Proposals to allow Liability Insurance Companies to always consider the costs of defense in determining whether they may be subject to standards of Good Faith and Fair Dealing in settling claims against their Insureds, may not take account of the whole picture. In fact, taking account of the costs of defense in deciding whether, how or when to settle cases against somebody else, or to settle cases against yourself, sometimes seems counter-intuitive.
Take for example the recent case of Cincinnati Insurance Co. v. Amerisure Insurance Co., 2012 WL 4033724 (S.D. Ala. September 12, 2012). Cincinnati Insurance "paid the sum of $168,842.06 in [defense] attorney's fees and expenses," presumably before it decided on paying a $25,000 settlement on behalf of an Insured, a General Contractor sued over alleged construction defects.
In an analogous case, albeit a First-Party Bad Faith case in which the Insurance Company defended itself, the Pennsylvania Superior Court held on appeal that when the case is retried, the Trial Court should admit evidence that the Insurance Company paid its defense attorneys nearly $1 Million, allegedly pursuant to a litigation strategy documented by its own claims manual to pursue practices which deter the filing of small value claims. Berg v. Nationwide Mut. Ins. Co., 2012 PA Super. 88, 44 A.3d 1164, 1176-77 (Pa. Super. April 17, 2012), Download Berg v. Nationwide Mut. Ins. Co. (Pa. Super. Ct. No. 12 MDA 2008, Opinion Filed April 17, 2012) PUBLIC ACCESS.
Last but hardly least, Bank of America has spent much on the costs of defense in lawsuits challenging its acquisition of Merrill Lynch. Jessica Silver-Greenberg and Susanne Craig described BOA's costs of defense payments this way, in a post on Dealbook Blog on New York Times Online, on September 28, 2012: "The bank has spent billions of dollars to defend lawsuits related to Countrywide's mortgage business. In the second quarter of 2011, for example, the bank reported an $8.8 billion loss, mainly related to a settlement with mortgage investors." {Emphasis added.} As they say, "That's Billions, with a 'B'."
The costs of defense may be a theoretical construct more than a term with universally understood meaning. In other words, you may know or think you know what you mean when you use the term, but it almost certainly will not mean the same thing to someone else.
Please Read The Disclaimer.
Comments