recovery of mental distress damages in bad faith claims against life insurers. This article is intended to acquaint the reader with the well-established body of law across the nation which recognizes that the essence of insurance is peace of mind, and which generally supports the recoverability of emotional distress damages in bad faith claims. Finally, the article will explain why the evidentiary predicate for such recovery imposed in Time Insurance Co., Inc. v. Burger, 712 So. 2d 389 (Fla. 1998), should be receded from. In Time, the Florida Supreme Court confirmed that mental distress damages were recoverable in a first party bad faith claim, and also established a three-pronged evidentiary predicate for recovery of such damages in bad faith claims against health insurers. In Otero, the Third District Court of Appeal interpreted Time to apply to claims against health insurers only, and ruled that a claimant in a bad faith action against a life insurer was not entitled to recover for mental distress.After Midland Life Insurance Company denied the Oteros life insurance because of their national origin, in violation of both F.S. § 626.9541(1)(x) and a bulletin issued by the Florida Insurance Commissioner, Mr. and Mrs. Otero became virtually uninsurable due to health problems. Trial of their bad faith claim resulted in an award of the full benefit value of the two wrongfully denied life insurance policies to the Oteros, and an additional $ 400,000 to each of the Oteros for mental distress arising from the insurer’s willful, wanton, and malicious or reckless refusal to insure. The trial judge vacated the Oteros’ award of mental anguish damages because it was not supported by medical testimony, as required by Time. On appeal, the Third District held that Time was limited in its application to bad faith claims against health insurers, precluding recovery of mental distress damages in this claim against a life insurer. The Oteros’ appeal of that decision is currently pending in the Florida Supreme Court.The plain language of § 624.155(7) establishes the recoverability of all reasonably foreseeable damages which result from a bad faith violation. Life insurance has a unique emotional purpose, inseparable from its indemnity function: to provide the insured with peace of mind, knowing that his or her survivors will be protected from financial duress in the event of death. Emotional distress is undeniably a “reasonably foreseeable result” of the sort of violation of § 624.155 which was established in Otero. The Florida Supreme Court’s ruling in Time that emotional distress damages are recoverable in a first party bad faith action is in accord with the weight of national authority on this issue. There is no basis in the legislative history, the language of the bad faith statute, or the Time opinion itself which would confine its holding that emotional distress damages are recoverable in first party bad faith claims to cases involving health insurers alone.
 
Legislative History Supports Recovery of Extracontractual DamagesThe relevant legislative history was recounted by the Florida Supreme Court in Time. For more than half a  [*46]  century, Florida courts have imposed a duty upon insurers to act in good faith when defending their own insureds against third-party claims; they have authorized actions by both insureds and judgment creditors of insureds against insurers who have dealt in bad faith with their insured; and the measure of damages has always been the “excess judgment” obtained against the insured, notwithstanding that such a judgment was in excess of the insurer’s contractual policy limits. See, e.g., Auto Mut. Indem. Co. v. Shaw, 134 Fla. 815, 184 So. 852 (1938); Thompson v. Commercial Union Ins. Co. of New York, 250 So. 2d 259 (Fla. 1971); Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980). However, with respect to first party claims, Florida courts had historically declined to impose a duty of good faith upon the insurer; the insureds were limited to actions for breach of contract; and the measure of damages was therefore limited to breach of contract damages, costs, and, where statutorily authorized, attorneys’ fees. See, e.g., Life Inv. Ins. Co. of America v. Johnson, 422 So. 2d 32 (Fla. 4th DCA 1982); Hobbley v. Sears, Roebuck & Co., 450 So. 2d 332 (Fla. 1st DCA 1984); and Baxter v. Royal Indem. Co., 285 So. 2d 652 (Fla. 1st DCA 1973), cert. disch., 317 So. 2d 725 (Fla. 1975).In 1982, the legislature corrected this anomalous situation by enacting F.S. § 624.155 and requiring insurers to act in good faith at all times when dealing with their insureds, whether defending them against claims by third parties or dealing with them directly on first party claims. The timing and stated legislative intent of § 624.155 establish that the legislature was providing for recovery of extracontractual damages as a sanction for abuses by insurance companies which were threatening the welfare of Florida insureds.
 
Section 624.155 requires insurers to deal in good faith to settle claims. Current case law requires this standard in liability claims, but not in uninsured motorist coverage; the sanction is that a company is subject to a judgment in excess of policy limits. This section would apply to all insurance policies. n1n1 Staff Report, 1982 Insurance Codes Sunset Revision (HB4S; as amended HB10G) (June 3, 1982).Consequently, the approach taken by the bill is to provide a civil remedy, which may be pursued by any policyholder damaged by the actions of an insurance company that violate the Insurance Code. An insured who successfully sues an insurance company under this provision can recover the amount of damages suffered, together with court costs and attorneys’ fees. n2n2 Bill Analysis, House Committee on Insurance, Bill No. HB607 (Jan. 22, 1982, app. A, p. 14).Before the institution of bad faith liability, insurers “had nothing to lose, and everything to gain, by refusing payment of even meritorious claims.” Aetna Life Ins. Co. v. Lavoie, 470 So. 2d 1060, 1079 (Ala. 1984) (Torbert, C.J., dissenting), vacated on other grounds, 475 U.S. 813 (1986). Imposition of bad faith liability changed the measure of damages recoverable in an action by an insured against his insurer and altered the insurer’s economic incentives. “The function of the bad faith claim is to provide the insured with an extracontractual remedy.” Hollar v. International Bankers Ins. Co., 572 So. 2d 937, 939 (Fla. 3d DCA 1990).Pursuant to § 624.155(1)(a)1, consumers were empowered to bring civil actions for damages resulting from unfair methods of competition and unfair or deceptive acts or practices of insurers. In 1990, the Florida Legislature amended § 624.155 to add the following pertinent subsection:
 
(7) The civil remedy specified in this section does not preempt any other remedy or cause of action provided for pursuant to any other statute or pursuant to the common law of this state. Any person may obtain a judgment under either the common law remedy of bad faith or this statutory remedy, but shall not be entitled to a judgment under both remedies. This section shall not be construed to create a common law cause of action. The damages recoverable pursuant to this section shall include those damages which are a reasonably foreseeable result of a specified violation of this section by the insurer and may include an award or judgment in an amount that exceeds the policy limits. n3n3 FLA. STAT. § 624.155 (Supp. 1990) (emphasis added).The Florida Supreme Court addressed the question of the appropriate measure of damages in a first party action for bad faith failure to settle an uninsured motorist’s insurance claim in McLeod v. Continental Insurance Co., 591 So. 2d 621 (Fla. 1992).
 
We hold that the damages recoverable in a first-party suit under section 624.155, Florida Statutes (1989), are those amounts which are the natural, proximate, probable, or direct consequence of the insurer’s bad faith actions, and we reject the contention that first-party bad faith damages should be fixed at the amount of the excess judgment. The insurer in a first-party bad faith action is subject to a judgment in excess of policy limits if the actual damages resulting from the insurer’s bad faith are found to exceed the policy limits. Such damages may include, but are not limited to, interest, court costs, and reasonable  [*47]  attorney’s fees incurred by the plaintiffs. The attorney’s fees recoverable shall also include any fees incurred in the original underlying action as a result of the insurer’s bad faith actions. n4n4 McLeod, 591 So. 2d at 626 (footnotes omitted) (emphasis supplied).As part of the analysis which led the McLeod court to define first-party bad faith damages to include “those amounts which are the natural, proximate, probable, or direct consequence of the insurer’s bad faith actions,” the court cited Fisher v. City of Miami, 172 So. 2d 455, 457 (Fla. 1965), for the proposition that “the primary basis for an award of damages is compensation [and] the objective is to make the injured party whole.” McLeod, 591 So. 2d at 624-26. Subsequent to McLeod, the legislature enacted § 627.727(10), authorizing the recovery of the “excess judgment” in first party bad faith actions against uninsured motorist insurance carriers, and confirmed the original legislative intent that the bad faith statute was to provide for the recovery of extracontractual damages. Of course, legislative intent is the overriding precept of statutory construction, the “polestar” by which the court must be guided. Carawan v. State, 515 So. 2d 161, 167 (Fla. 1987).The Florida Supreme Court’s subsequent decision in Time Ins. Co., Inc. v. Burger, 712 So. 2d 389 (Fla. 1998), established the recoverability of mental distress damages in a first party bad faith claim against a health insurer:
 
The fact that the legislature has specifically authorized first parties to recover damages in bad faith actions suggests that it may have contemplated more than the recovery of the same damages already available in a breach of contract action. In view of the possibility that an unjustified refusal to pay an insured’s medical or hospital bills could result in the inability to obtain health care, we hold that § 644.155(1)(b)(1) authorizes the recovery of damages for emotional distress in a first-party bad faith claim against a health insurance company. n5n5 Time, 712 So. 2d at 392.
 Insurance Contracts Unique; Provide Peace of Mind It has long been held in Florida that a bad faith claim is an action ex contractu. Government Employees Insurance Company v. Grounds, 332 So. 2d 13 (Fla. 1976); Nationwide Mutual Casualty Insurance v. McNulty, 229 So. 2d 585 (Fla. 1969); and North American Van Lines, Inc. v. Lexington Insurance Company, 678 So. 2d 1325 (Fla. 4th DCA 1996). Indeed, in a basic breach of contract action, a determination of what damages reasonably flowed from the breach requires an analysis of what was in the contemplation of the parties at the time the contract was entered into. In Life Investors Insurance Company of America v. Johnson, 422 So. 2d 32, 33 (Fla. 4th DCA 1982), Judge Downey stated:
 
The basic rule governing the recovery of damages for breach of contract is set forth in the oft cited English case of Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854), which holds that the appropriate damages are those that arise naturally from the breach, or those that were in the contemplation of the parties at the time the contract was made. Application of that rule to commercial contracts, such as disability insurance policies, generally results in a limitation of damages to the pecuniary loss resulting from the breach. MacDonald v. Penn Mutual Life Insurance Company, 276 So. 2d 232 (Fla. 2d DCA 1973). However, Kewin v. Massachusetts Mutual Life Insurance Company, 409 Mich. 401, 295 N.W. 2d 50 (1980) noted an exception to this rule in the case of commercial contracts concerned not simply with trade in commerce, but with life and death and matters of mental concern and solicitude. The Michigan court found, as have others, that the nature and object of the agreement may justify the allowance of other types of damages such as mental pain and anguish. Contracts § 1076 and 1 Restatement of Contracts § 341 also recognize this exception. n6n6 Johnson, 422 So. 2d at 33. See also TDS Incorporated v. Shelby Mutual Insurance Company, 760 F.2d 1520, 1531-1532 (11th Cir. 1985); and The Natural Kitchen, Inc. v. American Transworld Corporation, 449 So. 2d 855, 859 (Fla. 2d D.C.A. 1984).Since bad faith involves more than a mere breach of contract, but also involves conduct by an insurer in violation of the Insurance Code, any analysis of the damages that should reasonably flow as a result of any act of bad faith conduct should also begin with a consideration of what the insurers sell to consumers, how the insurers sell their products, and why consumers buy the particular insurance product involved.It is beyond dispute that insurance is a unique product and courts around the country have recognized  [*48]  this fact. As the Supreme Court of Oklahoma wrote in McCorkle v. Great Atlantic Insurance Company, 637 P.2d 583, 588 (Ok. 1981):
 
We believe that the purchaser of insurance does not contract to obtain a commercial advantage but to protect himself/herself against the risks of accidental losses and the mental stress which could result from such losses. Therefore, we think one of the primary reasons a consumer purchases any type of insurance (and the insurance industry knows this) is the peace of mind and security that it provides in the event of loss. n7n7 McCorkle, 637 P.2d at 588.In Agricultural Insurance Company v. The Superior Court of Los Angeles County, 70 Cal. App. 4th 385, 397 (Cal. App. 2d Dist. 1999), the appellate court discussed a ruling by the California Supreme Court in Foley v. Interactive Data Corporation, 47 Cal. 3d 654, 765 P.2d 373 (Cal. 1988), saying:
 
An insured seeks peace of mind and economic protection against calamity, the insurer provides that protection for a fee. Although the insured depends upon the insurer for protection, the insurer does not depend on the insured in the same manner. Insurers occupy the” “status as purveyor of a vital service labeled quasi-public in nature.” (Id. at pp. 684-685). Thus an insurer’s obligations can include a duty to place the interests of the insured on at least an equal footing with its own interests, because the “obligations of good faith and fair dealing encompass qualities of decency and humanity” similar to the responsibilities of a fiduciary. (Id. at p. 685.) Insurance contracts are usually adhesive in nature, since their terms are generally contained in form language dictated by the insurer. Critically, breach of an insurance contract places an insured in a type of dilemma not experienced by an insurance company if an insured should breach a term of the policy. (Ibid.) “The insured cannot turn to the marketplace to find another insurance company willing to pay for the loss already occurred.” (Id. at p. 692.) An insurer’s breach can therefore frustrate the core purpose of insurance (protecting the insured from calamity) and leave the insured exposed to a disaster it is paid to avoid. The insurance company, by contrast, faces no comparable dilemma.The Supreme Court of Washington, sitting en banc in Coventry Associates v. American States Insurance Company, 961 P.2d 933, 939 (Wash. 1998), reached the same conclusion:
 
As the Arizona Supreme Court noted in Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986), the insurance industry itself lends credence to the fact the insureds seek more than a bare promise to pay certain claims. Advertising programs portraying customers as being “in good hands” or dealing with a “good neighbor” emphasize a special type of relationship between the insured and the insurer–one in which trust, confidence and peace of mind have some part.The same observation was made in Andrew Jackson Life Insurance Company v. Williams, 566 So. 2d 1172, 1175 (Miss. 1990), in which the Supreme Court of Mississippi quoted Justice Lint of the Oregon Supreme Court in Farris v. United States Fidelity and Guaranty Company, 284 Or. 453, 479 n.4, 587 P.2d 1015, 1028 n.4 (1978), stating:
 
That insurers sell their product as being not only an agreement to indemnify  [*49]  the insured for certain kinds of loss but also to relieve the purchaser from anxiety concerning all aspects of claims is readily apparent in our society. One cannot watch televised entertainment for very long without being exposed to commercials for the sale of insurance which, for example, indicate that the purchaser will be in “good hands,” that he will have the assistance of a troop of mounted cavalry, that he [will have] “a piece of the rock,” or that “like a good neighbor” the insurer will be there. As such advertisements reflect, the relationship between insurer and insured does not merely concern indemnity for monetary loss [risk aversion] . . . It is common knowledge that . . . insurance is obtained to promote peace of mind.
 
Extensive Authority Supports RecoveryAcross the nation, courts have observed the mental and emotional features of certain insurance products, and the great majority of the states also permit plaintiffs in bad faith cases to recover damages for emotional distress. n8 In Employees Benefit Association v. Grissett, 732 So. 2d 968, 985 (Ala. 1998), the Alabama Supreme Court wrote:
 
Certainly an insurance contract is not an ordinary commercial contract for profit in which mental distress damages are unforeseeable. The insured does not bargain for a profit; instead he bargains for compensation in time of catastrophe and for peace of mind. In this sense, an insurance contract is more akin to contracts of carriers and innkeepers, for which consequential damages have long been recognized due to the personal nature of the service. A particularly likely risk of breaching an insurance contract is resulting impoverishment or bankruptcy. Coupled with the fact that such breaches almost always coincide with emotional vulnerability (death, health problems, or destruction of a business or home), a very strong case can be made for awarding consequential damages for financial loss and even for emotional disturbance. See Restatement (Second) of Contracts, § 353, comment a (1982). Insurers, in effect, sell freedom from care and worry, and should be held to foresee the consequential damages flowing from their breach.n8 See S. ASHLEY, BAD FAITH ACTIONS: LIABILITY AND DAMAGES § 8.04.Otero involved life insurance, which provides a unique type of security, under which the obligation to pay benefits does not become executory until after the death of the policyholder. The actual value of the life insurance contract during the life of its owner consists in the owner’s peace of mind and security from anxiety which would accompany fear that one’s beneficiaries would be placed in financial duress by one’s untimely death. The Florida Supreme Court has acknowledged this function in a case involving pension benefits.
 
The desire for security in the event of disability or during the declining years of life is of paramount concern to every conscientious breadwinner. The security he seeks is not only for himself, but for those who may be dependent upon him when he is no longer able to engage in active work and in the event of his death. n9n9 City of Jacksonville Beach v. State, 151 So. 2d 430, 432 (Fla. 1963).Only by observing the unique societal function of insurance contracts and distinguishing between insurance contracts and commercial contracts can the courts protect consumers from bad faith by holding insurers liable for all the foreseeable consequences of their wrongful conduct. As early as 1921, Dean Roscoe Pound wrote:
 
We have taken the law of insurance practically out of the category of contract, and we have established that the duties of the public service companies are not contractual, as the 19th century sought to make them, but are instead relational; they do not flow from the agreements which the public servant may make as he chooses, they flow from the calling in which he has engaged and his consequent relation to the public. n10n10 Comment, Extra Contractual Insurance Damages: Pennsylvania Insured Demands a Piece of the Rock, 85 DICK. L. REV. 321, 322 (1981), quoting DEAN POUND, THE SPIRIT OF THE COMMON LAW 29 (1921).The record in Otero establishes that Midland marketed itself and its life insurance as providing security, protection, and peace of mind. Given the unique nature of life insurance and the language of § 624.155 providing for the recovery of all “damages which are a reasonably foreseeable result” of the violation, we believe Time should be applied to permit recovery of emotional distress damages in Otero. The wrongfully denied life insurance applicant can be made whole only through the award of damages for any emotional distress which was the reasonably foreseeable, natural, proximate, probable, and direct consequence of an insurer’s bad faith refusal to issue a life insurance policy.
 
Rigid Evidentiary PredicateThe Florida Supreme Court has acknowledged its duty to reconsider prior holdings to make sure our law keeps pace with changes in our society, United States of America v. Dempsey, 635 So. 2d 961, 964-65 (Fla. 1994), and to revisit rules of law which were found, on reconsideration, to be at variance with modern  [*50]  day needs and concepts of justice and fair dealing. See, e.g., Champion v. Gray, 478 So. 2d 17, 20 (Fla. 1985), in which the “impact” rule was modified, and Zell v. Meeks, 665 So. 2d 1048, 1054 (Fla. 1995), in which the court further receded from the “modified impact” rule set forth in Champion:
 
While fraud and the difficulty in evaluating psychic claims may continue to trouble the court system, an arbitrary cutoff for negligent infliction of emotional distress claims would have no remedial purpose except to reduce the number of claims. In fact, establishing an arbitrary cutoff for claims would contravene general public policy by denying persons with meritorious claims access to the courts.The very same principles which underpinned the Dempsey, Champion, and Zell decisions call for the Supreme Court to revisit its holding in Time and recede from the strict evidentiary standard imposed in that case.The three-pronged evidentiary predicate for the recovery of emotional distress damages in a health insurance bad faith claim established in Time is:
 
(1) That the bad-faith conduct resulted in the insured’s failure to receive necessary or timely health care;
(2) That, based upon a reasonable probability, this failure caused or aggravated the insured’s medical or psychiatric condition; and
(3) That the insured suffered mental distress related to the condition or the aggravation of the condition. n11n11 Time, 712 So. 2d at 393.The authors suggest that the Florida Supreme Court’s imposition of such rigid evidentiary restrictions in health insurance claims was not well founded, and should be receded from. Such standards arbitrarily restrict who can recover such damages. The standards do not recognize the wide variety of circumstances where the conduct of the health insurer is truly illegal and egregious. For one example, if an insured is forced to deplete his or her savings, borrow money from family and friends, or borrow from retirement funds to prevent any delay or denial of important medical care, doesn’t that insured still suffer mental and emotional distress by virtue of placing his or her, and potentially the insured’s family’s, well-being at risk? Also, the standard established by the Supreme Court in Time may force the insured to seek care from a mental health professional which otherwise would not be required. Finally, proof of the “aggravation” of an insured’s medical or psychiatric condition would in many cases be elusive. It is certainly common knowledge that it is vital that any patient battling a severe illness must understand the condition and commit to the treatment plan. Having to fight the insurer at the same time can detract from the medical battle, but raising one’s perception of this process to an evidentiary standard is another thing altogether.Damages for emotional distress or mental anguish are recoverable in cases involving a wide variety of intentional torts including defamation, malicious prosecution, false imprisonment, invasion of privacy, tortious interference with contract, and tortious interference with prospective business relations. No arbitrary evidentiary predicates have been imposed in these cases and the impact rule is not applicable in these cases, as it should be inapplicable to bad faith cases.The authors propose the majority’s concern in Time was well answered by Justice Anstead in his dissent at p. 393, when he said: “It appears that the majority has given the health insurance consumer a favorable interpretation of the first party bad faith statute with one hand, but has rendered that interpretation substantially meaningless with the other.”The court’s concern in Time that health insurers should not feel constrained by potential bad faith exposure in their right and duty to other policy holders to contest illegitimate claims loses its force when the specific basis of the bad faith claim is considered. Insurers whose denial of a claim or application for insurance was ultimately determined to have been in good faith would be protected from any associated exposure for emotional distress, and insureds or putative insureds who sustained foreseeable emotional distress damages associated with denials of claims or applications which were ultimately determined to have been in bad faith would be compensated. No insurer would be punished for contesting an illegitimate claim, and no policyholder or putative policyholder would arbitrarily be denied recovery where a legitimate claim was improperly denied. See concurrence and dissent of Anstead, J., 712 So. 2d at 394.By engrafting a rigid evidentiary standard requiring expert testimony by a health care provider to support recovery of mental anguish damages, it is respectfully submitted that the Time court departed from the legislative intent set forth in the statute as well as precedent which specifically limited use of expert testimony in establishing mental anguish damages. As the North Dakota Supreme Court said in Ingalls v. Paul Revere, 561 N.W.2d 273, 282-83 (N.D. 1997):
 
An insurer’s bad faith breach of its duties to an insured is likely to cause mental anguish: it is inconceivable that a layman, unaccustomed to the courtroom, fearful of the entire judicial process, who is also subjected to financial pressures from a refusal of the insurer to discharge its commitments, will not be subjected to stress, the precise effects of which are difficult to measure in exact terms but, which, nevertheless are present. John Alan Appleman and Jean Appleman, Insurance Law and Practice § 8878.55 p. 442 (rev. vol. 1981). Thus, in a case of this kind, damages for mental anguish may be “general damages”–damages for a harm so frequently resulting from the tort that is the basis of the action that the existence of the damages is normally to be anticipated and hence need not be alleged in order to be proved. Marilyn Minzer et al., Damages in Tort Actions § 1.01[3] (1996) (quoting Restatement (Second of Torts § 904, through miscites as § 940). As the Minzer text also explains at § 3.01[3][b], a claim for mental anguish is a classic example of a noneconomic, intangible loss.Traditionally, the jury had wide discretion in evaluating and awarding these damages . . . . The only standard for evaluation of mental anguish damages “is the amount a reasonable person would estimate to be fair compensation.” The determination of damages for pain, discomfort, and mental anguish largely is dependent upon the jury’s common knowledge, good sense, and practical judgment and mainly rests within its  [*51]  sound discretion.Prior to Time, the Florida Supreme Court had never required expert testimony as a predicate for recovery of mental pain and suffering. Where damages for emotional distress are recoverable, the amount of the award “is left to the discretion of the jury unless it is clearly arbitrary or so great as to be shocking to the judicial conscience or unless it indicates the jury was influenced by prejudice or passion.” Albritton v. Gandy, 531 So. 2d 381, 388 (Fla. 1st DCA 1988). As further observed by Justice Anstead in Time: “To the contrary, this Court in Angrand v. Key, 657 So. 2d 1146 (Fla. 1995), specifically limited the use of expert testimony in establishing damages for mental anguish.” 712 So. 2d at 394.Justice Anstead went on to cite from another Supreme Court opinion:
 
Jurors know the nature of pain, embarrassment and inconvenience, and they also know the nature of money. Their problem of equating the two to afford reasonable and just compensation calls for a high order of human judgment, and the law has provided no better yardstick for their guidance than their enlightened conscience. Their problem is not one of mathematical calculation but involves an exercise of their sound judgment of what is fair and right. n12n12 Time, 712 So. 2d 394 n.2, quoting Braddock v. Seaboard Coast Line Railroad Co., 80 So. 2d 662, 668 (Fla. 1955).There is simply no basis in the bad faith statute itself, in the legislative history, or in Florida law for this court to impose a requirement for expert testimony as the predicate for an award of emotional distress damages when an insurer is found to have acted in bad faith in denying an aspiring insured the peace of mind and protection associated with insurance.
 
ConclusionThe authors hope the Supreme Court will reaffirm the recoverability of mental anguish damages in bad faith cases, without an arbitrary distinction between health and life insurance settings, since peace of mind is a fundamental aspect of virtually all types of insurance protection. Consistent with Judge Anstead’s well-reasoned opinion in Time, we hope the court will recede from that aspect of Time which requires expert testimony as a predicate, instead permitting juries to rely on lay testimony, their own sound judgment and their common experience in determining the recoverability of such damages under a given set of facts.

Legal Topics:

For related research and practice materials, see the following legal topics:
Insurance LawBad Faith & Extracontractual LiabilityRemediesActual & Consequential DamagesInsurance LawBad Faith & Extracontractual LiabilityRemediesEmotional Distress DamagesTortsDamagesCompensatory DamagesPain & SufferingEmotional & Mental DistressEvidence

GRAPHIC:
ILLUSTRATION, no caption, Joe McFadden

Is Providing a Signficant Bonus to Claims Agent Incentivizing Institutional Bad Faith?

old but good

  Copyright (c) 1995 Fordham Environmental Law Journal
Fordham Environmental Law Journal
Fall, 1995
7 Fordham Envtl. Law J. 55
LENGTH: 7443 words

ESSAY: A.B.A. Manual for Complex Insurance Coverage Litigation: A Prescription for Insurance Nullification

NAME: Eugene R. Anderson, Edward M. Joyce and John P. Gaisor *

BIO:

* Eugene R. Anderson, Edward M. Joyce and John P. Gaisor are members of the law firm of Anderson Kill Olick & Oshinsky, P.C. The firm regularly represents policyholders in insurance coverage disputes.

SUMMARY:
… Charles Stapleton, of USF&G Corporation recently boasted that “as a property and casualty company we’re in the litigation business. . . . [There are] 16,000 lawsuits at any given time.” The interests of the insurance industry are vested in litigation, not in insurance coverage. … When a policyholder challenges an insurance company in court or in a regulatory proceeding, the odds usually favor the insurance company. … Additionally, the Manual asserts that “courts should grant Protective Orders sought by third-parties brought into insurance coverage litigation.” … Insurance companies attempt to use the allegations and documents brought to bear against the policyholder in the underlying litigation against the policyholder in the insurance coverage litigation at hand. … The policyholder, however, must cover litigation expenses “out of pocket” during an insurance coverage dispute and faces cash-flow problems, sometimes small, but more often severe. …  

TEXT:
 [*55]  INTRODUCTION

In a February 1991 report, the United States General Accounting Office found that thirteen of the top twenty property and casualty insurance companies reported that they had approximately 2,000 pending lawsuits over environmental pollution claims. ⁿ¹ Charles Stapleton, of USF&G Corporation recently boasted that “as a property and casualty company we’re in the litigation business. . . . [There are] 16,000 lawsuits at any given time.” ⁿ² The interests of the insurance industry are vested in litigation, not in insurance coverage. Policyholders, however, buy insurance because they are adverse to lawsuits.

When an insurance company capriciously denies a claim, most policyholders simply give up. ⁿ³ Few policyholders have the financial resources to file a lawsuit seeking to force the insurance company  [*56]  to honor its contractual obligations. This attitude is common among policyholders despite the sentiment in the insurance industry that in “pollution cases,” almost all bases for denial of coverage has been “destroyed.” ⁿ⁴ Insurance regulators are unable or unwilling to help policyholders; they tell policyholders to “hire a lawyer.” ⁿ⁵ Even when a policyholder pursues the insurance company in court, the compromises inherent in the civil justice system usually work to the disadvantage of the policyholder. More than ninety-seven per cent of all civil cases are settled. ⁿ⁶ In the insurance coverage context, this means that the policyholder settles and agrees to take less than the amount to which it is entitled. This may mean that simply by litigating insurance coverage or by litigating a claim, the system guarantees that the insurance company will pay less than the full value it promised when it sold the policy. In most instances, the policyholder is not as familiar with litigation claims evaluation as is the insurance company. The insurer is a “professional defender of lawsuits . . . . Unlike the insured, an [insurance company] is not a novice as to matters involving litigation.” ⁿ⁷ Moreover, when a policyholder is forced to litigate a claim the insurance company gains — and the policyholder loses — the time value of money. ⁿ⁸

When a policyholder challenges an insurance company in court or in a regulatory proceeding, ⁿ⁹ the odds usually favor the insurance  [*57]  company. A policyholder can expect a major casualty loss once in every 30 years. ⁿ¹⁰ Thus, policyholders, individually and generally, both large and small, have minimal experience with insurance coverage disputes. ⁿ¹¹ Moreover, policyholders buy insurance because they are adverse to litigation. On the other side, litigation is the bread and butter of insurance companies. ⁿ¹²

The current climate of increasing litigation has led to a recent effort to solve, or at least explain the insurance coverage litigation quandary. One such effort is the American Bar Association’s Manual for Complex Insurance Coverage Litigation (“Manual“). ⁿ¹³ The Manual was created by the Section of Litigation’s Task Force of the Committee on Insurance Coverage Litigation as a definitive reference tool for insurers and policyholders holder involved in litigation. The case management strategies described in the Manual are the products of this twenty member task force, which consists of an equal number of attorneys for commercial policyholders and their insurers, as well as one federal judge and one former state judge. ⁿ¹⁴ The Manual serves as an authoritative set of guidelines to be utilized by the insurers and the insureds alike for saving time and money.

Part I of this Essay briefly discusses the Manual in the context of the traditional and most popular form of insurance policy, the Comprehensive General Liability policy, a pro-policyholder form created  [*58]  in the 1940s. Part II details key provisions of the Manual that address the case management of “complex” insurance coverage cases, such as environmental pollution litigation. This part also critically analyzes the Manual provisions treating important litigation issues such as discovery, secrecy, fiduciary duty of the insurer to the insured, and transaction costs. This Essay concludes that the Manual decidedly encourages and endorses the insurance companies to engage in litigation, and favors the further nullification of policyholder insurance coverage.

I. COMPREHENSIVE GENERAL LIABILITY POLICY

When first introduced in 1940, the Comprehensive General Liability policy, or “CGL” policy, was hailed as a breakthrough for policyholders. ⁿ¹⁵ Instead of having to buy several policies naming various types of perils, a comprehensive general liability policy sufficed. For example, when The Travelers Insurance Company (“The Travelers”) first sold a standard form CGL policy in the 1940s, The Travelers executive John H. Eglof wrote an article in which he stated:

How much better it is to say — “We cover everything except this and this and this –” instead of “We cover only this and this and this. . . .” Since a risk cannot choose the kind of accident that will give rise to the need for liability insurance, it is wise to be protected against all losses under one policy . . . one premium and worry regarding liability insurance. ⁿ¹⁶

Courts have specifically noted the broad scope of coverage intended by CGL policies. ⁿ¹⁷ For example, in James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., ⁿ¹⁸ the Kentucky Supreme Court stated that:

 [*59]  The primary purpose of a comprehensive general liability policy is to provide broad comprehensive insurance. Obviously the very name of the policy suggests the expectation of maximum coverage. Consequently the comprehensive policy has been one of the most preferred by businesses and governmental entities over the years because that policy has provided the broadest coverage available. All risks not expressly excluded are covered, including those not contemplated by either party. ⁿ¹⁹

An anti-policyholder bias is reflected throughout the Manual. One example is the Manual’s treatment of the CGL, one of the insurance industry’s most popular commercial forms. ⁿ²⁰ Section 1.07 of the Manual suggests that, despite its name, the CGL policy does not provide comprehensive coverage. ⁿ²¹ The Manual suggests that coverage hinges on a long list of variables including: “location, date, conditions, . . . precise cause and circumstances, . . . affiliation of individuals and instrumentalities, . . . manufacturing processes, scientific principles and other technical information.” ⁿ²² The insurance industry promised policyholders “comprehensive” coverage; ⁿ²³ the American Bar Association should not attempt to take it away.

II. CASE MANAGEMENT OF COMPLEX INSURANCE COVERAGE CASES

While no one factor differentiates complex cases from other presumably simpler ones, many insurance cases, particularly those with “multiple insurers or policyholders as parties,” “multiple claims or losses or one large claim or loss at issue,” or “a large number of insurance policies or other contracts with differing terms at issue,” ⁿ²⁴ require specialized case management techniques. Discovery  [*60]  in complex insurance coverage cases presents unique case management and efficiency problems because the cases often entail: “(1) a large volume of discovery requested and provided by the parties; (2) a large number of parties seeking and responding to discovery; (3) discovery directed to numerous non-parties having divergent relationships with the parties and interest in the coverage litigation; and (4) frequent discovery disputes on a broad range of issues.” ⁿ²⁵ In addition to successfully resolving discovery challenges, a deft case management program must also consider issues of confidentiality, fiduciary duty, and transaction costs. The Manual addresses these four key issues in litigation case management in a manner that unsatisfactorily places commercial policyholders at an unfair disadvantage.

A. Discovery

The “discovery” protocol in Chapter 3 is decidedly one-sided. The Manual implies that by delaying the policyholder’s full discovery of all insurance companies, efficiency may be promoted. ⁿ²⁶ The Manual fails to mention that the price for this alleged efficiency may be that the policyholder is deprived of his legal right to demonstrate the intent of the contract when drafted, the understanding of insurance regulators when these contracts were approved for sale, contradictory statements insurance companies have made in courts nationwide, and the understanding of reinsurance companies. Giving up the right to seek important insurance company documents is unquestionably injurious to policyholders. Additionally, the withholding of these critical documents by insurance companies, though advocated by the Manual as an “efficiency” measure, ⁿ²⁷ may even be sanctionable. ⁿ²⁸

A policyholder should be able to discover documents revealing  [*61]  inconsistent positions that an insurance company may have previously taken. There should be discovery of the instances in which an insurance company has previously covered claims (a) in court; ⁿ²⁹ (b) in regulatory proceedings; ⁿ³⁰ (c) before legislatures; (d) in reinsurance disputes; ⁿ³¹ (e) in its own manuals; ⁿ³² and, (f) in its own promotional literature. ⁿ³³

The Manual repeatedly refers to “the high cost of inefficiency” ⁿ³⁴  [*62]  but ignores the higher cost of depriving a policyholder of legitimate discovery that has proven itself to be enormously persuasive to courts nationwide. For example, regulatory history and drafting history documents are of vital importance to policyholders. Virtually every appellate court that has considered and written about regulatory history, drafting history and insurance company interpretive documents has reached a pro-policyholder decision. ⁿ³⁵ Moreover, where the regulatory and drafting history supports insurance companies, they use it and they win. ⁿ³⁶

Another area of discovery policyholders should insist on is reinsurance information and files. ⁿ³⁷ This information reveals what the  [*63]  insurance companies told their reinsurance companies about the meaning of policy terms and the policyholder’s claim. In addition, this information can help policyholders determine the terms of lost insurance policies. Insurance companies regularly ask for and receive this type of information when it suits their purpose. ⁿ³⁸ This information should be made available to the average policyholder as well as to sophisticated litigants such as insurance companies.

Insurance companies should be required to disclose all possible bases for insurance coverage. One insurance company, The Travelers, has written that it was “ethically obligated to disclose potential coverage to [the policyholder].” ⁿ³⁹ This duty is glaringly omitted in the Manual. For example, insurance companies repeatedly argue that insurance coverage should be denied when notice is untimely given. ⁿ⁴⁰ Policyholders are entitled, however, to discover statements such as the following made by one insurer: “an insurance policy is not to be construed as a game of cat and mouse, in which the insurer (or reinsurer) can avoid liability if he succeeds in catching his insured in a technical breach.” ⁿ⁴¹

 [*64]  Policyholders are also entitled to discover information about the instances in which insurance companies or their affiliates have sought and are seeking insurance coverage themselves for the same types of claims that they are denying to their policyholders. ⁿ⁴² Insurance companies also buy insurance. Why should insurance companies and their affiliates get coverage for certain claims while excluding the same coverage for the average businessman?

The Manual goes on to discuss how insurance policies are underwritten. ⁿ⁴³ Underwriting guidelines are crucial in reflecting the level of risk that the insurer attaches to a policyholder. The information that an insurer obtains in an insurance application is compared with the underwriting guidelines to determine whether the “risk reflected in the application is acceptable to the insurer at the specified premium.” ⁿ⁴⁴ If it is, then the insurer issues the policy and appropriate endorsements. ⁿ⁴⁵ The Manual suggests that insurance companies limit discovery of the underwriting and claims documents. ⁿ⁴⁶ It is unfair for insurance companies to hold its policyholders to such a high standard of disclosure, when they fail to disclose information in return. This is an inequitable relationship with a lack of mutuality which should be changed.

Chapter 3 of the Manual seems to suggest that discovery in prior cases should be used as a substitute to full discovery in current insurance coverage disputes. ⁿ⁴⁷ This idea clearly favors insurance companies who are in the business of litigating against policyholders and who have at least four professional trade associations to assist them in blocking coverage. ⁿ⁴⁸ If the insurance company can  [*65]  simply produce documents generated in a prior litigation it can save thousands of dollars and can hide the fact that there are thousands more documents in its files. ⁿ⁴⁹ Similarly, if the insurance company can simply produce previous depositions taken of its personnel it not only saves money but reduces the risk its agents will make additional damaging or contradictory statements. ⁿ⁵⁰

The policyholder, who will probably encounter one major insurance coverage problem in its lifetime, gains nothing by agreeing to accept prior discovery completely in lieu of current discovery. Obviously, the use of prior testimony to supplement current testimony can save the policyholder time and money. The policyholder should insist on both past discovery and current discovery in order to determine if the insurance company defendants made consistent arguments and representations. Within the past nine years a great deal of pro-policyholder and anti-insurance company information has become public. Courts that have reviewed this material have issued harsh rulings against the insurance industry. ⁿ⁵¹ It should work to the policyholder’s advantage that prior discovery documents may provide multiple sets of depositions and testimony of insurance company personnel. The discovery materials in prior cases should not be utilized to limit the policyholder’s advantage, and should be furnished to the policyholders by insurance companies.

The Manual recognizes that insurance companies regularly inspect their policyholder’s business operations and make recommendations. ⁿ⁵²  [*66]  In fact, insurance companies have long touted their role as “surrogate regulators.” ⁿ⁵³ This information for “loss prevention” or “loss control” should be furnished by the insurance companies to the policyholder. ⁿ⁵⁴ For example, in the 1960s, Liberty Mutual Insurance Company advised its policyholders to dispose of used cleaning solvents on open ground away from habitation. ⁿ⁵⁵

B. Secrecy

Secrecy of insurance company files has no place in insurance coverage litigation. ⁿ⁵⁶ Such secrecy does nothing more than make it more difficult for policyholders to litigate with insurance companies. ⁿ⁵⁷ Secrecy deprives future policyholders of the benefit of the discovery and litigation successes achieved by other policyholders. Yet the theme of secrecy recurs throughout the Manual. For example, the Manual, states that “due to the potential for prejudice in subsequent cases, the parties should agree that position papers will remain confidential and will be used only in the case for which they were prepared.” ⁿ⁵⁸ Additionally, the Manual asserts that “courts should grant Protective Orders sought by third-parties brought into insurance coverage litigation.” ⁿ⁵⁹ Finally, the Manual advocates that courts should liberally grant confidentiality orders ⁿ⁶⁰  [*67]  and require that settlement agreements should be kept confidential. ⁿ⁶¹

Policyholders should fight all attempts to create secrecy in litigation. Policyholders should insist that the party seeking a protective order meet a very high burden of proof. ⁿ⁶² At the same time, policyholders should insist that insurance shields not be turned into swords by insurance companies seeking to use confidential policyholder information to paint their policyholders as wrongdoers not entitled to protection. ⁿ⁶³

There is another corresponding problem threatening our judicial system that the Manual ignores. Insurance companies not only insist on secrecy, but when they lose an insurance coverage case they attempt to “erase” the adverse precedent by making a settlement with the policyholder that is contingent on the vacatur of the court ruling. ⁿ⁶⁴ Fifty percent of the pro-policyholder judicial decisions are removed of legal precedential value by the insurance industry. ⁿ⁶⁵ This astonishing manipulation and prostitution of our judicial system — probably our most precious heritage — has only recently come to light. ⁿ⁶⁶

 [*68]  Recently, in United States Bancorp Mortgage Co. v. Bonner Mall Partnership, ⁿ⁶⁷ the Supreme Court held that vacatur is an “extraordinary” remedy and that “judicial precedents are presumptively correct and valuable to the legal community as a whole. They are not merely the property of private litigants and should stand unless a court concludes that the public interest would be served by a vacatur.” ⁿ⁶⁸ Furthermore, the Court of Appeals for the Second Circuit recently refused to vacate a banking law decision as part of a settlement, holding that a “[vacatur] would allow a party with a deep pocket to eliminate an unreviewable precedent it dislikes simply by agreeing to a sufficiently lucrative settlement to obtain its adversary’s cooperation in a motion to vacate.” ⁿ⁶⁹ Judge Easterbrook, writing for the Seventh Circuit, also refused to vacate published opinions upon the parties’ settlement stating that “when a clash between genuine adversaries produces a precedent . . . the judicial system ought not to allow the social value of that precedent, created at cost to the public and other litigants, to be a bargaining chip in the process of settlement. The precedent, a public act of a public official, is not the parties’ property.” ⁿ⁷⁰

Finally, Supreme Court Justice Stevens in a dissenting opinion also found that judicial precedents are “presumptively correct” and allowing parties to erase them hurts society as a whole. ⁿ⁷¹ Justice Stevens criticized the viewing of precedents as merely the “property of private litigants,” and advocated that they be allowed to stand “unless a court concludes that the public interest would be served by a vacatur.” ⁿ⁷²

There are other problems not addressed by the Manual. For instance, insurance companies often use lawyers and law firms as  [*69]  claims handlers. This practice has resulted in the protection of normal claims handling documents under the attorney-client privilege. ⁿ⁷³ Claims files are an important source of information for policyholders that is becoming increasingly unavailable. ⁿ⁷⁴

C. Bad Faith

The Manual tacitly endorses two tactics commonly used by insurance companies that amount to bad-faith and a breach of the insurance company’s fiduciary duty to its policyholder. First, the Manual suggests that policyholders should produce “all pleadings, notices and relevant discovery from underlying claims for which coverage is sought.” ⁿ⁷⁵ The goal of such discovery is to enable the insurance companies to paint the policyholder as an evil wrongdoer undeserving of insurance. ⁿ⁷⁶ Insurance companies attempt to use the allegations and documents brought to bear against the policyholder in the underlying litigation against the policyholder in the insurance coverage litigation at hand. ⁿ⁷⁷

This tactic amounts to a breach of the insurance company’s fiduciary obligations to policyholders and should be an act of actionable bad faith. ⁿ⁷⁸ Courts nationwide have held that an insurance company cannot place its interests in denying coverage above the interests of its policyholder. ⁿ⁷⁹

 [*70]  The Manual admits its silent approval of this bad-faith contention. For instance, it states that discovery about the hazardous waste handling practices of a policyholder — sought as relevant to the coverage issue of whether personal injury or property damage was “neither expected nor intended” from the standpoint of the policyholder — could provide assistance to the underlying claimant, or future claimants, in litigating matters against the policyholder. ⁿ⁸⁰ There could hardly be a threat more chilling to a policyholder’s rights.

Continental Casualty Company has represented in judicial proceedings that “if the insurer is motivated by selfish purpose or by a desire to protect its own interests at the expense of its insured’s interest, bad faith exists.” ⁿ⁸¹ Equal consideration of the policyholder’s interests with those of the insurance company seems to be the most benign formulation of the duty of good faith.

 [*71]  Another bad-faith tactic endorsed tacitly by the Manual is the ex parte interviewing of former employees of the insured, where the interviewer fails to adequately disclose his alliance with a party to the litigation. ⁿ⁸² In fact, numerous courts have sanctioned or reprimanded insurance company counsel for their unethical conduct in interviewing former employees. ⁿ⁸³

Policyholders should be aware that insurance companies engage in this conduct in an attempt to find an aggrieved former employee who will testify that the corporation acted intentionally, thus voiding the insurance coverage. Policyholders should vigorously fight the introduction of such “evidence.” George Katz, one of the principal drafters of the 1966 standard form CGL insurance policy wrote that to deny a corporation coverage on the ground that it expected or intended injury which gave rise to the claim, the insurance company

would have to show that the level of management responsible for making policy with regard to the act or omission causing the occurrence expected or intended that injury would result . . . . We also intend to cover other kinds of injury resulting from intentional acts of employees unless such acts are known to and condoned by or directed by those officials of the corporation responsible for the action of the employee that gave rise to the injury or damage. ⁿ⁸⁴

Similarly, Harold Schaffner of the Hartford Insurance Group stated that the definition of occurrence “will not be used to deny coverage unless the expectation or intent is that of the insured (individual), co-partner involved (co-partnership) or responsible  [*72]  official in a management position (corporation).” ⁿ⁸⁵ While insurance companies may conduct ex parte interviews in attempts to gather evidence of corporate intent, courts have not deemed the testimony of non-senior employees useful. Policyholders should argue that the intention of a large corporation can only be determined from the acts of senior management. ⁿ⁸⁶

D. Transaction Costs

Everyone should strongly support measures that reduce the enormous cost of insurance coverage litigation. Until 10 years ago nearly all insurance coverage disputes were resolved by motions for summary judgment. What has changed since then? Not the policyholders and not the insurance policies. The real problem with insurance coverage cases is not, for instance, the absence of proper case management as suggested in the Manual. ⁿ⁸⁷ The real problem is that the practicalities and economics of denying insurance coverage weigh very heavily in favor of insurance companies. ⁿ⁸⁸ For instance, insurance companies offset costs incurred through delays in litigation through claim inflation, the increase in the value of claims during the delay which is offset by the interest the insurance company earns. ⁿ⁸⁹ The policyholder, however, must cover litigation expenses “out of pocket” during an insurance coverage dispute and faces cash-flow problems, sometimes small, but more often severe.

Although prejudgment interest exists to defray expenses resulting  [*73]  from litigation delays, it is rarely awarded. ⁿ⁹⁰ Thus, if a policyholder pays a covered claim in year one and does not recoup the loss from the insurance company until year four, the policyholder has lost, and the insurance company has gained, the time-value of money. ⁿ⁹¹

CONCLUSION

The present litigation system promotes insurance nullification by litigation. The Manual is evidence that not only is insurance not working, but that the insurance industry is a strong force within the American Bar Association. The Manual perpetuates the coverage-defeating myth that insurance coverage disputes are so esoteric, complicated and expensive that only the insurance industry and a handful of big case litigation lawyers are capable of understanding the issues.

Even if the policyholder persists in pursuing an insurance company in court, he will most likely settle the dispute. On the other hand, just by litigating insurance coverage the insurance company is virtually guaranteed that it will pay less than full value.

Thus, the entire litigation system — its enormous costs and lengthy delays — works to the advantage of the insurance company. The system is structured so that the insurance company, by denying a claim, gains the time-value of money and the likelihood that the claim will be settled for less than its full value. Moreover, at the same time the policyholder is fighting an uphill battle against the insurance company’s lawyers, he or she is forced to defend endless allegations of fraud by the claims adjuster. Whether in negotiation or in litigation, the Manual eases the burden of insurance companies.

Legal Topics:

For related research and practice materials, see the following legal topics:
Environmental LawLitigation & Administrative ProceedingsConsent DecreesGovernmentsCourtsJudicial PrecedentsGovernmentsFiduciary Responsibilities

FOOTNOTES:

n1 U.S. GEN. ACCOUNTING OFFICE, GAO/RCED-91-59 HAZARDOUS WASTE: POLLUTION CLAIMS EXPERIENCE OF PROPERTY/CASUALTY INSURERS (1991).

n2 Nicholas Varchaver, Hire Education, CORP. COUNS. MAG., Summer 1994 at 58, 63. Mr. Stapleton also said that the USF&G claims litigation group spends $ 2 million annually, and that USF&G attorneys “pay for themselves in a week.” Id.

n3 Gina Kolata, Patients’ Lawyers Lead Insurers To Pay For Unproven Treatments, N.Y. TIMES, Mar. 28, 1994, at A1; Gavin Souter, Don’t Admit Defeat on Denial, BUS. INS., May 2, 1994, at 45.

n4 Patrick Magarick, Pollution Claims, INS. ADJUSTER, Dec. 1971, at 29, 30. Mr. Magarick was formerly the Vice President and General Claims Manager of the American International Group, a large insurance company.

n5 See Riordan v. Nationwide Mut. Fire Ins. Co., 977 F.2d 47, 50 (2d Cir. 1992); Ann Hood, I’m Insured — I Think, N.Y. TIMES, April 13, 1994, at A21.

n6 Eugene R. Anderson et al., Insurance Nullification By Litigation, RISK MGMT. MAG., Apr. 1994, at 46, 48; Bert Tesoriero et al., The Draconian Late Notice Forfeiture Rule: “Off With The Policyholders’ Heads,” INS. LIT. REG., Apr. 1993, at 120 n.38.

n7 Memorandum in Support of Motion for Partial Summary Judgment at 7-8, National Union Ins. Co. v. Liberty Mut. Ins. Co., 1989 WL 45570 (E.D. La. Jan. 24, 1989)(No. 86-2000).

n8 Tesoriero, supra note 6, at 120.

n9 When an insurance company capriciously denies a claim, it can do so without fear of regulatory reprisal. Insurance regulators rarely take effective steps to protect the rights of individual policyholders. Anderson, supra note 6, at 46; see John Harkavy, Protecting Buyer’s Needs: State Regulators Must Give Policy Form Changes Greater Scrutiny, BUS. INS., July 20, 1992, at 19 (stating that insurance regulators rarely act on behalf of commercial policyholders).

n10 Tesoriero, supra note 6, at 120 n.38; Anderson, supra note 6, at 46.

n11 National Casualty summarized the reality as follows: “It is preferable to litigate multi-insurer coverage disputes between insurers than it is between insurers and insureds, who often lack the resources to wage these disputes.” Reply Brief of Petitioner National Casualty Company at 9, National Casualty Co. v. Great Southwest Fire Ins. Co., 833 P.2d 741 (Colo. Sup. Ct. 1992)(No. 91 SC 562).

n12 As one insurance industry spokesman has stated, “the liability system is fuel for the insurance engine.” Franklin W. Nutter, Search For Stability, BUS. INS., July 17, 1985, at 21.

n13 The Manual was produced by a sub-committee of the Task Force on Insurance Coverage Litigation, of the American Bar Association Section of Litigation. TASK FORCE OF THE COMMITTEE ON INSURANCE COVERAGE LITIGATION, A.B.A. SECTION OF LITIGATION, MANUAL FOR COMPLEX INSURANCE LITIGATION (1993) [hereinafter MANUAL].

n14 MANUAL, supra note 13, at i.

n15 See Jordan S. Stanzler & Charles A. Yueb, Coverage for Environmental Cleanup Costs: History of the Word “Damages,” 14 COLUM. BUS. L. REV. 449, 459 (1990).

n16 John H. Eglof, Comprehensive Liability Insurance: The Outside, BEST’S FIRE & CAS. NEWS, May 1941, at 19 (emphasis in original).

n17 See Marla Jo Aspinwall, Note, The Applicability of General Liability Insurance to Hazardous Waste Disposal, 57 S. CAL. L. REV. 745, 757 (1984). “The very title ‘Comprehensive General Liability Insurance’ suggests the expectation of maximum coverage.” Id.

n18 814 S.W.2d 273 (Ky. 1991).

n19 Id. at 278.

n20 MANUAL, supra note 13, at 1-14.

n21 Id.

n22 Id.

n23 In fact, prior to 1940, the insurance industry sold insurance policies that only provided coverage for named perils. The industry then switched to “all-risk” insurance policies that provided coverage for everything except a few items that were expressly excluded. DONALD S. MALECKI ET AL., 1 COMMERCIAL LIABILITY RISK MANAGEMENT AND INSURANCE 238 (2d ed. 1986).

n24 MANUAL, supra note 13, at xix.

n25 Id. at 3-5.

n26 Id. at 2-34.

n27 Id.

n28 See, e.g., Adolph Coors Co. v. American Ins. Co., No. 92-N-61, 1993 U.S. Dist. LEXIS 3732, at * 4 (D. Colo. Mar. 4, 1993) (sanctioning Liberty Mutual Insurance Company for withholding a key document, stating that “Liberty Mutual’s approach to the discovery process as a whole involves delay, obfuscation, and disingenuity.”) Id.

n29 Insurance companies file “tens of thousands” of briefs against policyholders. Brief and Appendix of Amicus Curiae Insurance Environmental Litigation Association in Support of Continental Insurance Company, Aetna Casualty & Surety Company and Fireman’s Fund Insurance Company of Newark, N.J. at 25 n.21; County of Columbia v. Continental Ins. Co., 83 N.Y.2d 618 (N.Y. App. Div. 1994).

n30 See Morton Int’l, Inc. v. General Accident Ins. Co., 629 A.2d 831 (N.J. 1993), cert. denied, 114 S. Ct. 2764 (1994).

n31 See North River Ins. v. Philadelphia Reinsurance Corp., 831 F. Supp. 1132 (D.N.J. 1993).

n32 The importance of an insurance company claims manual was underscored in the Montrose case, in which the California Court of Appeals stated:

The Travelers Indemnity Company’s amicus brief in support of Admiral urges adoption of the “manifestation of loss” rule, at least in property damage cases. We give to this brief all the weight it deserves when it is juxtaposed with Travelers’ own claim department’s liability coverage manual’s explanation that, under the standard 1966 CGL occurrence policies used by it and Admiral, the “injury must occur during the policy period because coverage is triggered by the injury, not the accident or the wrongful act. . . . When the injury is gradual, resulting from continuous or repeated exposures, and occurs over a period of time, coverage may be afforded under more than one policy — the policies in effect during the period of injury.”

Montrose Chem. Corp. v. Admiral Ins. Co., 5 Cal. Rptr. 2d 358, 362 n.7 (Cal. Ct. App.), vacated, 897 P.2d 1 (1995) (en banc).

n33 For example, CNA Insurance Company stated in an advertisement:

Imagine being surprised in 15 years with a liability lawsuit. You just never know if a service performed today, a product sold tomorrow, or a material used next week may come back to haunt you in the form of a lawsuit. Even if it takes 5, 10 or 30 years to result in a claim, your business would be liable for the loss. That’s why it’s critical to choose an insurance company now with the financial strength to pay claims not just today, but in 20 or 30 years.

NEWSWEEK, Mar. 11, 1991, at 2 (emphasis in original).

n34 Manual, supra note 13, at 2-3.

n35 See Eljer Mfg., Inc. v. Liberty Mut. Ins. Co., 972 F.2d 805 (7th Cir. 1992), cert. denied, 113 S. Ct. 1646 (1993); Gerrish Corp. v. Universal Underwriters Ins. Co., 947 F.2d 1023 (2d Cir. 1991), cert. denied, 504 U.S. 973 (1992); New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162 (3d Cir. 1991), on remand, 778 F. Supp. 812 (D. Del. 1991), rev’d on other grounds, 970 F.2d 1267 (3d Cir. 1992), cert. denied, 507 U.S. 1030 (1993); Fireguard Sprinkler Sys., Inc. v. Scottsdale Ins. Co., 864 F.2d 648 (9th Cir. 1988); American Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983), aff’d as modified, 748 F.2d 760 (2d Cir. 1984); Montrose Chem. Corp. v. Admiral Ins. Co., 897 P.2d 1 (Cal. 1995); Claussen v. Aetna Cas. & Sur. Co., 380 S.E.2d 686 (Ga. 1989); United States Fidelity & Guar. Co. v. Specialty Coatings Co., 535 N.E.2d 1071 (Ill. Ct. App. 1989); Morton Int’l, Inc. v. General Accident Ins. Co. of Am., 629 A.2d 831 (N.J. 1993); Broadwell Realty Servs. Inc. v. Fidelity & Cas. Co., 528 A.2d 76, 84 (N.J. Super. Ct. App. Div. 1987), overruled in part by Morton Int’l, Inc. v. General Accident Ins. Co. of Am., 629 A.2d 831 (N.J. 1993); American Star Ins. Co. v. Grice, 854 P.2d 622 (Wash. 1993); Joy Technologies, Inc. v. Liberty Mut. Ins. Co., 421 S.E.2d 493 (W. Va. 1992).

Appellate courts that do not discuss the regulatory history, the drafting history, or other interpretive insurance industry documents sometimes reach anti-policyholder results. See Hybud Equip. Corp. v. Sphere Drake Ins. Co., 597 N.E.2d 1096 (Ohio 1992), cert. denied, 507 U.S. 987 (1993). But see Smith v. Hughes Aircraft Co., 10 F.3d 1448 (9th Cir. 1993)(discussing drafting and regulatory history); ACL Tech., Inc. v. Northbrook Prop. & Cas. Ins. Co., 17 Cal. App. 4th 1773 (Cal. Ct. App. 1993); Lumbermens Mut. Cas. Co. v. Belleville Indus. Inc., 555 N.E.2d 568 (Mass. 1990); Upjohn Co. v. New Hampshire Ins. Co., 476 N.W.2d 392 (Mich. 1991).

n36 See Oritani Sav. & Loan v. Fidelity & Deposit Co., 989 F.2d 635 (3d Cir. 1993); see also Schering Corp. v. Home Ins. Co., 712 F.2d 4 (2d Cir. 1983); Liberty Mut. Ins. Co. v. Foremost-McKesson, Inc., 751 F.2d 475 (1st Cir. 1985); American Star Ins. Co. v. Ins. Co. of the West, 232 Cal. App. 3d 1320 (1991).

n37 See 44 AM. JUR. 2D Insurance § 1831 (1964).

Reinsurance may be defined as a contract whereby one party, the reinsurer, agrees to indemnify another, the reinsured, . . . against . . . liability which the latter may sustain or incur under a separate and original contract of insurance. . . . “Reinsurance” is also used to denote a contract between two insurers by which one assumes the risk of the other and becomes substituted to its contract, so that on the assent of the original policyholder the liability of the first insurer ceases and that of the second is substituted.

Id.

n38 See North River Ins. v. Philadelphia Reinsurance Corp., 831 F. Supp. 1132 (D.N.J. 1993).

n39 Memorandum of Plaintiff The Travelers Insurance Company in Opposition to The Moving Defendants’ Motion to Compel Responses to Interrogatories at 49-50, Travelers Ins. Co. v. Buffalo Reinsurance Co., 735 F. Supp. 492 (S.D.N.Y. 1990)(No. 86 Civ. 3369).

n40 See, e.g., Unigard Security Ins. Co. v. N. River Ins. Co., 762 F. Supp. 566, 591 (S.D.N.Y. 1991) (recognizing a change in industry custom towards insistence on close compliance with contractual notice requirements).

n41 Brief of Plaintiff-Appellee at 41, Hartford Accident & Indem. Co. v. Calvert Ins. Co., slip op. (3d Cir. 1987)(No. 86-5898). The notice provision should only be enforced where the insurance company has been prejudiced by a policyholder’s long delay in reporting a claim. See Tesoriero, supra note 6, at 113; see also Eugene R. Anderson et al., Notice To An Insurance Company After Hecla Mining, 20 COLO. LAW. 2053, 2054 (1991).

n42 See, e.g., Employers Ins. of Wausau v. Xerox Corp., No. B-87-625, slip op. (D. Conn. May 12, 1989).

n43 MANUAL, supra note 13, at 1-11 to 1-13.

n44 Id. at 1-12.

n45 Id.

n46 Id. at 3-10 to 3-12.

n47 Id. at 3-7 to 3-10 (emphasis added).

n48 Insurance industry trade associations that regularly file anti-policyholder briefs include: Insurance Environmental Litigation Association, American Insurance Association, National Association of Independent Insurers, and Alliance of American Insurers. See Absolute Pollution Exclusion Not Applicable to Maryland Lead Claims, 4 MEALEY’S LIT. REP., Nov. 1995, at 1 (discussing the Insurance Environmental Litigation Association); Alfred R. Light, Deja Vu All Over Again? A Memoir of Superfund Past, 10 NAT. RESOURCES & ENV’T 29 (1995) (explaining the American Insurance Association); Insurance Organizations Agree on Principles for Superfund Reform, 7 MEALEY’S LIT. REP., Jan. 1995, at 16 (discussing the National Association of Independent Insurers); Thomas Mallin et al., The Suit Limitation Defense to a Party Insurance Pollution Claim: Will Insureds’ Late Discovery Arguments Succeed?, 17 N. KY. L. REV. 317 (1990) (discussing the Alliance of American Insurers).

n49 See MANUAL, supra note 13, at 3-7.

n50 Id. at 3-9.

n51 E.g., Morton Int’l Inc. v. General Accident Ins. Co. of Am., 629 A.2d 831 (N.J. 1993), cert. denied, 114 S. Ct. 2764 (1994); Adolph Coors Co. v. American Ins. Co., No. 92-N-61, 1993 U.S. Dist. LEXIS 3732 (D. Colo. Mar. 4, 1993).

n52 MANUAL, supra note 13, at 1-13.

n53 A group of insurance companies and anti-policyholder advocacy organizations filed an amicus brief stating that, “one function of insurance is “surrogate regulation.’ When an insurer chooses to insure a given activity, it evaluates and monitors the insured’s performance.” Brief of Amici Curiae Ins. Envtl. Litig. Assoc. at 36, Technicon Elec. Corp. v. Atlantic Mutual Ins. Co., slip op. (N.Y. Sup. Ct. 1989) (No. 08811/85).

n54 MANUAL, supra note 13, at 1-13.

n55 See generally Check List for Vapor Degreasing Operations (Liberty Mutual Ins. Co. Boston, N.Y.), Nov. 18, 1969 (on file with the Fordham Environmental Law Journal).

n56 See generally Thomas E. Workman, Plaintiff’s Right To The Claim File, Other Claim Files And Related Information: The Ticket To The Gold Mine, 24 TORT & INS. L.J. 137 (1988).

n57 See id.

n58 MANUAL, supra note 13, at 2-6 (emphasis added).

n59 Id. at 3-38.

n60 Id. at 3-43 to 3-49.

n61 Id. at 5-17.

n62 Id. at 3-49 (citing TEX. R. CIV. P. ANN. R. 166(b)(5), 76(a)).

n63 For example, in amicus briefs submitted to various courts, the Insurance Environmental Litigation Association (“IELA”), a trade association of major property and casualty insurance companies formed to present the position of its members in environmentally-related insurance law issues, regularly labels those who submit amicus briefs with a position in opposition to the IELA as “polluter amici.” See, e.g., Brief and Addenda of Amicus Curiae Ins. Envtl. Litig., Meagan Lynn Oates v. The State of New York, 206 A.D.2d 979 (N.Y. App. Div. Dec. 21, 1993)(No. 80404). In one case, the IELA has even tagged as “polluter amici” the Wisconsin Academy of Trial Lawyers, the Wisconsin State Public Intervenor, and a local group called, Environmental Decade. See Brief of Amici Curiae Wis. Ins. Alliance and Ins. Envtl. Litig. Assoc., James R. Fortier v. Flambeau Plastics Co., 164 Wis. 2d 639 (Wisc. Ct. of App. 1989) (No. 89-0196, 89-0956).

n64 See Philip Carrizosa, Making the Law Disappear: Appellate Lawyers Are Learning to Exploit the Supreme Court’s Willingness to Depublish Opinions, CAL. LAW., Sept. 1989, at 65.

n65 Id.

n66 See Saundra Torry, When Decisions are Written in Disappearing Ink, WASH. POST, July 25, 1994, at F7; Roger Parloff, Rigging the Common Law, AM. LAW., Mar. 1992, at 74; Stacy Goron, Vanishing Precedents, BUS. INS., June 15, 1992, at 1; Jill E. Fisch, Rewriting History: The Propriety of Eradicating Prior Decisional Law Through Settlement and Vacatur, 76 CORNELL L. REV. 589 (1991).

n67 115 S. Ct. 386 (1994).

n68 Id. at 392.

n69 Manufacturers Hanover Trust Co. v. Yanakas, 11 F.3d 381, 384 (2d Cir. 1993).

n70 In re Memorial Hospital, Inc., 862 F.2d 1299, 1302 (7th Cir. 1988).

n71 Izumi Seimitsu Kogyo Kabushiki Kaisha v. United States Philips Corp., 114 S. Ct. 425, 431 (1993) (Stevens, J., dissenting).

n72 Id.

n73 But see National Farmers Union Prop. and Casualty Co. v. District Ct. for the City and County of Denver, 718 P.2d 1044, 1048 (Colo. 1986) (en banc) (holding that an insurance company “may not avail itself of the protection afforded by the work product doctrine simply because it hired attorneys to perform the factual investigation into whether the claim should be paid.”).

n74 But see Workman, supra note 56, at 13.

n75 MANUAL, supra note 13, at 2-8.

n76 See supra note 63.

n77 Insurance companies regularly file briefs calling policyholders “polluters” who are undeserving of insurance coverage. See, e.g., Reply to Plaintiff’s Memorandum of Law In Opposition to Defendants Truck’s and Fireman’s Fund’s Motion for Summary Judgment Re: “Known Risk, Known Loss,” Adolph Coors Co. v. American Ins. Co., slip op. (D. Colo. Nov. 9, 1994)(No. 92-N-61).

n78 See Adolph Coors Co. v. American Ins. Co., slip op. (D. Colo. Nov. 9, 1994)(No. 92-N-61) (awarding attorneys fees for prosecuting insurance coverage where Liberty Mutual breached its duty to defend Coors).

n79 See LaRoca v. State Farm Mut. Auto. Ins. Co., 329 F. Supp. 163, 171 (W.D. Pa. 1971), aff’d, 474 F.2d 1338 (3d Cir. 1973); Burnaby v. Standard Fire Ins. Co., 20 Cal. Rptr. 2d 44, (Cal. Ct. App. 1993)(holding that “an insurance company ‘may not put its own interest above that of the insured’s interest.’”), cert. denied, 114 S. Ct. 884 (1994); Lieberman v. Employers Ins., 419 A.2d 417, 423 (N.J. 1980) (“The insured’s interests must necessarily come first.”); Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 323 A.2d 495, 505 (N.J. 1974) (“The relationship of the [insurance] company to its insured regarding settlement is one of inherent fiduciary obligation.”); Hartford Accident & Indem. Co. v. Michigan Mut. Ins. Co., 462 N.Y.S.2d 175, 178 (App. Div. 1983)(“An insurer is obligated to act with undivided loyalty; it may not place its own interests above those of its assured.”), aff’d, 463 N.E.2d 608 (N.Y. 1984); Tank v. State Farm Fire and Casualty Co., 715 P.2d 1133, 1137 (Wash. 1986) (en banc) (holding it is bad faith for an insurance company to engage in “any action which would demonstrate a greater concern for the insurer’s monetary interest than for the insured’s financial risk.”); WILLIAM M. SHERNOFF ET AL., INSURANCE BAD FAITH LITIGATION § 1.05 (1984) (“The relationship between the insurer and insured has a fiduciary character . . . . By the inherent nature of the services to be provided, insureds place great trust and confidence in their insurance coverage and their insurers. In a practical sense, the insurer occupies a position comparable to that of a trustee for the benefit of its insured. This is the very essence of a fiduciary obligation.”).

n80 MANUAL, supra note 13, at 3-44.

n81 Plaintiff’s Memorandum of Law for Trial at 13, Continental Casualty Co. v. Great American Ins. Co., 739 F. Supp. 929 (N.D. Ill. 1990)(No. 86-C-3938), quoting Commercial Union Ins. Co. v. Liberty Mutual Ins. Co., 393 N.W.2d 161, 164 (Mich. 1986).

n82 MANUAL, supra note 13, at 3-38 to 3-39.

n83 See, e.g., In re Industrial Gas Antitrust Litigation, No. 80-C-3479, 1986 WL 1846 (N.D. Ill. Jan. 28, 1986)(failure of plaintiff’s attorneys to impress on their investigators the necessity of immediately determining whether their ex parte contacts with defendant’s present employees was improper); National Union Fire Ins. Co. v. Stauffer Chem. Co., No. 87C-SE-11, 1990 WL 140430 (Del. Super. Ct. Sept. 10, 1990)(court imposed sanctions for improper investigator conduct); see also Lawrence Weiss & Adam A. Reeves, The Ex-Parte Explosion: When Do Communications With Corporate Employees Result In Ethical Misconduct?, 31 JUDGES’ J. 26 (1992).

n84 Letter from George Katz, Secretary, Underwriting Dept., Casualty & Surety Div., Aetna Casualty & Surety Co., to Robert F. Bauer, Assistant Secretary, Johnson & Higgins (Aug. 31, 1966) (emphasis added)(on file with the Fordham Environmental Law Journal).

n85 Letter from Harold Schaffner to Robert F. Bauer, Assistant Secretary, Johnson & Higgins (Aug. 25, 1966) (emphasis added)(on file with the Fordham Environmental Law Journal).

n86 See Ashland Oil Inc. v. Miller Oil Purchasing Co., 678 F.2d 1293, 1317 (5th Cir. 1982)(finding that knowledge by high-level officers of a waste product’s propensity to contaminate crude oil stock is evidence that the corporation “expected” or “intended” to inject hazardous wastes into a crude oil pipeline); see also Premium Fin. Co. v. Employers Reins. Corp., 979 F.2d 1091 (5th Cir. 1992); Federal Deposit Ins. Corp. v. Mmahat, 907 F.2d 546 (5th Cir. 1990); Hoechst Celanese Corp. v. National Union Fire Ins. Co., 1994 WL 721633 (Del. Super. Ct. Apr. 22, 1994).

n87 MANUAL, supra note 13, at 2-3.

n88 Id. at xix.

n89 George M. McCabe & Robert C. Witt, Investment Income and Claim Costs Inflation in Insurance, CPCU J., June 1983, at 117.

n90 Home Ins. Co. v. Certain Underwriters at Lloyd’s London, 729 F.2d 1132 (7th Cir. 1984).

n91 Anderson, supra note 6, at 46.