Jury to Decide If Carrier Risked Trial Because It Had Nothing Left to Lose

A federal judge in Rhode Island has cleared the way for a trial to decide whether Columbia Casualty Insurance, in bad faith, put its own interest over its policyholder’s by gambling on a trial instead of settling a claim that resulted in a $25 million jury verdict.

Boston-based Ironshore Specialty Insurance Co. sued Columbia, accusing the Chicago-based carrier of pulling a fast one. Ironshore says Columbia risked a jury trial in a malpractice claim only because it knew it would have to shell out the full $9 million in coverage provided to settle the case.

By not settling, Columbia exposed Ironshore and its policyholder to even greater losses. A jury in August 2015 awarded claimant Carl Beauchamp $25.6 million in damages — which came to $35 million with prejudgment interest — forcing Ironshore to pay all of the $11 million in coverage that it provided as a third-tier insurer. That was the largest negligence verdict in Rhode Island history at the time, the court said.

Columbia filed a motion with the U.S. District Court in Rhode Island to dismiss Ironshore’s suit on the grounds that a carrier cannot be liable for bad faith unless it has been accused of breaching an insurance contract. Columbia said its insurance contract was with Rhode Island Hospital’s parent organization, Lifespan, not Ironshore.

On Monday, U.S. District District Judge William E. Smith ruled that Ironshore did not have to be a party to a contract with Columbia to bring a bad faith claim.

“The crux of the dispute here is whether Columbia’s settlement tactics in the Beauchamp action were reasonable and legitimate efforts to reduce Lifespan’s exposure to damages, or were executed in bad faith and in reckless disregard of Lifespan’s best interests,” the judge explained in his opinion.

Ironshore also scored a victory against Columbia by persuading Smith to bar one of Columbia’s expert witnesses, a retired judge who wrote a report finding that Columbia’s actions were consistent with industry standards.

Both litigants are heavyweights in the liability market. Columbia Casualty Co., based in Chicago, had $572 million in direct written premiums in 2018, all but $5 million of that in liability lines, according to National Association of Insurance Commissioners’ data. Ironshore Specialty Insurance Co. had $990 million in direct written premiums last year, all but $77 million of it in liability lines.

Columbia provided the second tier in malpractice insurance coverage through an umbrella policy covering Rhode Island Hospital. The hospital was self-insured for up to $6 million in losses. Columbia covered amounts beyond that retention up to $15 million. Ironshore covered the excess: anything more than $15 million up to $32 million.

The dispute between the carriers stems from Beauchamp’s claim. The hospital had admitted that Beauchamp had suffered permanent brain damage because of its negligence. The only issue left to settle was the amount of damages.

Columbia said Beauchamp’s attorney demanded $32 million to settle the case and refused to come down from that number. The carrier says it earnestly negotiated a pre-trial “high-low” agreement that guaranteed Beauchamp at least $15 million in damages and no more than $31.5 million.

The jury verdict triggered the high-end of that agreement, effectively exhausting all of Rhode Island Hospital’s insurance coverage.

Smith said now it’s up to a jury to decide if Columbia ignored its policyholder’s “reputational risk and used Ironshore’s money to roll the dice in hopes of getting snake eyes.”