Claims and Bad Faith Law Blog

SETTLE SOME, BUT INVESTIGATE ALL.

It seems fair to say that this is now the settled rule under Florida law:  A liability insurance company can settle with some claimants and not others, but it has a legal duty to fully investigate all claims.[1]

[1] See Primeaux v. Progressive Am. Ins. Co., 620 F. Supp. 3d 1173, 1179 (M.D. Fla. 2022).

 

Investigation and settlement are discussed in the context of both third-party and first-party insurance bad faith cases in both Volumes of DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (West Publishing Co. 3d Edition, 2024 Supplements in process).

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IS A DEMAND ALWAYS NECESSARY FOR BAD FAITH IN SETTLEMENT?

After citing Illinois, South Dakota, and Tennessee cases, the Court in Sacred Heart Health Serv's v. MMIC Ins., Inc., ___ F. Supp. 3d ___, No. 4:20-CV-4149-LLP, 2023 WL 3742544, at *26 (D.S.D. May 31, 2023), held that "an insurer may be liable for bad faith even if it did not receive a demand to settle within policy limits."  This case will be cited in DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (West Publishing Co. 3d Edition in 2 Volumes, 2024 Supplements to both of the 2 Volumes in process).

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COBLENTZ AGREEMENTS: PROFFER EVIDENCE OF REASONABLE AMOUNT AND GOOD FAITH.

In Nat'l Trust Ins. Co. v. Savoy Hotel Ptrs., LLC, ___ F. Supp. 3d ___, No. 23-20860-Civ-Scola, 2023 WL 8018880 (S.D. Fla. Nov. 20, 2023), a  federal judge in the Southern District of Florida followed and extended Florida law treating a Coblentz agreement as a special kind of settlement agreement.

          A Coblentz agreement is only enforceable in a case where an insurance carrier wrongfully refuses to defend its insured, the Court pointed out.    A settlement agreement is allowed under Florida law in such a case, whereby the insured settles the case itself with the underlying plaintiff, and the underlying plaintiff agrees to collect the amount of the settlement only from the insurance carrier.  Called a Coblentz agreement after an early case in which these arrangements were approved, the Court summarized the legal requirements of a Coblentz agreement as follows:

The enforceability of a Coblentz agreement depends on whether a plaintiff can show that (1) there was coverage under the policies at issue, (2) the insurance company wrongfully refused to defend, and (3) the settlement amount was both “reasonable” and made in “good faith.” 

National Trust Insurance Co., 2023 WL 8018880, at *2.

          In the National Trust Insurance Co. case, the Court granted the insurance company's motion to dismiss on the grounds that the plaintiff had not adequately alleged either that the settlement amount was reasonable or that the settlement was made in good faith.  However, the Court was not done in this case.  The Court granted the motion to dismiss with prejudice.  In case that was not enough, apparently, and since the plaintiff Savoy Hotel Partners, LLC had not asked for leave to amend, the Court added that dismissal was without leave to amend.

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THERE'S A GOOD FAITH DUTY TO DO something.

TOTALLY IGNORING THE INSURED'S RISK IS NOT AN OPTION.

"Where the liability is clear and injuries are so serious that an excess judgement is likely, an insurer must do more than merely wait for a settlement offer; the insurer has an affirmative duty to initiate settlement negotiations."[1] 

 

[1] Ellis v. GEICO Gen. Ins. Co., 541 F. Supp. 3d 1371, 1380 (S.D. Fla. 2021), aff'd with opinion, No. 21-12159, 2022 WL 454176 (11th Cir. Feb. 15, 2022).  The trial court granted the carrier's motion for summary judgment of no bad faith in Ellis.

 

The Duty to Initiate Settlement Negotiations is explored at length in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:16 (West Publishing 3d Edition, 2022 Supplements forthcoming).  With the forthcoming publication of its 2022 Supplements, LITIGATION AND PREVENTION OF INSURER BAD FAITH draws on over 5,000 authorities.

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SETTLEMENT FOR BAD FAITH CLAIM NOT A FLORIDA COLLATERAL SOURCE.

ONE FOR THE FIRST OF DECEMBER. 

In Ellison v. Willoughby, 326 So. 3d 214 (Fla. 2d DCA 2021), one Willoughby asserted claims for Uninsured Motorist coverage and for bad faith against his UM carrier.  Mr. Willoughby settled all his claims for a single undivided amount.  In other words, Willoughby's settlement with his UM carrier did not state how much would go to coverage and how much was paid on account of the alleged bad faith.

          Florida's Second District Court of Appeal held that under these circumstances, and perhaps in any case involving settlements of bad faith claims, not a penny of Mr. Willoughby's settlement was a "collateral source" under Florida law here:

    Moving on to whatever portion of the settlement is allocable to Mr. Willoughby's claim for bad faith damages, the above-cited cases (upon which the trial court relied to deny setoff) involved settlements for UM benefits within the applicable policy limits. We have uncovered no case law addressing the question of whether extracontractual damages paid to a first-party claimant on a UM bad faith claim are subject to setoff. By statutory definition, “collateral sources” means “payments made to the claimant ... pursuant to ... automobile accident insurance that provides health benefits or income disability coverage; and any other similar insurance benefits.” § 768.76(2)(a) 2 (emphasis added). An extracontractual payment on a bad faith claim does not appear to meet this definition because it is not a payment of “benefits.”

Ellison v. Willoughby, 326 So. 3d at text following Headnote 10 (page numbers not available from Westlaw at the time of this blog article).

          The appellate court had previously affirmed the trial court's holding that UM coverage payments were not "collateral sources" under Florida law, either.

          The appellate court certified its decision on the UM settlement of "Mr. Willoughby's claim for bad faith damages" to the Supreme Court of Florida as a question of great public importance, in the following words:

IS A SETTLEMENT PAYMENT MADE BY AN UNINSURED MOTORIST INSURER TO SETTLE A FIRST-PARTY BAD FAITH CLAIM SUBJECT TO SETOFF UNDER SECTION 768.041(2) OR A COLLATERAL SOURCE WITHIN THE MEANING OF SECTION 768.76?

Ellison v. Willoughby, 326 So. 3d at text following Conclusion.

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SECRET SETTLEMENT TALKS IN FACE OF KENTUCKY BAD FAITH ALLEGATIONS.

In Rebennack v. Westchester Fire Ins. Co., ___ S.W.3d ___, Nos. 2018-CA-1494-MR &  2019-CA-0078-MR, 2020 WL 6811652, at *1-*2 (Ky. Ct. App. Nov. 20, 2020) (stated NOT FINAL), Kentucky's Court of Appeals kept any mention of settlement talks in the appellate briefs a secret.

Despite the fact that there were allegations of underlying bad faith failure to settle.

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EXPERT TRIAL JUDGE HELD NOT EXPERT NEGOTIATING GOOD FAITH SETTLEMENTS.

A former trial judge's expert testimony was excluded on the issue of negotiating good faith settlements in Columbia Cas. Co. v. Ironshore Specialty Ins. Co., C.A. No. 15-197 WES, 2019 WL 2176306 (D.R.I. May 20, 2019).

    To be fair, the federal court's reasoning in this case would have excluded all expert testimony regarding a civil litigant's reasonable expectations, which is how the federal judge framed the issue. Testimony on that issue was "irrelevant," said the federal judge excluding the expert testimony, "because the average civil litigant is a party representing his own interests, not a fiduciary representing the interests of another." Columbia Casualty, 2019 WL 2176306, at *5 (emphasis in original).

    The excluding judge allowed, however, that if the expert judge's testimony had been proffered differently in that case, such as addressing the expert judge's own experience "with insurance contracts and settlement negotiations of insurance claims specifically, or presented 'standards of settlement practice' that were tailored to the unique fiduciary duties imposed upon insurance companies," then the expert's testimony might have been relevant and so admissible in the courtroom of the federal judge.  Columbia Casualty, 2019 WL 2176306, at *5.

The issue of the Insured's Right to Contribute as Distinct From Insurer Insistence That the Insured Contribute to Settlement, is discussed based on the decided case law including the Columbia Casualty decision, in Section 3:13 in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (Thomson Reuters West, 3d Edition, forthcoming 2020 Supplement).

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HOW WE GOT TO SEE THE OPIOID DATABASE, Continued.

Part two of two.

It was a near thing. We got to see the opioid database because two judges voted for us to see it. They also voted for us to see the documents related to it.

In a 2-to-1 decision, the majority on a panel of the Sixth Circuit held that the trial judge’s decision to conceal the opioid information was “bizarre” and “irrational.” In re: National Prescription Opiate Litigation, 927 F.3d 919, 932 (6th Cir. 2019). The trial judge previously ruled simultaneously that keeping the opioid information secret was not important and also that it was important to keep the opioid documents – and the opioid database – secret.

Corporate media accounts have generally been outstanding in their reporting on this issue but many nonetheless seem to say, erroneously, that the trial judge’s ruling in this litigation made the opioid database and the documents available to the public. See, e.g., Jan Hoffman, Katie Thomas and Danny Hakim, 3,271 Pill Bottles, a Town of 2,831: Court Filings Say Corporations Fed Opioid Epidemic, NEW YORK TIMES, Saturday, July 20, 2019, p. A1 (online July 19, 2019; the New York Times may charge to view online). The District judge in this case has been shown in something of a favorable light in the corporate media generally, and generally deservedly so. See, e.g., Jan Hoffman, Groundwork is Laid For Opioids Settlement That Would Touch Every Corner of U.S., NEW YORK TIMES online June 14, 2019 (New York Times may charge for online access).

However, in this case the trial judge did not make the database or the documents available to the public. To the contrary, the trial judge ruled to make the opioid documents and the opioid database unavailable to the public.

It was the Sixth Circuit panel of appellate judges that ruled in favor of the importance of public access guaranteed by the First Amendment to the U.S. Constitution. Actually, the ruling was made by two of those judges. Their names? Eric L. Clay, who wrote the opinion, and Robert A. Griffin, who concurred in the opinion completely.

To say again, it was a near thing.

Download IBF 07.25.19.

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LESSONS ON SECRET SETTLEMENT NEGOTIATIONS FROM A PRO SE CASE.

A pro se Fair Labor Standards Act case may have some lessons for keeping settlement offers secret in insurance bad faith cases.

In Chenault v. Randstad USA Mfg. & Logistics,[1] Mr. Chenault, representing himself without a lawyer, filed a "Motion to Facilitate Settlement."  He attached "the settlement offer" or, alternatively, "the settlement letter" that he got from the defendants, using the judge's descriptions of the letter.

The defendants asked the judge to seal the letter and so keep the public from viewing the letter in the Court file. 

The reason that the judge gave for sealing the "settlement letter" in this case reveals a lot about how the law treats the secrecy of settlement negotiations.  She ruled:

Because “[t]here exists a strong public interest in favor of secrecy of matters discussed by parties during settlement negotiations,” the Court will Order the Clerk of the Court to place the settlement letter under seal in order to preserve the record. Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 980 (6th Cir. 2003). The Court will not consider the settlement letter for any purpose.[2]

Substitute an insurance company accused of bad faith in the place of the defendants in this case, and the lessons of secret settlement negotiations is clear:  Settlement negotiations of the case at bar are a secret.  Period.

The author is currently at work on 2019 Supplements to both volumes of his Book, Litigation and Prevention of Insurer Bad Faith (Third Edition, Thomson Reuters West), including sections on secrecy and settlements. 

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[1] Chenault v. Randstad USA Mfg. & Logistics, No. 5:18-CV-276-KKC, 2018 WL 3964811 (E.D. Ky. August 17, 2018).

[2] Chenault v. Randstad USA Mfg. & Logistics, No. 5:18-CV-276-KKC, 2018 WL 3964811, at *2 (E.D. Ky. August 17, 2018) (emphasis added).

 

CARRIER CHALLENGE FAILS CONTENDING EXPERT REQUIRED TO SUPPORT INSURED'S SETTLEMENT.

In Sykes v. Singh, ___ P.3d ___, No. 76009-2-I, 2018 WL 5146747 (Wash. Ct. App., Div. 1, filed August 13, 2018, publication ordered October 16, 2018), a liability carrier refused to defend its insured, the insured settled rather than face an underlying trial and verdict, and the carrier challenged the reasonableness of the insured's settlement.  Standard stuff in refusal-to-defend cases these days.

    In this particular case, the insured's settlement included what the appellate court called "general damages."  What the court meant by this phrase is explained in more detail in the quotation below.  The interesting thing about this case is the carrier's argument.

    The carrier argued in this case that the insured's settlement was not reasonable because no expert testimony was provided to support the reasonableness of the insured's settlement particularly his pain and suffering and emotional distress, and loss of consortium.

    In other words, instead of contending that experts are "hired guns" or the like when they testify about personal injury damages, in this case the carrier contended that experts are indispensable to proving personal injury damages.

    The appellate court was having none of it:

    ¶ 26 Zurich also challenges the general damages. The settlement allocated approximately $150,000 in general damages for Sykes and $30,000 for the loss of consortium by his family members. Sykes attributed his general damages to pain and suffering and the emotional trauma of the accident. Zurich objects to the absence of expert testimony but fails to show that expert testimony is needed to support an award of general damages. Support for the general damages was provided by Sykes’ own testimony along with declarations from friends and family that after the accident, Sykes became depressed and withdrawn. Zurich argues that the allocation to the Sykes children for loss of consortium was error in view of Sykes’ testimony that he spent more time with them and had greater appreciation for them as the result of the accident. But in view of the evidence that Sykes suffered from ongoing depression, it was reasonable to include loss of consortium damages in the settlement.

Sykes v. Singh, ___ P.3d ___, No. 76009-2-I, 2018 WL 5146747, at p. *5, ¶ 26 (Wash. Ct. App., Div. 1, filed August 13, 2018, publication ordered October 16, 2018).

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QUIET IN THE COURTS! GOOD FAITH CLAIMS FILES.

There are many insurance bad-faith claims.

Most of them settle.

Virtually all insurance bad-faith cases in litigation include fights over production of claims files.  If you are the claims representative for the insurance company who handled the underlying case against the policyholder, or who handled the claim of the policyholder for coverage, then it is your file that supposedly show your company's risk of bad-faith exposure.

Some cases are likely to lead to large verdicts against your company for bad faith.  Most, probably not.  Consider an alternative.

Your claims handling shows your good faith.  Your claims file is good faith on display.

Consider an alternative to concealing evidence and making secret settlements.

When you have handled this claim like so many other claims in good faith, your claims file shows your good faith. 

Maybe not all fights over production of your claims file are necessary.

Maybe not all bad-faith claims need to be settled either.

Consider putting good faith on display.

Please Read The Disclaimer.  ©2018 Dennis J. Wall.  All Rights Reserved.

"INJURY IN FACT": WHAT HAPPENS TO BAD FAITH STATUTES?

New Section 9:14.50 contains only a part of the new material in the combined 661 pages of text excluding Tables in the 2018 Supplements to Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Third Edition Thomson Reuters), in addition to sections of new material including on Force-Placed Insurance, Defenses in Force-Placed Insurance cases including the Filed Rate Doctrine, the Status of Social Security, and Settlement of First Party Bad Faith Claims including secrecy agreements and sealing orders, among others.

Section 9:14.50 is titled, "'Injury in Fact':  What Happens to Bad Faith Statutes" when courts require allegations and proof of what they call "injury in fact" in the litigation of bad-faith claims?

I want to give you a link to the new Section but the publisher will not let me right now.  I will ask for Thomson Reuter's copyright permission and if they agree, I will provide you the link in a following post here and on Claims and Issues Blog!

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ALI'S RESTATEMENT OF LIABILITY INSURANCE LAW AND THE JURY SYSTEM.

This message was so good, we had to say it again!

The American Law Institute's Restatement of Liability Insurance Law is up for approval at the ALI's Annual Meeting this year.  I believe the vote will come up on Tuesday, May 22nd.

Controversy, and may I say confusion, have been generated by some insurance industry interpreters on the issue of liability carriers' exposure for liability beyond their policy limits in a very narrow set of circumstances.  You might not know that the area of controversy is limited unless you were paying pretty close attention.

The issue that is controversial to these people is simply whether  bad-faith-in-settlement cases can go to the jury when the facts include a liability insurance carrier's failure to initiate settlement negotiations, but there was no settlement demand from the claimant within policy limits.

The draft Restatement up for approval reflects simply that, yes, a bad-faith-in-settlement case can go to the jury when the facts include a liability insurance carrier's failure to initiate settlement negotiations, but there was no settlement demand from the claimant within policy limits.  It depends on all the circumstances.

It does not require that any such case ever go to the jury.  Whether a given bad-faith-in-settlement case actually goes to the jury depends on other factors under the Restatement and under the prevailing case law, including such factors as the strength of the underlying liability case against the policyholder and the size of a damages verdict if any against the policyholder.

But you would not necessarily know this from the confusion and the controversy generated around this small set of cases from a large set of corporations and their lawyers.

So, read all the articles that have been written about this narrow issue, and all the blogs, and definitely read the cases.  Then vote your conscience.  And if you are at the ALI Annual Meeting, approve the ALI's Restatement of the Law of Liability Insurance.

This article was previously published on Claims and Issues Blog on Monday, May 21, 2018.

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FIRING BOB MUELLER: ACTIONABLE BAD FAITH?

We will keep the actors in the following scenes anonymous.  We will not only keep personalities out of this.  We will not distract our thinking with personalities.

Assume that when Special Counsel Robert Mueller is fired, that the person or persons involved do not have immunity for their conduct.

Assume further that someone would have standing to sue because Mr. Mueller is fired as Special Counsel.  (That is a big assumption given the current composition of the Supreme Court.)

There are questions whether firing Bob Mueller will be actionable bad faith under any likely set of circumstances.

Refusal or failure to defend?  Suppose that a liability carrier for one of the persons sued for firing Special Counsel Mueller, failed and refused to defend that person?

When a liability carrier wrongfully refuses or fails to defend, it is not so much bad faith as a breach of contract.  It may be a breach of contract with potentially disastrous consequences, that is sure, but it is a breach of contract nonetheless. 

Contract breach or bad faith, there could certainly be a wrongful refusal or failure to defend here, assuming coverage in the first place.

Failure to initiate settlement negotiations?

Breach of settlement duties?

These questions presuppose an answer to an underlying question:

What would settlement look like?

Until we have an answer to that question in our own minds, we cannot explore bad faith breach of settlement obligations of a liability carrier for a person responsible in some part for the firing of Special Counsel Robert Mueller.  Until then, we must come to a stop.

Perhaps this is an illustration of why "bad faith" does not always mean the same thing as extracontractual damages.

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A TALE OF TWO SETTLEMENTS: Hedlund DECISION DISEMBOWELED ... AS PRECEDENT.

Last week, I wrote about a decision in California that followed the view that a formal demand to settle is not necessary before a liability carrier can be held liable for bad faith in settlement.  See the article posted here on June 27, 2017.

This week, I report that the parties have agreed to vacate the U.S. District Court's conclusions of law and findings of fact in that case, and the District Judge granted their relief.  The dates are interesting of when all this happened.

The District Judge granted the relief on April 28, 2017.

Westlaw says that the order was filed on May 1, 2017.

Yet my own Keycite in June 2017 did not turn up this ruling, and it could not have, because this ruling was not posted on Westlaw at that time.

Another "DATE" is appended to the Westlaw report of this decision:  "May 18, 2017."  I have no idea what this "DATE" means.  I can speculate with the best of them, as they say, and I wonder if that is perhaps the date that the Met attorneys identified in the report asked for the order to be published in Westlaw.  No other attorneys are identified in the Westlaw report, so perhaps that is why only the Met attorneys are identified in it, namely, because they are the ones that asked for Westlaw to publish this order.  See Metropolitan Prop. & Cas. Ins. Co. v. Hedlund, No. 2:16-cv-00352-MCE-DB, 2017 WL 2609602 (E.D. Cal. April 28, 2017?).

It stands to reason that Met might not want the original decision to stand; in it, Met was held responsible for the underlying judgment of $5 million, plus interest, because Met acted in bad faith in negotiating settlement of the underlying case.

The disappearance of that decision might be premature, however.  Its disappearance is a tale of two settlements.  The only party revealing the tale is Met, based on its pleadings in the District Court file.

The first settlement.

The underlying case was filed by claimant Magnuson against Met's insureds, Hedlund and Sah.  Magnuson was injured in an automobile accident when the car he was riding in was hit by a car driven by Hedlund and owned in part by Sah.  The underlying case was settled by a "non-collusive stipulated judgment" of $5 million, Met wrote in its District Court complaint.  (Metropolitan Prop. & Cas. Ins. Co., Complaint for Declaratory Relief, Doc. 1, ¶ 21 at page 6, filed 02.18.16 [E.D. Cal. No. 2:16-cv-00352].)   Download Met Prop & Cas Ins Co v. Hedlund Dkt No. 1 Met Complaint Filed TBD (E.D. Cal. No. 2.16.cv.00352).

As a part of the first settlement, Met, Magnuson, Hedlund and Sah all agreed that they would all jointly write the complaint for declaratory relief that Met would file in the U.S. District Court.   This is what Met told the District Court in its motion for protective order filed on May 27, 2016.  (Id., Doc. 11.)   Download Met Prop & Cas Ins Co v. Hedlund Dkt No. 11 Met MPO Filed 05.27.16 (E.D. Cal. No. 2.16.cv.00352).

After the complaint was filed in the District Court, the District Judge made findings of fact displaying that Met acted unreasonably in the eyes of the District Judge.  The Judge also entered conclusions of law that Met's conduct was actionable bad faith and for that reason Met would be required to indemnify its insureds for the $5 million underlying judgment "without regard to its policy limits, ... including interest accruing at the legal rate[.]"

Met appealed.  While Met's appeal was pending, the parties reached their second settlement.

The second settlement.

The basis for Met's appeal is unclear from what is publicly available in the electronic court file.  However, clearly Met was concerned with the timeframe of the dec action in which it would ultimately be declared that Met had acted in bad faith in the underlying case.

During the pendency of the dec action in the District Court, Met contended that the complaint in the District Court limited the scope of the action to "Met P&C's alleged actions or omissions between October 5, 2012 ... and, at the latest, November 29, 2012[.]"  (Id., at p. 1.)  Met may have contended that that was what the complaint alleged, but that is not exactly what the complaint alleged.  Anyway, there was probably an element of risk for all sides.  And there was no counterclaim to put forward another claim based on the key events.

The District Judge certainly went on to consider events after November 29, 2012 in his finding of facts displaying as he said, Met's unreasonable settlement conduct, which were part of the District Judge's reasons for concluding that Met had acted in bad faith under applicable law.  The District Judge, it should be noted, found several facts on matters that were alleged in the complaint after November 29, 2012.

So, Met appealed and during this time arranged a second settlement with Magnuson, Hedlund, and Sah.  This time, Met would file a motion that the others agreed they would not oppose.  Met filed its "UNOPPPOSED MOTION" to vacate the District Judge's findings of fact and conclusions of law.  (The title including all caps and underlining is Met's.)  The motion was filed on April 10, 2017.  (Id., Doc. 67.)     Download Met Prop & Cas Ins Co v. Hedlund Dkt No. 67 Met n UNOPPOSED M Vacate Filed 04.10.17 (E.D. Cal. No. 2.16.cv.00352).  In it, Met revealed what it truly wanted, arguing that "the parties desire to avoid potential preclusive effect."  (Id., at p. 5.) 

The next day, the lawyers for Magnuson, Hedlund and Sah filed what they styled a "Notice of Non-Opposition to Plaintiff's Motion."  (Id., Doc. 68.)   Download Met Prop & Cas Ins Co v. Hedlund Dkt No. 68 'Ds' Statement of Non-Opposition to Met UNOPPOSED M Vacate Filed 04..17 (E.D. Cal. No. 2.16.cv.00352).  The text is no longer than the title, really.  I have never seen a "Non-Opposition" before, at least I have never seen anything called that, and filed so quickly.  I sent an EMail to the two lawyers who signed it, asking if they had been able to read Met's motion before they filed their "Non-Opposition."  I have not yet received a reply.

So, there you have everything that can be known from the court file.  Perhaps the lawyers for Met, Magnuson, Hedlund and Sah know more, but they do not seem to be telling.  Perhaps Met and the others know something, but they do not seem to be telling, either.

Whether or not we know any more about why the District Court's conclusions of law and even his findings of fact are purportedly vacated, we know this much:  The District Judge's opinion makes a fine brief or memorandum outlining the law for any case of similar facts.

Whenever there is a future case against an insured, in which an injured claimant reasonably evidences her, his or its interest in settlement, the liability carrier can be found extracontractually liable for bad faith conduct at that time even if the injured claimant did not make a settlement demand at that time.

Even in a future case in California.

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"ANTI-ASSIGNMENT CLAUSES" CAN BAR PARTICULAR OREGON BAD FAITH CLAIMS.

After a liability carrier denied all coverage under several liability policies including any duty to defend and any duty to indemnify, the policyholder settled the underlying claims which had been made against it.  As a part of the settlement, the policyholder assigned all claims against its liability carrier to the underling plaintiff, a condominium association.

The underlying plaintiff sued the carrier as the policyholder's assignee for alleged breaches of contract and of the covenant of good faith and fair dealing.  The carrier defended on the ground, among others, that its liability policies at issue contained provisions which the Oregon Court of Appeals named "anti-assignment clauses, which provide that [the policyholder] cannot assign any rights or claims under the policy without defendant's consent."  Clinton Condos. Owners Ass'n v. Truck Ins. Exch., 282 Or. App. 484, 485, 385 P.3d 1279, 1280 (Or. Ct. App. 2016).

The trial judge granted the defendant liability carrier's motion for summary judgment on the basis of this "anti-assignment clause."  The Oregon Court of Appeals affirmed.

Apparently, an alleged breach of this policy provision is a good defense to at least some extracontractual claims in Oregon as a result of judicial interpretation and application of an Oregon statute including in this case.  The Oregon statute has been held to validate only an assignment of a bad-faith failure-to-settle claim, and then only when an excess judgment has already been entered.

In this case, there was no excess judgment at the time of the assignment, of course.  The assignment in this case was written as a part of a settlement which never went to judgment.  Therefore, the Oregon trial and appellate courts ruled, the assignee had no standing to sue; the assignment was invalid.  Clinton Condos. Owners Ass'n v. Truck Ins. Exch., 282 Or. App. 484, 485-87, 385 P.3d 1279, 1280-81 (Or. Ct. App. 2016).

The net effect of this statutory interpretation is that in Oregon, an assignment of bad faith claims (at least against a liability carrier) is valid only after an excess judgment and then only when the bad faith claim that is assigned is a bad-faith-failure-to-settle claim.

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FLORIDA POLICYHOLDER'S CONDUCT RELEVANT TO BAD FAITH. SO IS HER LAWYER'S.

A Federal District Judge followed settled Florida law in ruling that a Florida policyholder's conduct is relevant to her claims of bad-faith-failure-to-settle.  And that her lawyer's conduct is relevant too:

Opinions Regarding Anderson's and Her Counsel's Motives

    Plaintiffs anticipate that [the defendant liability carrier] will attempt to elicit opinions about [the underlying plaintiff's-policyholder's] and her counsel's motives and beliefs to the extent that they “set up” a bad faith claim. For example, Plaintiffs state that certain witnesses may testify that [the underlying plaintiff and policyholder] secretly hoped [the defendant liability carrier] would not accept her settlement offers so she could pursue a bad faith case. Or that [her] counsel intentionally withheld certain medical reports in an attempt to set up a bad faith claim. This issue has been squarely addressed by other courts in this district; specifically, in prior bad faith cases, the courts have ruled that evidence regarding the motive and conduct of the underlying plaintiff and her attorney is relevant and should not be prohibited as long as it is not purely speculative. 

Gonzalez v. GEICO General Ins. Co., No. 8:15-cv-240-T-30TBM, 2017 WL 39113, at *1-*2 (M.D. Fla. January 4, 2017).

Settled law in Florida.

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RELEASED FOR THE HOLIDAYS! BAD FAITH, Coblentz, & VERDICT FORMS!

In an opinion just released on Westlaw, Jimenez v. GEICO, No. 6:10–cv–640–Orl–37KRS, 2015 WL 12844296, at *4 (M.D. Fla. April 28, 2015) (italics in original), the Court wrote:

The Eleventh Circuit has specifically found that question two of the verdict form—“Do you find the consent judgment entered into by [Antonio James Jimenez] was reasonable in amount and not tainted by bad faith, fraud, collusion or without any effort to minimize liability?”—is an accurate statement of Florida law and has upheld the use of the question as a special verdict form interrogatory.  Mid-Continent Cas. Co., 534 Fed. Appx. at 928 (upholding use of the Special Verdict Form Interrogatory and explaining that “Florida law could not be clearer as to the elements necessary to enforce a consent judgment. Subsequent to the entry of the agreement, the injured party must bring an action against the insurer and prove coverage, wrongful refusal to defend, and that the settlement was reasonable and made in good faith.”)....  The special interrogatory question on the verdict form has specifically been approved by the Eleventh Circuit for use in bad faith claims involving Coblentz agreements. See id.

Parenthetically, once again a Federal Court in Florida insists on calling a consent judgment with an assignment of bad-faith rights a "Coblentz" agreement in any case in which the liability carrier refuses to defend.  The name comes from a case decided by a Federal appellate court:  "In Coblentz v. American Surety Company of New York, the Fifth Circuit held that 'if a liability insurer is informed of an action against its insured, but declines to defend the insured, the insurer may be held to a consent judgment entered in that action, absent fraud or collusion.'  416 F.2d 1059, 1062-63 (5th Cir. 1969)."  Jimenez v. GEICO, No. 6:10–cv–640–Orl–37KRS, 2015 WL 12844296, at *1 n.1 (M.D. Fla. April 28, 2015).

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FLORIDA LAW: CASES OF UNDEFENDED INSUREDS AND CONSENT JUDGMENTS.

Florida Courts have confronted consent judgments with a covenant not to execute in cases in which liability carriers have refused to defend their insureds.  The judgment can only be enforceable against the carrier if it is not infected with an unreasonable amount and with bad faith (stand-ins for the traditional disqualifying conditions of "fraud and collusion") in the negotiations that produced it.

A Federal appellate Court has defined the "bad faith" prong of the disqualifying set of "unreasonable and in bad faith," in these terms:

Under Florida law, such agreements are unenforceable against insurers if tainted by fraud or collusion. To determine whether fraud or collusion exists, we look to whether the settlement amount was unreasonable and whether the negotiations were conducted in bad faith. Substantial evidence exists to support the district court's determination, after a bench trial, that the negotiations were conducted in bad faith when [the policyholder] agreed to stipulate to a judgment in an amount of [the claimant's] choosing so long as [the claimant] agreed never to execute against it. We thus affirm the district court's judgment that the settlement agreement cannot be enforced against Travelers.

Sidman v. Travelers Cas. & Sur. Co., No. 15-15197, 2016 WL 6803034, *1 (11th Cir. November 17, 2016) (emphasis added).

The italicized language was conclusive on the subject of bad faith, and bad faith alone was enough for the Federal appellate Court.  "[W]e affirm on the ground that the settlement agreement was negotiated in bad faith, without the need to consider whether the settlement was reasonable in amount."   

On another note, the appellate court held that even though The Travelers was aware of the impending consent judgment and its covenant not to execute, nonetheless the liability carrier could challenge the agreement:

Thus, an insurer may challenge a Coblentz agreement as fraudulent or collusive notwithstanding its prior notice of and opportunity to challenge the agreement. The district court properly applied the Coblentz framework in considering whether the settlement was unreasonable in amount and negotiated in bad faith—proxies for fraud or collusion—and did not err in allowing Travelers to challenge the settlement agreement.

Sidman v. Travelers Cas. & Sur. Co., No. 15-15197, 2016 WL 6803034, *7 (11th Cir. November 17, 2016).

Parenthetically, Federal Courts like the one which decided this case typically name such agreements "Coblentz agreements" after the case in which they first appeared in Federal Court.  Florida State Courts do not use that name very often, ordinarily preferring to describe such an agreement in terms of what it is:  an agreement for a consent judgment between a claimant and an insured where the carrier has refused to defend the insured.  As a part of their agreement, the claimant and the insured also agree to a covenant not to execute the consent judgment upon the insured.  The claimant pursues the insured's assigned rights against the liability carrier.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All Rights Reserved.

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LAW OF LIABILITY INSURANCE, THE AMERICAN LAW INSTITUTE, AND Powell.

NOT A Powell CASE, AFTER ALL. PLUS APPARENT OVERREACH …

UNDER LAW AND FACTS ON REQUESTED JURY INSTRUCTION.

In this final iteration of Stalley v. Allstate Ins. Co., No: 6:14-cv-1074-Orl-28DAB, 2016 WL 3282371 (M.D. Fla. June 10, 2016), appeal docketed, No. 16-14816 (11th Cir. July 11, 2016), Stalley was apparently not a Powell case after all, and a crucial plaintiff's requested jury instruction was apparently supported neither by the law nor the evidence in the record at the conclusion of the case:

IV.  Conclusion

The authorities cited by Plaintiff do not establish the existence of a “presumption” under Florida law in a jury trial setting regarding the possible outcome of settlement efforts. This Court does not read Powell as creating any such presumption; instead, as noted earlier, this Court construes the statement in Powell that “[a]ny question about the possible outcome of a settlement effort should be resolved in favor of the insured” as an accurate, well-established statement of the movant's burden on a motion for directed verdict—the context in which that statement was made. Plaintiff has identified no Florida state court decision discussing or approving a jury instruction informing the jury that it should resolve “any question about the possible outcome of a settlement effort” in favor of the insured. No binding Eleventh Circuit precedent to this effect has been brought to the Court's attention either. Furthermore, Plaintiff's proposal of language requiring “conclusive proof” by an insurance company to overcome the supposed “Powell presumption” is wholly lacking in support. Thus, this Court concludes that the portion of Plaintiff's proposed Special Instruction 3 quoted earlier in this order is not an accurate statement of Florida law in the context of jury instructions, and accordingly this Court concluded that it was not appropriate to include that proposed language in the jury instructions in this case.

Stalley v. Allstate Ins. Co., No: 6:14-cv-1074-Orl-28DAB, 2016 WL 3282371, at *6  (M.D. Fla. June 10, 2016), appeal docketed, No. 16-14816 (11th Cir. July 11, 2016).

In an earlier appearance of Stalley, on an earlier record, the same District Judge ruled that the record at that time potentially supported Powell and accordingly denied Allstate's motion for summary judgment at that time.  The Court's stated rationale included the Powell rule.  See Stalley v. Allstate Ins. Co., No. 6:14-cv-1074-Orl-28DAB, 2016 WL 1752764, at *8 (M.D. Fla. April 29, 2016), quoting Powell v. Prudential Property & Casualty Insurance Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991), review  denied, 598 So. 2d 77 (Fla. 1992).

The Powell rule of initiating settlement negotiations when the likely damages in the underlying case are greater than available policy limits ("when damages are great") and when the insured's underlying liability is probable ("when liability is probable"), is not a hard-and-fast legally constructed duty despite being called a "rule."  Instead, it varies with the facts, as the rulings in Stalley so clearly display.

Please Read The Disclaimer.  ©by Dennis J. Wall.  All Rights Reserved.

GEORGIA BAD FAITH CASE ALLOWED A FLORIDA-STYLE "Cunningham" AGREEMENT.

In a lengthy opinion, a federal District Court in Georgia dealt with several big issues in a third-party-bad-faith-failure-to-settle case, including several issues reminiscent of Florida cases.  Indeed, the plaintiff's attorneys in the Georgia case were involved in some of the same issues in Florida cases.

For example, the Georgia federal court dealt with:

• the issue of settlement with a party who presents claims that would ordinarily belong to an estate, except that no estate has yet been established at the time, thereby raising purported issues of whether the insurance company could make a settlement offer to a party who does not have the legal authority to settle at that time (this court, like the Florida Supreme Court, held that an offer should be made anyway where the circumstances otherwise warrant an offer to protect the insured);
• the ramifications of an "equal consideration" test of bad faith, whereby a liability insurance carrier is held to account for settlement decisions that tend to prefer its own interests to the interests of its policyholder-insured (as a jury found and the court determined was so on the evidence presented in this case), and
• the ultimate issue treated the same way in Florida and Georgia bad faith law, that ultimately bad faith by a liability insurance company is a jury question, i.e., a question of fact for the trier of fact. Camacho v. Nationwide Mut. Ins. Co., ___ F. Supp. 3d ___, 2016 WL 3059833 (N.D. Ga. May 25, 2016).

For my money, the most significant feature of this decision flew under the radar, so to speak.  The federal court itself mentioned it in passing at the beginning of its long opinion:

Following the jury's verdict in the state court wrongful death suit, Park assigned his right to bring a claim for negligent and bad faith failure to settle against Nationwide to Plaintiffs Jesus Camacho and LaJean Nichols. Plaintiffs filed suit against Nationwide in this court on September 14, 2011, alleging that Nationwide acted negligently and in bad faith in failing to accept their demand for settlement of all claims against its insured within the policy limits and exposing Park to a $5.83 million excess jury verdict. This case was tried before a jury from August 31, 2015 to September 8, 2015. On September 8, 2015, the jury returned a verdict in favor of Plaintiffs finding that Nationwide “acted negligently or in bad faith in failing to settle the claims made by the Plaintiffs against Nationwide's insured, Seung Park.” (Doc. 168.) The Parties had agreed that the jury would determine liability only and the Court would determine the amount of the verdict as a matter of law, including attorney's fees.

Camacho v. Nationwide Mut. Ins. Co., ___ F. Supp. 3d ___, 2016 WL 3059833, at *1 (N.D. Ga. May 25, 2016).  [Emphasis added.]

The emphasized language illustrates the federal court's complete acceptance of what in Florida is called a "Cunningham agreement," by which the issue of a liability carrier's bad faith in settlement or not, is tried first by a jury, and either the agreement itself sets the compensatory damages award or a court later determines the issue of damages including attorney's fees.

Now apparently Cunningham agreements are prospering in Georgia, too, whether they were used there before or not.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements).  You are invited to visit the author's website here.  All rights reserved.

FLORIDA Coblentz CONSENT JUDGMENT FACT QUESTION.

In Florida, a crucial element "of enforceability of a Coblentz agreement, whether the settlement is reasonable and in good faith, is a fact-intensive inquiry."  St. Paul Fire & Marine Ins. Co. v. Cypress Fairway Condo. Ass'n, 114 F. Supp. 3d 1231, 1238 (M.D. Fla. 2015) (Presnell, J.).

For those who do not use the term, "a Coblentz agreement" is a negotiated final consent judgment.  Under this type of agreement, a consent judgment is entered against an insured which was not defended by the insurer.  The name comes from a case which arose in South Florida, Coblentz v. American Surety Co., 416 F.2d 1059 (5th Cir. 1969).

The third party seeking to execute on the consent judgment and to enforce the settlement agreement in the context of a Coblentz agreement must prove three things.  First, the plaintiff must prove both a wrongful refusal to defend and that the policy in question indemnified the policyholder or other insured in the underlying case.  Finally, the Coblentz plaintiff must prove that the Coblentz agreement was reasonable and made in good faith, the Court in this case held.  This case involved a consent judgment for $2.5 Million.  St. Paul Fire & Marine Ins. Co. v. Cypress Fairway Condo. Ass'n, 114 F. Supp. 3d 1231, 1236 (M.D. Fla. 2015) (Presnell, J.).

 Parenthetically, the Court did not recite the policy limits involved, noting only that "St. Paul issued several policies to [a construction] project's general contractor".   St. Paul Fire & Marine Ins. Co. v. Cypress Fairway Condo. Ass'n, 114 F. Supp. 3d 1231, 1233 (M.D. Fla. 2015) (Presnell, J.).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  See in particular § 7:2 in Volume 1 which addresses the issues which were addressed in the St. Paul v. Cypress Fairway case, including the nature and proof of Coblentz agreements, "Actions by Third Parties--Assignment."  All rights reserved.

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INITIATING SETTLEMENT NEGOTIATIONS FOR CHRISTMAS?

 

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There are ten jurisdictions from which cases have been reported and found in which the Courts have declared a legal duty for liability insurance companies to initiate settlement negotiations even in the absence of a settlement demand from the claimant.  Oklahoma is one such jurisdiction.

However, in a recent case it was held that an excess carrier did not have a duty to initiate settlement negotiations until the underlying, primary carrier exhausted its policy limits, as the excess insurance policy required before any obligation of the excess carrier came into being.

Or so the Tenth Circuit Court of Appeals has predicted.  SRM, Inc. v. Great Am. Ins. Co., 798 F.3d 1322, 1325-26, 1329 (10th Cir. 2015) (predicting Oklahoma law in a case of apparent first impression concerning an excess liability carrier).

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements).  All rights reserved.

Merry Christmas to All and to All a Good Year in 2016!

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BAD FAITH, SETTLEMENT AGREEMENTS NOT REQUIRED IN FLORIDA (Cunningham OR EXCESS).

Ever wonder whether a liability carrier has a duty in a particular case to protect its insured by accepting an agreement offered by the claimant (1) to consent to judgment now, (2) not to execute on the insured's assets now or later, and (3) to try the bad faith case later?  Well, if you have been wondering, perhaps you have not been paying attention.

The Eleventh Circuit answered this question pretty easily in a recent case.  Here is the short and the long of it, first the short answer which comes as no surprise to anyone practicing in this area:

In sum, an insurer owes no duty under Florida law to enter into a so-called Cunningham [v. Standard Guaranty Insurance Co., 630 So. 2d 179 (Fla. 1994)] agreement and likewise owes no duty to its insured to enter into a consent judgment in excess of the limits of its policy.

Kropilak v. 21st Century Ins. Co., 806 F.3d 1062, 1070 (11th Cir. 2015) (case involved Florida substantive law).

And here is the long (and also hardly surprising) answer from the Eleventh Circuit in the same case:

Even if what Kropilak and Collins have proposed is different than a Cunningham agreement, Kropilak and Collins have failed to explain why an insurer is obligated to enter into the agreement proposed here when Florida law does not obligate insurers to enter into a Cunningham agreement. The agreement proposed by Kropilak and Collins, with its requirement for the entry of a consent judgment in excess of the policy limits, would arguably extend the obligation of an insurer beyond what would be required in a Cunningham agreement. In Cunningham, the insurer simply agreed to try the bad-faith action in advance of the underlying tort claim.  630 So. 2d at 180.  While an insurer has a duty to act in good faith to offer the policy limits under appropriate circumstances to avoid exposing its insured to a judgment in excess of those policy limits, it has no duty on behalf of its insured to agree to a consent judgment in excess of policy limits and then subject itself to a suit for bad faith for the amount in excess of the policy limits.

Kropilak v. 21st Century Ins. Co., 806 F.3d 1062, 1069 (11th Cir. 2015).

So, no surprises here.  At least we know that this appeal did not change the law, which is certainly welcome news for liability insurance carriers and practitioners who represent them in Florida and elsewhere.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements).  All rights reserved.

GRASPING, STIPULATED CONSENT JUDGMENTS: WHAT'S FAIRNESS GOT TO DO WITH IT?

 

 

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"[T]he crucial element is the lack of a judgment rendered after an adversarial trial. The potential for collusion in the circumstances involved is obvious."  21st Century Ins. Co. v. Superior Ct., No. EO62244, 2015 WL 5285822, *3 (Cal. 4th DCA, Div. 2, September 10, 2015).  That was the basis for the decision by California's Fourth District Court of Appeal in that insurance case.

21st Century defended its insured, one Tapia, in a lawsuit filed against Tapia by the heirs of a person killed in an automobile accident.  21st Century offered the $100,000.00 policy limit under the one policy which 21st Century acknowledged covered Tapia, and under which it defended Tapia in the lawsuit.

The insurance company's $100,000.00 settlement offer was rejected.  The attorneys representing the underlying plaintiff insisted that Tapia also had insurance coverage under two $25,000.00 policies and so they demanded $150,000.00 to settle their clients' personal injury case against Tapia.  It was known to all that 21st Century had previously denied any coverage to Tapia under the two $25,000.00 policies.

The fact was in dispute, however, whether 21st Century actually ever received the personal injury plaintiffs' demand, or counter-offer for $150,000.00.  Convinced to pursue a bad faith claim against 21st Century, the underlying plaintiffs served a statutory offer in the litigation for $3,000,000.00 and when that offer was not accepted, entered into a stipulated consent judgment with Tapia by which, among other things, Tapia assigned them his bad faith rights if any against 21st Century.

21st Century was given notice of the stipulated consent judgment.  We know that from the fact that 21st Century told Tapia that it would not be bound by the stipulated consent judgment before Tapia stipulated to it.

The California appellate court held that 21st Century would not be bound by the stipulated consent judgment between Tapia and the underlying plaintiffs.

A different result governs when a relative few homeowners in one place, say Florida for example, stipulate to a consent judgment in a class action and this time it is the defendants who contend that their stipulated consent judgment grasps people not in Florida and binds them to a settlement they never made.

In such cases, judges often do not even need to see a written settlement -- let alone a judgment -- before they enter orders precluding the claims of people in other cases and other places, say not in Florida for example.  This is what happens:  Homeowners whose homes are not in Florida and who are not themselves parties to the Florida case are held bound to the settlement by judges whose case load is not in Florida.  See Dennis J. Wall, "Class Action Settlements Have Consequences:  From Florida to Washington State" 28 NWLawyer 27 (April-May 2015).  Download APR-MAY-2015-NWLawyer-Page27-28

Whatever the differences in the situations between 21st Century, which was not bound by a stipulated consent judgment, and homeowners, which are held bound by a stipulated settlement agreement which calls for a stipulated consent judgment, fairness arguably has nothing to do with it.

In both cases, other people agree to a stipulated settlement and attempt to bind other people to it.  21st Century and the homeowners also received notice of the settlement in both cases.

The differences too have nothing to do with fundamental fairness.  To object, all that 21st Century needed to do apparently was to send a letter or make a telephone call while the homeowners in California, Oklahoma and the State of Washington apparently could make valid objections to a class action settlement in Florida only by hiring a lawyer and filing an objection within the time allotted by a judge in Florida.  As between an insurance company and homeowners it would seem pretty clear that the insurance company is the one which would be likely to have the money to spend in making its objection, yet the most that the insurance company was required to spend to register its objection is 49¢ for a postage stamp.

Yet another difference which may be important to some observers is that a liability insurance company like 21st Century has a contract which ordinarily contains a provision that the insurance company will not be bound by a negotiated settlement or judgment without an actual trial in which it participated, basically.  Does it take a contract to prevent someone else's stipulated agreement from restricting you?  If it takes a contract, then what form would such a contract take for homeowners in California, Oklahoma, or the State of Washington not to be bound by a stipulated agreement in Florida?

It seems that in the 21st Century case, the California Fourth District panel reached a good decision because the potential for collusion was obvious to it under the circumstances.  In the homeowners' cases, many judges have reached results which are seemingly to the contrary.  Perhaps in the cases in which homeowners sue large banks, the potential for collusion is not obvious to those judges.

In the end, fairness does not seem to have much to do with how much a stipulated consent judgment may be allowed to grasp.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of "Litigation and Prevention of Insurer Bad Faith" (3d Edition, Thomson Reuters West, in 2 Volumes with 2015 Supplements).  Listen here to a free podcast of "Litigation and Prevention of Insurer Bad Faith" sections on Lender Force-Placed Insurance Practices.  The link also provides the opportunity to obtain free print copies of the copyrighted sections and to access a YouTube video on Lender Force-Placed Insurance Practices which you can also access here.

FURTHER RE: WHEN IS ISSUE "ACTUALLY LITIGATED" EARLIER, PRECLUDED LATER?

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This expands a previous article titled "WHEN IS AN ISSUE 'ACTUALLY LITIGATED' EARLIER AND PRECLUDED LATER?"  The earlier article was actually litigated on Insurance Claims and Issues Blog, you might say.

However, this further issue was not actually litigated in the earlier article.  It is this settled rule of law:  "The party asserting preclusion bears the burden to prove all the necessary elements."  Continental Western Insurance Co. v. Federal Housing Finance Agency, ___ F. Supp. 3d ___, 2015 WL 428342, *4 (S.D. Iowa Feb. 3, 2015).

Therefore this is an open issue here, and it updates and enhances the article posted here on September 1, 2015 titled, "A LITTLE EXCESSIVE SETTLEMENT JURISDICTION NEVER HURT ANYBODY?"

It was pointed out in the "Excessive Settlement Jurisdiction" article that parties ordinarily submit settlement stipulations, and courts enter orders approving them, which contain provisions that plaintiffs will be enjoined from having anything to do with other litigation involving the "Released Claims" in that case.  This is one of the questions resulting from those provisions, and it was asked in the article:

And why is the defendant in that other case seemingly freed from the burden of pleading and proving its own affirmative defense of issue or claim preclusion, or of res judicata?

Especially when the party asserting preclusion bears the burden to prove all the necessary elements?  What reason is there to deliberately enter an order contrary to settled law, simply because the parties "stipulated" what they say shall be the law? 

And last but not at all least:  If unexamined stipulations drive adjudications, what drives employment for judges?

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015). Listen to the author's most recent Thomson Reuters Legal Current podcast.  All Rights Reserved.  No Claim to Original U.S. Government Works.

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WHEN IS AN ISSUE "ACTUALLY LITIGATED" EARLIER AND PRECLUDED LATER?

A LITTLE EXCESSIVE SETTLEMENT JURISDICTION NEVER HURT ANYBODY?

A LITTLE EXCESSIVE SETTLEMENT JURISDICTION NEVER HURT ANYBODY?

It is perfunctory for Courts approving settlements to write about the strength of the parties' positions and the risks of litigation, while generally ignoring such things as whether class action status could be maintained until judgment, and particularly turning a blind eye to the amount of discovery taken in the given case before the settlement.  Such was the case earlier this year for example in Ellsworth v. U.S. Bank, N.A., 2015 WL 1883911, *3-*4 (N.D. Cal. April 23, 2015)(Beeler, USMJ).

Then the Magistrate Judge did something I have not often seen until recently.  It is now pretty much boilerplate to include language like the following in motions requesting settlement approval and in Orders approving settlements of large cases, it seems:

 

VI. EFFECT OF THIS ORDER

1. All members of the classes including named Plaintiffs are hereby preliminarily enjoined from directly or indirectly: (i) filing, commencing, prosecuting, intervening in, or participating in (as class members or otherwise), any other lawsuit in any jurisdiction asserting the Released Claims; and (ii) organizing class members, or soliciting the participation of class members, in a separate class for purposes of pursuing any other action (including by seeking to amend a pending complaint to include class allegations, or seeking class certification in a pending action in any jurisdiction) based on or relating to any of the Released Claims. This injunction applies to all members of the classes as of the date of this order and will continue in full force and effect until the court issues a Final Approval Order and Judgment unless a class member properly and timely excludes himself or herself from the Settlement, at which time he or she will no longer be considered a class member and will no longer be subject to the Preliminary Injunction.

Ellsworth v. U.S. Bank, N.A., 2015 WL 1883911, *6 (N.D. Cal. April 23, 2015)(Beeler, USMJ).

And who shall determine whether a given person is asserting a "Released Claim" in another case?

And why is the defendant in that other case seemingly freed from the burden of pleading and proving its own affirmative defense of issue or claim preclusion, or of res judicata?

How does any Court in any case have jurisdiction to suspend the Rules of Civil Procedure in any litigation let alone in "any other action"?

These and similar questions arise from language like this, usually adopted by judges and magistrates from pleadings filed by the parties.  These questions deserve to be addresssed.

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  Listen to the author's most recent Thomson Reuters Legal Current podcast.  All Rights Reserved.  No Claim to Original U.S. Government Works.

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When The "No Settlement Without Consent" Provision is NOT Waived.

          It has been held that a liability insurer does not waive its “no settlement without consent” provision just by permitting the policyholder to offer a settlement with an amount of money which was less than the amount for which the policyholder ultimately settled the underlying case.   Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co., ___ Ga. ___, 771 S.E.2d 864, 866 (Ga. 2015):

   In this case, . . . the plain language of the insurance policy does not allow the insured to settle a claim without the insurer's written consent. It also provides that the insurer shall only be liable for a loss which the insured is “legally obligated to pay.” Finally, the policy contains a “no action” clause which stipulates that the insurer may not be sued unless, as a condition precedent, the insured complies with all of the terms of the policy and the amount of the insured's obligation to pay is determined by a judgment against the insured after a trial or a written agreement between the claimant, the insured, and the insurer. In light of these unambiguous policy provisions, we hold that Piedmont is precluded from pursuing this action [an alleged breach of an excess insurance contract and a statutory claim of bad faith failure to settle] against XL because XL did not consent to the settlement and Piedmont failed to fulfill the contractually agreed upon condition precedent.

 

Reprinted with the permission of Thomson Reuters from the manuscript of the author's 2015 Supplement chapters, and in particular Section 5:15, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

 

LAW OF LIABILITY INSURANCE, THE AMERICAN LAW INSTITUTE, AND Powell.

    The American Law Institute is at work on a Restatement of the Law of Liability Insurance.  At this time, the ALI’s drafts do not apparently include any reference to the Powell rule, or if there is one, at least one that is easily found.  The thrust of this article is to show why it should.  An explicit statement of the Powell rule in the Restatement would do much to protect liability insurers from frivolous setups and to protect policyholders from unreasonable insurer settlement conduct.

    The Powell rule addresses situations in which an injured or damaged claimant does not make a settlement demand.  The Powell rule is so important and pervasive in the experience of settlement negotiations that the responsibilities of a liability insurer in this situation should be addressed in the Restatement:

 

A liability insurance company has a duty to initiate settlement negotiations when:

1. Liability of the policyholder is clear, and
2. The injuries of the claimant are so serious that a judgment in excess of the policy limits is likely.

 

    This provision mandates that a liability insurer initiate settlement negotiations in such a situation if the insurer is going to be held to make a reasonable settlement decision.  What constitutes the initiation of settlement negotiations will depend on what is already set out in the draft Restatement’s current requirement of reasonable settlement decisions.

    This rule is most commonly called the “Powell rule,” named after the case which is best known for stating it:  Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991), review denied, 598 So. 2d 77 (Fla. 1992).  The so-called Powell rule was not announced in a vacuum, however; other Courts enunciated it in other cases and applied it there.  Many of these cases are cited in Powell itself.  In addition, Powell has been followed by Courts in other jurisdictions.  Nonetheless, the Powell rule is a minority rule, although for the reasons submitted below, it represents the better rule in cases in which the policyholder’s liability is probable, and damages are great meaning that damages are likely to exceed the policy limits.

    Among the advantages which ought to recommend it to liability insurers and their lawyers, is that the Powell rule provides a clear statement of the limits of the liability insurer’s extracontractual exposure or risk.  Opposing counsel frequently argue to Courts and, when allowed by Courts,  argue to juries that the liability insurer has a duty to actually settle the case because the policyholder’s liability is probable and the claimant’s damages are great.  The liability insurer does not have to settle in such a case, it only has to initiate settlement negotiations.  No Court has ever held otherwise to my knowledge.

    Claimants certainly do not have to make a settlement demand in any case.  Sometimes claimants not only refuse to make a settlement demand, but they refuse to settle.  It takes more than a liability insurer to settle a claim against its policyholder; the claimant’s willingness to settle is required too.

    The Powell rule makes it clear that the liability insurer is not going to be held strictly or absolutely liable if a given case is not settled, but that it is exposed to extracontractual liability if it does not initiate settlement negotiations in a case in which liability is probable and damages are great.

    A specific provision declaring the Powell rule as a part of the Restatement will also address the situation of the so-called “bad faith setup.”  This concept is frequently raised in some of the legal literature, but when it is raised in litigated cases it is a failure as a defense.  I am aware of no case in which a “bad faith setup” by the injured claimant was ever recognized as a defense to extracontractual, bad faith liability in excess of policy limits.  Courts have always viewed settlement duties as duties which belong exclusively to the insurance carrier.

    Further, Courts have abandoned the old rule which required a judgment in excess of the carrier’s policy limits (the “judgment rule”) in favor of a rule of liability allowing the carrier to be held responsible to pay sums in excess of its policy limits when the carrier could have acted reasonably and attempted to settle the underlying case even in the absence of a judgment against the policyholder, such as where the underlying case has settled.

    The Powell rule reaches the corollary situation in which the carrier could have acted reasonably and taken steps in an effort to attempt to settle the underlying case even in the absence of a demand from the injured claimant.  This provision reinforces the concept prevailing in the Restatement that the standard of liability to be applied to the liability insurer’s conduct is reasonableness.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.  No Claim to Original U.S. Government Works.

 

PAY NO ATTENTION TO THE SETTLEMENT BEHIND THE CURTAIN.

    It is a generally accepted ‘best practice’ for a court considering a class action settlement to take the amount of the settlement into account when approving it.  In the usual case, the size of the settlement is the only thing that the parties ask the court to conceal.  Reams of paper have been spent recording the opinions of judges and other lawyers about the benefits of open settlements openly arrived at, or at least with the amount openly stated.  See Goesel v. Boley Int’l (H.K.) Ltd., 738 F.3d 831, 834 (7th Cir. 2013)(Posner, J., motions judge for the Seventh Circuit in this consolidated case, citing numerous authorities including the Federal Justice Center’s publication, Sealed Settlement Agreements in Federal District Court).

    In the case of Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156 (E.D. Pa. September 18, 2014), the Federal District Court was presented with Plaintiffs’ Unopposed Motion for Final Approval of Class Action Settlement, Certification of Settlement Class, Approval of Plan of Allocation, Appointment of Class Representatives, and Appointment of Lead Class and Class Counsel.  The Federal District Court approved a rather large class to be bound by the class action settlement, as requested by the parties in their settlement agreement:

The Parties have proposed the following Settlement Class:

All persons who obtained residential mortgage loans originated and/or acquired by GMAC Mortgage, GMAC Bank (now known as Ally Bank), and/or their affiliates on or after January 1, 2004, with private mortgage insurance which was reinsured by Cap Re.

 Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, *1 (E.D. Pa. September 18, 2014).

    However, the Federal District Court entered its Order approving the class action settlement without once mentioning the amount of the settlement.

    Perhaps the amounts of money actually involved in the case contain reasons why none of these amounts were mentioned when the Federal District Court approved the class action settlement in GMAC Mortgage.  The settlement agreement is attached to the Plaintiffs’ Unopposed Motion for (etc.) as an exhibit.  The settlement agreement reveals that the amount of the class action settlement in this case was $6,250,000.00 before deductions for awards to the named plaintiffs and for attorney’s fees and costs, among other things.  Dkt. No. 272-3, ¶ 3.1, at p. 9.  Download Moore v. GMAC Mort Dkt 272-3 is Settlement Agreement, Ex 1 to Dkt 272 Motion Approve S.A. (ED Pa. No. 07-4296).

    The Federal District Court awarded $15,000.00 to three named plaintiffs, Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, ¶ 8 at *7 (E.D. Pa. September 18, 2014).  The Federal District Court entered a separate Order in which it mentioned the settlement amount and in which the Court awarded $1,875,000.00 in attorney’s fees and $454,097.14 in costs, for a total award of fees and costs in the amount of $2,344,027.14.  Dkt. No. 296, at p. 1.  Download Moore v GMAC Mort Dkt 296 09.19.14 Order Attys Fees (ED Pa. No. 07-4296).

    Deducting just these two amounts from the settlement amount before distribution to the class in that case– the amounts awarded to the named plaintiffs, and the amounts of attorney’s fees and costs which were awarded -- resulted in some $3,906,000 to distribute to the participating class members in accordance with a formula suggested to the Court by the parties in their settlement agreement.  The formula was essentially based on the extent to which the given plaintiff’s primary mortgage was reinsured under a reinsurance policy issued by one of the main defendant’s subsidiaries which was winding up its business in dissolution.  The Federal District Court approved the formula suggested by the parties.  See  Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, ¶ 10, at *7 (E.D. Pa. September 18, 2014).

    It is unclear and perhaps unknowable how much money each plaintiff in the class might have been entitled to receive under the settlement formula used in this case.  The size of the class is known, however, at least insofar as the Federal District Court recognized that the proposed class actually increased to “122,963 Members at Final Approval.” Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, *2 (E.D. Pa. September 18, 2014).  [Emphasis added.]

    For talking purposes, so to speak, if each participating class member were entitled to an equal share of the remaining settlement amount, then each participating class member would receive:

$31.77 apiece, rounding up.

 The author is at work on a book on “Lender Force-Placed Insurance” which includes analysis of reinsurance schemes and class action settlements.  The American Bar Association has scheduled it for publication this Spring.

©2015 by Dennis J. Wall.  All rights reserved.  No claim to Original U.S. Government Works.

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