Negotiating with the carrier can
sometimes be successful in resolving claims. In many cases, however, the
transporter will be stubborn and not reconsider his position. This leaves
litigation as an alternative.
b. File a lawsuit. If negotiations
fail, the coverage attorney may recommend filing a complaint against the
carrier. If the carrier has already filed a declaratory judgment action, then
the attorney will likely recommend filing a counterclaim. A lawsuit (or
counterclaim) for coverage is essentially an action for breach of contract.
However, this is a special type of action for breach of contract, and some
special rules apply.
Because insurance policies are contracts
of adhesion - that is, they are written by carriers and sold on a "take it
or leave it" basis - they are construed against the carrier and in effect.
favor of the insured. These and other rules give the insured at least a
theoretical advantage in the event of a dispute. In many cases of coverage,
however, inexperienced lawyers do not take full advantage of the rules. This
has led to a number of unfortunate and, in my opinion, ill-decided decisions
against policyholders.
In reviewing the briefing (the legal
arguments filed by lawyers) in some of these cases, the lawyer representing the
insured simply failed to present arguments and cite case law that could have
changed the outcome. When an inexperienced (or uneducated) lawyer runs into a
gun from an insurance company, it's often not a fair fight.
What are the odds of winning a
coverage case? Obviously, it depends on the facts of the case, the terms of the
policy, the lawyers on the other side, and many other factors. Georgia's recent
rulings suggest the outcome is a bit uncertain, as the rulings are not entirely
consistent. The law in other jurisdictions varies.
vs. File a bad faith claim. If an
insurer's refusal to defend or indemnify is objectively unreasonable, the
insured may have a bad faith remedy in addition to recovery under the policy.
The remedies in Georgia have been briefly discussed above. A finding of bad
faith is far from automatic and requires the insured to prove more than what
the insurer simply erred in refusing the claim. There is no hard and fast rule
about when an insurer crosses the line from good faith to bad faith, and
Georgia's rulings indicate that a jury should generally decide the issue.
In practice and when considering
recent Georgia decisions, the ability to rely on a bad faith complaint appears
to depend as much on the court in which it is located as on the facts. The
federal court in Atlanta sometimes seems to take a very hard line against
policyholders who make bad faith claims.
On the other hand, the Georgia Court
of Appeals made two recent decisions that are much more receptive to a finding
of bad faith. In a very recent decision of the Court of Appeal, the court
upheld the summary judgment trial judge's finding of bad faith, meaning that
the trial judge found the bad faith so obvious that the case could be decided
without jury trial. This case involved an underlying claim by a building owner
against a building contractor resulting from a fire that was started
negligently by a subcontractor. The insurance company refused to defend or
indemnify the insured based on a broad interpretation of the “business risk”
exclusions in the policy, which generally limit coverage for damage to the
insured's work.
The Court of Appeal concluded that
the insurer's recourse to the builder's risk exclusions was incorrect and
upheld the trial court's ruling that the insurer had acted in bad faith. The
Court of Appeal also cited with approval the order of the trial court noting
that the failure of an insurance company to provide a defense when it clearly
should have done so could have put a small entrepreneur in jeopardy.
bankruptcy. This is one of the few cases in which a court has expressly
observed the enormous real practical consequences of a Never Pay approach.
There is case law in Georgia that
suggests that an insured can only recover his attorney fees to obtain coverage
by proving bad faith, rather than simply relying on the determination of
coverage (proving that the insurer raped the police). This is true even if
another law allows attorney fees in contractual matters after it has been
demonstrated that the other party has been "stubbornly contentious"
or caused "unnecessary trouble and expense". There is a federal
appeal case to the contrary.
Early rulings are particularly
unfortunate, as they indicate that a party to a commercial contract - which
unlike an insurance policy is likely to be heavily negotiated - has a better
chance of recouping attorney fees in a lawsuit. on the commercial contract that
an insured whose insurer violated the policy, a non-negotiated membership
contract, by wrongly refusing a claim.
There is a great irony here because
lawyers for insurance companies love to argue that an insurance policy should
be treated the same as any other contract instead of being interpreted against
the insurance company, as provided by law of Georgia. However, when the issue
of attorney fees is brought up, the same attorneys argue that insurance
policies should be treated differently from other contracts.
Again, this discussion is based on
Georgian law. The laws of other states in this area vary considerably.
4. Possible future
assistance for insured persons. In addition to the millions of dollars that
insurers spend on TV advertising, as discussed in the first article of the
series, insurers also spend a lot of money on "government relations",
or what you might colloquially call lobbying. . Any change in the current
circumstances will certainly lead to substantial opposition. At least in
Georgia, I suspect carriers pretty much like it the way it is.
Insurers say if they are forced to
pay more claims, premiums will rise. There are a few obvious retorts to this
argument. First, what do policyholders pay premiums to in the first place?
Second, insurers rarely seem to take into account the enormous costs associated
with paying an army of adjusters, national advisers, regional advisers and
local advisers to try to support denials of coverage.
In many cases, the result is that the
insurer has to pay the claim anyway, and sometimes even a bad faith penalty. It
would be really interesting to see the results of a study comparing the costs
of the current approach taken by many carriers to the cost of an approach that
would give the insured the benefit of the doubt by simply paying the claims.
I'm not suggesting that insurance
companies should be forced to pay claims that their policies were never meant
to cover. What I am suggesting is that insurers should recognize that they are
aiming to cover risks. Therefore, doubts should be resolved in favor of the
insured, rather than trying to force a claim to a clumsy or forced
interpretation of a term, condition or exclusion from the policy.
Here are some minor suggestions that
would make the playing field a little more level for Georgia's insureds.
a. The General Assembly, the
Insurance Commissioner, and the courts should prevent and give no credit to
“Never Pay” provisions in policies or “Never Pay” interpretations of such
provisions. It should be clear that the fundamental promise of an insurer is to
defend and indemnify claims. Insurers should not be allowed to sell policies
with Never Pay provisions. Courts should follow existing precedents and
interpret exclusions narrowly so as not to swallow up the fundamental promise
of coverage.
The Georgia Court of Appeals recently
did this as part of the "business risk" exclusions in commercial
general liability policies that insurers have used in an attempt to deny
coverage for claims resulting from construction defects or negligence. of
construction. Similar results should follow with respect to the pollution
exclusion, the exclusion of fungi, and other policy provisions that are
sometimes used to try to deny coverage in circumstances that were never
intended.
b. If an insured wins a lawsuit
against their insurer, they must recover their legal fees. In Georgia, a
carrier can deny a claim knowing that they likely face little risk beyond
having to pay the claim, while at the same time forcing the insured to hire and
pay a coverage lawyer. It can be a double whammy if the carrier has refused a
defense and the insured must also pay to defend the underlying claim. In many
cases, the insured may simply lack the resources to fight.
This allows carriers to engage in an
economic war against their policyholders with little risk of consequences. If
insurers force their policyholders to go to court for coverage and the
policyholder wins, the award of attorney fees should be automatic. This rule
should apply regardless of whether the insurer or the insured initiates the
dispute.
The reverse shouldn't be true. Why?
Because the insured does not have a say in the wording of the policy, does not
have access to an army of lawyers, and is generally economically disadvantaged.
At an absolute minimum, Georgian
courts should ignore the line of cases that the general statute of contracts
for the recovery of attorney's fees does not apply to insurance coverage cases.
An insured, as a party to a “take it or leave it” contract, should not be at a
disadvantage compared to a party pursuing an action in a carefully negotiated
commercial contract.
vs. The bad faith remedy should be
made more meaningful. Currently, an insured who wins in a bad faith action can
recover, in addition to the amounts owed under the policy, a penalty of 50% of
the loss. Previously, the law provided for 25 percent of the loss. It's just
not enough to get the attention of a carrier. A 200 percent multiplier would
change that, and it wouldn't be a drastic end to bad faith remedies in other
states.
Conclusion
This series generated a
lot of interest and a little discussion. This is not surprising, as the topic
is general. Almost all businesses and individuals purchase insurance to protect
against a wide variety of risks. Monty Python's "Never Pay Policy"
sketch is still funny after many years. As is the case with a lot of humor, the
skit is fun because it points to a generally accepted underlying truth. It's no
laughing matter, however, when insurers deny claims and act like they're
selling Never Pay policies. The consequences for policyholders can be
devastating. Until the insurance industry changes its methods or state
legislatures and insurance commissioners act, policyholders must look after
their own interests. Hopefully this series has provided at least some useful
observations on the fight against the never pay policy.
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