I recently participated in a negotiation with an insurer who had denied coverage for an underlying errors and omissions claim in the mid-seven figures. The insurer’s counsel and I exchanged stern letters, each explaining why our respective client’s position was absolutely correct, and the other’s absolutely wrong. The client’s broker arranged a meeting with principals and counsel on both sides. At the meeting, the insurer’s counsel and I debated our respective positions once more. Neither of us conceded any possibility that the other could be right. After 25 minutes, my client put a stop to the debate competition and, aided by the broker, moved into negotiations with the insurer’s principal.

The opening offer and demand were miles apart. But within an hour, the case settled, to the clear satisfaction of both sides. With no mediator. No wrangling about which mediator to select. No waiting three months to get a date on the mediator’s calendar. No mediation briefs or reply briefs. No waste of non-refundable mediator’s fees. No shuttle diplomacy, bracketing or mediator’s proposals. No mediator reserving jurisdiction to hammer out disputed settlement terms. It felt almost too easy.

Are lawyers too dependent on mediators to settle their cases? Whether you answer that question yes or no, there are many situations where a neutral can resolve a case where party negotiations would fail. This is particularly true in a “three-way” mediation, where the defendant’s insurer is participating but is reserving rights, denying coverage, or rejecting defense counsel’s settlement recommendations. These mediations present unique challenges that require a skilled mediator and savvy defense and coverage counsel.
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An insurance carrier has declined to defend a claim asserted against its insured, arguably without meeting its obligation to investigate the claim. For whatever reason— a change in personnel, loss of a file, or some other motivation—the carrier has done little, if anything, to investigate the claim tendered to it: no Google search, no phone calls, and very little factual investigation other than the information tendered by the insured. The carrier has, however, relied on the plain language of the policy, and the few facts of which it was aware supported its denial.

But when a court later finds that the carrier’s coverage position was wrong— the facts in existence created a potential for coverage and hence triggered the carri­er’s duty to defend—the insured may argue that its carrier’s failure to investigate sup­ports a finding that it breached the implied warranty of good faith and fair dealing; that is, the insurer acted in bad faith.
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settlement-statementFor decades, California courts have mandated that an insurer is obligated to accept a “reasonable” settlement demand within policy limits on behalf of its insured. If it fails to do so, it is liable for the entire judgment, including amounts in excess of the policy limits. Comunale v. Traders & Gen. Ins. Co. (1958) 50 Cal.2d 654, 659. Subsequent cases have addressed whether an insurer can escape excess liability if its decision-making process, as opposed to the settlement itself, was “reasonable”. California law is clear that even an honest mistake as to whether the claim is covered does not absolve an insurer from excess liability. Johansen v. Calif. State Auto Association Inter-Ins. Bureau (1975) 15 Cal.3d 9, 15-16. However, courts have also considered whether an insured must show the insurer acted “unreasonably” in assessing the value of the claim. In Crisci v. Security Ins. Co. of New Haven (1967) 66 Cal.2d 425, 431, the California Supreme Court held that the very fact of an excess judgment created an inference that the insurer was liable for the excess judgment. Other cases, however, looked at whether the insurance company properly investigated all facts relating to liability and damages. See, e.g., Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 707.
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On July 29, 2014, I spoke on a panel about recent developments in California bad faith law and related trends.  My co-presenter was Robert K. Scott of The Law Offices of Robert K. Scott, and we gave the presentation at ACI’s 28th National Advanced Forum on Bad Faith Claims & Litigation in San Francisco.  The

Published in the ABTL Report, Vol. 22, No. 3, Winter 2013.

Insurers and insureds have long disagreed whether an insurer’s duty to settle is limited to the duty to accept a reasonable settlement offer made by a plaintiff, or whether the insurer has a duty to affirmatively seek a settlement within limits.  This issue was recently addressed in Reid v Mercury Insurance Co., 220 Cal.App.4th 262 (2013).  In Reid, the insurer recognized shortly after the accident that the exposure exceeded the $100,000 policy limits, but decided it needed a witness interview and the claimant’s medical records before making a policy limits offer.  It requested this information, but didn’t tell the claimant it was considering a policy limits offer.  While the claimant later testified he would have accepted $100,000 to settle at that time, his counsel did not make a policy limits demand.  A few months later, after getting the medical information, the insurer offered policy limits,  which the claimant promptly rejected. The matter went to trial and judgment was entered for $5.9 million, forcing the insured into bankruptcy.  


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Two seminal New York cases have brought that state, along with potentially many more, into line with California’s position on the recovery of consequential damages.

The effects of Bi-Economy Market v. Harleysville, 886 N. E. 2d 127 (N.Y. 2008) and Panasia Estates v. Hudson Insurance Company, 886 N. E. 2d 134 (N.Y. 2008) are beginning to take shape in New York and beyond. The court in both cases allowed for the recovery of consequential damages for the insurers’ breach of their respective contracts even without bad faith conduct, holding that consequential damages beyond policy proceeds were foreseeable as a matter of law. Courts in many states have taken notice, and at least nine states have followed suit. California courts, however, have long recognized such recovery – the infamous Hadley v. Baxendale rule states that if the damages are within the reasonable expectation of the parties at the time of contracting they are recoverable.


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Sometimes an insurer declines coverage in either a first- or third-party context, and later, a court determines that this declination was in error and that coverage existed. Not infrequently in such circumstances, the policyholder asserts that the insurer did not conduct a thorough investigation prior to the declination and thus breached the implied covenant of

On November 23, 2010, the California Supreme Court declined review of the First Appellate District’s decision in Howard v. American National Fire Insurance Co., 187 Cal. App. 4th 498 (2010).  As I noted in a prior blog postHoward provides powerful, additional support for policyholders demanding that their liability insurer fund a settlement.

In

In Zhang v. The Superior Court of San Bernardino County, E047207 (Super.Ct No. CIVVS707287), the Court of Appeal addressed the issue of whether an insured could bring a claim against an insurer under the Unfair Competition Law (“UCL”), based on an insurer’s violations of California’s Unfair Insurance Practices Act (“UIPA”).   Reversing the trial court