Tips on Avoiding Bad Faith Landmines During Trial

Acknowledging settlement demands in a timely fashion and documenting trial activity are just two ways to avoid bad faith litigation after a trial, said Kevin Quinley, founder and principle of Quinley Risk Associates.

During a podcast on the topic, Quinley said that settlement offers made during trial can pose bad faith risks for adjusters.

“Let’s look at this classic scenario. You’ve taken a claim to trial. Defense attorney is into day three of the proceedings, and plaintiff’s counsel had given you a new settlement demand. It’s open for only 24 hours. The demand, coincidentally, is for the exact amount of your policy limits,” said Quinley. “How you handle or mishandle this situation, this fork in the road, can dictate whether you end up with a settled claim during trial or a bad faith claim post trial.”

The claims expert offered a number of tips to aid adjusters in avoiding bad faith lawsuits down the road.

The first tip is that adjusters should promptly acknowledge any demand received from plaintiff’s counsel. Quinley recommended an adjuster create a paper trail acknowledging the demand.

“My comment here is that failure to respond promptly will give ammunition for a later bad faith claim from the policyholder. In some states, there may also be potential for third party bad faith claims from claimants or plaintiffs. That is state specific,” said Quinley. “Don’t hand them darts to later throw at you. Respond promptly. That would be my first tip.”

Next, adjusters should thoughtfully consider the demand and document the analysis. Quinley advised adjusters avoid emotional, knee jerk reactions to a demand.
Once a demand is received, the adjuster should seek out a consensus on what the response should be.

“Try to seek a consensus among the defense team. When I say the defense team, I’m talking about not just defense counsel, but in many cases, the insured and the policyholder. Again, especially on commercial lines claims,” said Quinley. “Soliciting input is good, it’s a best practice, but let me be clear here and make no mistake. The buck stops with the adjuster.

I’m not suggesting that the adjuster delegate the decision to either the policyholder or council. The adjuster should make the final call and decision.”

He also noted that there should be a compelling reason when a decision is made to override defense counsel’s recommendation and the claims file should note the reasoning for the decision.

Next, the adjuster should respond to plaintiff’s counsel’s demand.

“I’ve seen cases where the adjusters make a counteroffer and even put a time limit on that counter. Document the claim file showing that you not only acknowledged it, that you not only thought about it, that you not only discussed it, but that you did something in response to it,” Quinley said.

During the course of the trial, he emphasized the importance of communication both horizontally and vertically and why it’s important to never surprise the boss.

“Let’s talk about vertical communications. By that, I mean conveying promptly any genuine settlement opportunities, especially up the chain of command to higher ups in the claim hierarchy,” Quinley said. “Also, communicate developments to other key constituents. That’s what I mean by the horizontal dimension of internal communication. Those might be reinsurance companies. They may be excess carriers who may be watching very closely what you do and don’t do. The insurance broker who works with the policyholder, and when the outcome of the case may have an impact on what the broker looks at in terms of future insurance options and cost.”

He recommended erring on the side of over communicating.

“What you risk by under communicating is a lot of money from a bad faith verdict years later or just the legal transaction costs of defending a bad faith claim based on allegations that you kept key people in the dark,” said Quinley. “Trials are trying. Maybe that’s why they’re called trials.”

Lastly, during trial, adjusters need to pay attention for these five things that could derail a defense case.

• A judge’s ruling craters the defense case significantly. Reassess.

• A judge grants a motion in limine, significantly constraining what the defense expert can address. May be time to step back and reassess.

• A key expert for the defense side waffles and wobbles with regard to his or her opinion. Maybe they look great in the conference room, but they don’t look so great either in deposition or at trial.

• The jury is in tears during plaintiff’s testimony. If the bailiff has to hand boxes of tissue to the jurors during plaintiff’s testimony because they’re so distraught by what they hear, that’s a bad sign. That may be a time to initiate and revisit settlement options.

• Listen between the lines. If defense counsel suddenly changes his or her tune and tells the adjuster something like, “We need to take a hard look at settling this case.” or “Is there somebody else in your home office I should talk to with regard to settlement?”

“Each one of these five scenarios is what I call a Maalox moment, which warrants a reassessment in your resolution and evaluation strategy. My parting thought would be, be alert for these game changers and adjust accordingly,” Quinley said.

Related Articles:

Avoiding Bad Faith in Water Loss Claims by Practicing Due Diligence

Basic Claims Handling Fundamentals for Uninsured Motorist Claims