ASYMMETRICAL INFORMATION OVERLOAD.

 ...  Today is the 48th year after the assassination of President John F. Kennedy.  God rest his soul.

 

    Unbalanced access to information is increasingly reported as a part of many otherwise unrelated relationships.  "Information asymmetry," for example, is a recognized stimulus for many insurance companies to initiate settlement negotiations even before First-Party Bad Faith Claims are filed against them.  It is enough for those companies that their claim handling behavior, known to them but not to their Policyholders, will likely result in First-Party Bad Faith Claims including fraud, unfair claim settlement practices, and the like.

   Whether they can defeat those claims is besides their point at the time they initiate settlement negotiations to prevent First-Party Bad Faith Claims from being filed.  Settlements of First-Party Bad Faith Claims which have not yet been made, based on so-called asymmetrical information, are less expensive in settling claims which could be made than paying settlements or judgments after First-Party Bad Faith Claims are made.  See Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 9:5, "The Question of Bad Faith--Presence or Absence of Fault" (Third Edition 2011 West Publishing Co.).

    Unbalanced access to information also pervades the dealings of financial firms, particularly their dealings in derivatives.  The counterparty paying for the presumed protection of a Credit Default Swap, for example, ordinarily does not have nearly as much knowledge about how that derivative will function in that particular situation as the intermediary has or as the issuer has.

   Counterparties may not even know the identities of the people who will issue a binding ruling on when that CDS pays off for a "credit event," meaning "payout".  See Gretchen Morgenson, "Fair Game / Scare Tactics in Greece" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, November 20, 2011).

   Unbalanced information in relationships is one of the elements of a Fiduciary relationship.  Fiduciaries are recognized by Law and by Equity in a whole range of situations.  One of their common elements is unbalanced access to information, i.e., one party to the relationship -- the Fiduciary -- has greater knowledge than the other.  See Wall, "Litigation and Prevention of Insurer Bad Faith," supra, § 3:34, "Legal Bases of Liability in Settlement--Final Elements:  Remedies for Fiduciary Bad Faith".  Fiduciaries are not allowed to abuse their Fiduciary relationships by putting their own interests above the interests of the other party.  See id., § 3:32, "Legal Bases of Liability in Settlement--First Element:  Fiduciary Relation".

   Unbalanced access to information is also a frequent element in fraud claims and causes of action.  Fraud need not be intentional.  Florida is an example of a place where the Courts recognize negligent misrepresentation.

   Asymmetrical information overload.  Fraud allegations and Breach of Fiduciary Duties claims should not frighten anyone, except perhaps the Securities and Exchange Commission and the parties engaged in the sorts of business practices that time after time lead to such allegations and claims.  What such parties do now, they and others did in the past.  Their conduct used to be called "deception," "flim-flam," and "lying."  Currently their conduct is described as proceeding from "asymmetrical" or "unbalanced access to information".

   By whatever name, it smells the same.

 

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Comments

[Brown]

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BROWN
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