Learning Obligations of Good Faith Insurance Claims Conduct and Litigation Strategies Through Safeco and Liberty Mutual Examples
Safeco Insurance Company cancelled depositions in a Texas insurance litigation matter yesterday. So, we spent the day working on Safeco and Liberty Mutual Insurance Company discovery and networking with other consumer attorneys who are helping clients with Safeco and Liberty Mutual claims problems. The collegiality of policyholder attorneys helping each other is refreshing. The Texas plaintiff's bar is very good at this.
Vivian Persand has been busy in our efforts to obtain information about how Safeco and Liberty Mutual operate their claims departments and make decisions on claims. I recently noted and published some of her efforts in Liberty Mutual Claims Documents Ordered Produced. As soon as we learned of the last minute deposition cancellations, we flew her from our Coral Gables office to review the discovery and documents produced by Safeco in Houston.
While not counsel to Safeco or Liberty Mutual, Vivian represented other insurance companies before coming to work with us. She is familiar with the practice of many insurance counsel to object to, rather than turn over, discovery that could otherwise help prove the policyholder's case. This discovery abuse is a significant problem in civil insurance coverage litigation, and there is usually no consequence. Despite the obviousness of the potentially important evidence, many insurance company coverage and claims counsel base objections on trade secret or work product privileges.
After spending a day with Vivian and coming across three other cases where attorneys obtained affidavits from a claims expert supporting motions to compel the production of evidence against Safeco or Liberty Mutual, we decided that Vivian will post every Friday on the Property Insurance Coverage Law Blog regarding lessons and experiences gleaned from Safeco and Liberty Mutual claims practice cases.
Many of the insurance coverage litigation techniques and practices in these cases are just as applicable to other insurance carriers and insurance coverage cases. Vivian's weekly posts will also provide some recognition to the efforts and creativity of other insurance coverage and claims practice attorneys with whom we have the privilege of collegial discussion and learning.
An example of an insurance discovery technique which leads to evidence is a discovery declaration by insurance claims practice analyst Charles M. Miller of California. Policyholder attorneys should obtain these affidavits as a normal part of their insurance discovery practice. This type of affidavit can help courts understand why requested discovery is relevant and important in insurance coverage litigation. Regarding Safeco, Miller noted the following:
...the documents sought in Plaintiff’s First Request encompass documents which describe Safeco’s programs and policies, such as Quantum Leap, which are directed at reducing Safeco’s claims payments in order to improve Safeco’s profits. Programs which emphasize profit in the handling of claims put the claims handler in a conflict of interest, wherein the claims handler can either fulfill the insurer’s full obligation to its insured or act in the insurance company’s interest because the claims handler will be financially or other wise rewarded if he/she does so. In my opinion, and based on my experience in reviewing handling thousands of claims files, when placed in such a conflict claims handlers will handle a claim in a manner that benefits the insurance company to the detriment of the policyholder. Such conduct is directly contrary to any claims handling standard and practice that I am aware of, and would be, in my opinion, bad faith. This information would be relevant to evaluating Safeco’s claims handling in this case.
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Plaintiffs also seek information concerning Safeco’s bonus and compensation programs...Bonuses are available to Safeco claims department employees depending on how the company as a whole does in reaching its corporate goals...Bonuses play an important role at Safeco in providing motivation to claims department employees to improve Safeco’s profits. As pointed out in Respondent’s and Cross-Appellant’s Brief in the matter of Parks v. Safeco, “[Safeco] claim representatives were instructed that they could increase profitability as well as increase their retirement benefits and personal bonuses by reducing claims payments.
The financial incentives and motivations of insurance claims managers and employees can be extremely important when explaining claims behavior. This discovery tool teaches what to look for and why the evidence impacts good faith claims conduct. Sharing these lessons, helping colleagues, and promoting justice, is why Vivian Persand's posts will be important to read every week.
Indeed, I believe bad faith and breach of contract in these adhesion contracts begins quietly and very early. One need only examine the "approaches to coaching the independent adjusters" - by this I mean, how the independent adjusting firms (so-called) and their executives are basically in bed with claims departments supervisors and executives - a cozy back scratching relationship that thrives on towing the line and playing the game - otherwise, thousands of claims assignments get shipped down the line to another IA competitor.
I look forward to Vivian's posts on this subject. I am sure her posts will be informative to all readers of this blog.
I also would like to echo Mark Phillips' (no relation by the way) comments. As a former partner in a regional I.A. firm I can state first hand that I.A. firms are pressured every day by their insurance carrier clients to place company directives over good faith claims handling. Failure to do so results in that carrier pulling their business.
My last comment concerns Safeco's practice of paying bonuses to claims personnel based on loss figures. If that is a widespread practice among the insurance industry than the institutionalization of bad faith is much more advanced than I previously thought.
Mark and Don,
Thanks for your perspectives from the independent adjuster standpoint. I doubt any currently employed independents will come out and agree with you because of the financial punishmment that would occur from such honesty regarding how insurance companies reward adjusters for paying less on claims than what is fairly owed.
Crawford and Company had advertisemments claiming that it tracked severity results to show how effective it was handling claims. Why would an independent care about severity trends excpet to prove it played hardball with policyholders better than competing independennt adjusting firms?
The reason why there is a very strong need for laws that protect insurance customers is because of the conduct you just wrote about. It is important that such testimonies be recorded and publicized to stop the insurannce industry propagandists who would try to convince judges and lawmakers that such consumer protection law is not important.