NEW REPORTING AND BILLING CYCLE
This is the first of the new quarterly billing and reporting cycle. To accommodate the many clients who have a February, August or October insurance policy anniversary date, we have switched to quarters ending in January, April, July and October, with reporting the following month.

WHEN EXCESS INSURANCE CAN CAUSE A HEADACHE AND HOW TO RELIEVE THE PRESSURE
Many of our clients have excess insurance over their first layer of coverage, which provides a sense of security for the “shock loss” claim that may be looming or, worse, a spate of claims arising from a batch of “bad” products. Excess policies provide indemnity for claims that exceed the limits of insurance on any single claim, and maintain a right of defense and indemnity even when the total aggregate limits of the first claim are exhausted. There can, however, be a down side to excess insurance. As you may be aware, where there is a claim that might exceed the limits of your coverage, and a demand is made at or in excess of your policy limits, the insured has the right to demand of their insurer that the claim be settled within the policy limits. Depending on state law (usually where the claim is made, but that involves a “choice of law” analysis that goes beyond this article) if the insurer does not make a good faith effort to resolve the claim within policy limits, it can be responsible for any judgment in excess of the policy limits. Excess insurers sometimes try to take advantage of this same rule, and we recently experienced that circumstance. A client had a $2 million first layer of coverage, along with an excess layer of $3 million (different insurer).

The plaintiff sent a demand letter offering to settle the claim for the limits of the first policy, and asserting that he believed that he could obtain a judgment of approximately $4 million. As required by the policy, the excess insurer was then put on notice of the claim. The attorney for the insured estimated that, in a worst case scenario, the plaintiff could recover a maximum of $300,000 with an adverse verdict. We were able to convince the primary insurer that the liability claim was weak, and that they should proceed to trial. Enter the excess carrier, who demanded that the underlying carrier settle the case within policy limits. It demanded that the insurer settle the case by increasing the offer and, if necessary, to pay the latest demand, substantially reduced before trial.

The carrier’s adjuster on the file consulted with the assigned attorney, and with this office, and resisted the increasingly hostile demands of the excess carrier (and his own boss, who viewed a trial as a device to be avoided at all cost). Perhaps luckily, the plaintiff began increasing his demands above what even the adjuster’s boss viewed as reasonable. To protect themselves, the insurance carrier retained coverage counsel, who performed research for the involved state, and sent a scathing letter advising that, provided there is a valid defense and the insurer acts reasonably, the underlying insurer does not have a duty to settle a claim within policy limits just because the demand (and potential risk) could be greater than the limits of the first layer of insurance.

Despite the fact that in his opening statement, the plaintiff’s attorney informed the jury that, at the close of the case he would be asking for in excess of $700,000 (well below the limits of insurance), the excess insurer continued to pressure the underlying insurer to settle the case. In a conversation with this office, the excess carrier explained its fear that juries can do “crazy” things. The position of the excess carrier is, on one level, understandable.

It is their desire to minimize exposure of their dollars, while collecting premiums. The position of the insured, of course, is that where a product is not defective, the policy’s provisions to provide a “defense” is just as important, perhaps more important, than the indemnity provision. Still, if the excess insurer could force the underlying insurer to settle within policy limits, it would result in the excess carrier not risking a penny of their layer of coverage.

Rarely do excess insurance policies become seriously implicated, and usually in those instances, strong communication prior to trial gets everyone on the same page. But the excess carrier’s interest in avoiding any exposure can work against the insured. Our clients would view excess coverage as an expense to ensure that they can defend their products and minimize their risk, by providing additional coverage. They pay good money for this coverage, and it is an anathema to them that a claim should be settled for hundreds of thousands of dollars (or millions), when there is no liability. The excess carrier’s position can result in a huge loss reported at the time of renewal. But the excess carrier does not care, as its only goal is to avoid any exposure whatsoever. After all, it has already received the premiums. So, how to handle the excess carrier? First, it is essential to work with the underlying insurer to try to make the strongest case possible for taking the dubious case to trial.

This does not mean minimizing the risk, but showing the underlying carrier the plan for addressing any weakness in the defense, identifying the weaknesses in the plaintiff’s claim, and demonstrating the strengths of the defense. Without the support of the underlying insurer, a settlement within policy limits (particularly in the face of an aggressive excess insurer, is all but certain). Second, you must be prepared (if possible) to show the underlying insurer the law for the involved state (either your state, or the claim state or the excess carrier’s state – again, a choice of law analysis) would not result in the underlying insurer being responsible for any excess judgment. Do not be surprised if they get their own coverage counsel to confirm your argument. What you are trying to do is provide ammunition for the adjuster to resist the efforts of the excess carrier who will also need the information for superiors that must approve a trial decision, and will likely have a predisposition to settlement in any event.

Under these circumstances, you must try to convince his underlying insurer not only that there is a duty to defend the case, but that the chance of success is great, and that the chance of an adverse verdict is small; and that if there is an adverse verdict, it will likely not exceed the limits of coverage; and that in the event of an excess verdict, the underlying insurer will not be on the hook for any excess amount of that claim. Further, the underlying insurer may fear that it may be on the hook for coverage of other claims within the policy period that have not been resolved, but which are no longer covered (due to the aggregate being exhausted). It is likely that the excess insurer will assert (rightly or wrongly) that it is not responsible for those claims, either, since they would have been covered under the first layer had the underlying insurer settled the initial case within the limits of the policy.

In our recent case, we were fortunate. The adjuster stood up to his superiors, and to the excess carrier, and we proceeded to trial, and to a defense verdict. The adjuster was vindicated. The attorney was vindicated. Our office was vindicated, and justice was served. Not surprisingly, we never got an “atta boy” from the excess carrier.

RRS ACTIVITY REPORT
Over the past quarter RRS closed 14 claims. Five of those were lawsuits. Four lawsuits stayed within RRS control, by insurer acquiescence or because they were within the SIR. Two resulted in dismissals on motions for summary judgment, and two were settled (one for $7,500, one for $1,800). The other lawsuit was controlled by the insurer, who settled the claim for $110,000.00. We also closed nine claims. Five claims were settled (average $100.00 per claim). Four claims were closed without payment. There were seven additional lawsuits that were not closed, but remain open because the time for appeal has not expired. We remained in control of six of those claims by acquiescence or because the claim was within the SIR at the time of trial; one lawsuit proceeded to trial with the insurer in control, but working closely with us on liability analysis. Of those seven claims, three were dismissed on motions for summary judgment. Four proceeded to trial, all returning defense verdicts. These will be reported in upcoming quarters when they become finally closed (at least two have indicated a probable appeal), but we wanted you to know – we are not sitting on our hands over here!