The Strange World of Insurance Litigation

The phone wakens Jeff in the middle of the night. It is the fire department calling because his store is on fire. He rushes to the shopping center to find Roger, the center manager, surveying the damage. Jeff and Roger have now entered the insurance zone.

Lisa checks into the hospital for surgery on her fractured right ankle. She informs the doctors that she has a history of asthma. During the administration of anesthesia, Lisa suffers a serious respiratory reaction which interrupts the flow of oxygen to her brain. The anesthesiologist is not able to successfully intubate Lisa and reestablish the flow of oxygen for four minutes. Lisa suffers irreparable brain damage. Lisa, the hospital, and the anesthesiologist have now entered the insurance zone.

Matt has worked hard to build up his business. As part of his plan, he has very carefully paid his business insurance premiums. Recently, an employee filed charges of harassment against Matt, another employee, and the business. Matt and both employees have now entered the insurance zone.

Norma and Walker survey the damage to their house after the flood waters have receded. They delayed moving their furniture and possessions because they did not think the flood waters would reach their house. They were able to escape only minutes before their house was engulfed by the raging flood and submerged in five feet of muddy water. Now they have nothing. They have just entered the insurance zone.

Almost every aspect of our daily lives can be insured. Whether it is our residence, car, possessions, business, professional responsibility, art, life, or future events, it can be insured. The first known records of insurance date from several thousand years before the Christian era when Chinese merchants insured losses of ship cargo to pirates or storms. This practice continued and even spread when, in the 1600's, British merchants met at a coffee house in London named Lloyd's and agreed to share risk of losses in insuring their ships. That was the beginning of Lloyd's of London.¹

Once a person enters the insurance zone, regardless of how many parties are involved in the situation, there is still a separate party, the insurance company, that becomes an integral part of the legal process. It remains a component regardless of whether it is named as a party in the suit, or not. That is the big difference between insurance defense cases and other civilactions.

Referring to the story of Carol and Susan described above, Carol is involved in a car accident in which she suffers some injuries and her car is damaged. Susan, does not suffer any injuries, but her Suburban is also damaged. The police investigate the accident and cite Susan for traveling at an unsafe speed. Both drivers exchange insurance information before Carol is taken by ambulance to the emergency room for examination of her injuries.

Some time later, the ABC & Associates firm is contacted by Carol to help recover money for damages to her car and for her personal injuries, because Susan's insurance company has not been cooperative in reaching an agreeable settlement. The initial action her attorney must take is to notify Susan's insurance company of his representation of Carol. The legal assistant will be involved in interviewing Carol, determining if any prior interviews and/or statements have been obtained, obtaining a copy of the police records, determining if any witnesses were present and what they remember, obtaining damage estimates, obtaining medical records related to Carol's injuries, and documenting Carol's side of the story in preparation for filing a suit, if necessary.

One of the first actions taken by Susan's insurance company, First Insurance, is to determine if the accident falls within the terms of coverage provided by Susan's personal auto insurance policy. Coverage is controlled by the type of policy she has in effect at the time of the accident and any limitations or exclusions contained in the policy. In this case, there is an assumption that Susan has coverage, but quite often, coverage is a question that will be litigated in a separate suit between Susan and her insurance company and is not discussed here.

Once coverage has been determined, the claims adjuster for Susan's insurance company will interview the parties, take recorded statements, obtain estimates of repair costs to the vehicles, and evaluate medical records related to Carol's injuries. In this case, First Insurance determines that, while Susan's vehicle did hit Carol's car from the rear, there could be a question of whether Carol improperly turned in front of Susan in such a manner that made it impossible for Susan to avoid hitting Carol. There is also a question of whether the medical costs submitted by Carol were reasonable and necessary in light of the minor injuries Carol claims to have suffered. Based on those factors, First Insurance denies payment to Carol for both property damage and personal injuries, claiming that Carol caused the accident by improperly turning in front of Susan. Carol and her attorney then request payment directly from Susan. Having learned that her insurance company has denied payment, Susan also denies payment to Carol.

Carol and her attorney file a civil action against Susan claiming that Susan was the proximate cause of the accident and Carol's resulting damages and injuries. Susan is served with citation and Plaintiff's Original Petition. Susan is frightened by these ominous-looking papers and stuffs them in a drawer out of her husband's sight. Several days later, she is so frantic and worried that she calls the claims adjuster handling the repairs to her Suburban for her own insurance company and asks what she should do. To her relief, Susan discovers that one of the benefits of her auto insurance is the provision of a defense in lawsuits filed against her as a result of an accident in her insured vehicle. The insurance company selects and retains an attorney to represent her and pays the attorney's fees and expenses. Susan still has the right to obtain an attorney for personal representation, but more often than not, the insured allows the insurance company to assume the responsibility for her defense and does not retain a personal attorney.

One of the most difficult areas for a legal assistant unfamiliar with insurance defense litigation to understand is exactly who the "client" is in the case. The attorney is representing the named defendant, the insured, Susan; but the entity paying his bills is First Insurance Company, the insurer. The insurance company has a very real interest in how the suit is defended. It frequently sets very strict guidelines for the way the case is handled, maintains constant contact with the attorney and his staff, and exerts control of the case by holding the purse strings. There are times when a dilemma arises as to how to proceed to best represent both parties. In effect, the defense attorney is representing two parties who have a potential conflict. Defense counsel sometimes has to walk a very fine line in trying to reach a conclusion in the case that is satisfactory to both the insured and the insurer. Current thought seems to be that the insured is the primary client; but, since the insurance carrier has retained the attorney and is paying for the cost of defending the lawsuit, in reality, the carrier usually possesses more influence on the way the case is handled. Although this could create a very difficult situation if the insured wishes to be very involved in defense of the suit, the truth is that most insureds are quite happy to leave the day-to-day decision making about the case to the insurance carrier and the attorney. Defense attorneys have to be sensitive to these issues and understand how both the insured and the insurer are affected in order to best defend the case.

Susan's insurance company selects and retains XYZ & Associates to provide a defense for Susan and authorizes the firm to explore possibilities for a counteraction against Carol. XYZ firm will notify Susan and will make arrangements to meet personally with her and discuss the details of the case. She is advised of the limits of coverage provided by her insurance policy and informed that she may be personally liable for any jury award that exceeds the limits of her policy. An answer is filed on behalf of Susan, and XYZ begins its own investigation. The legal assistant will be involved immediately by preparing discovery requests to the plaintiff, interviewing Susan and preparing a response to discovery requests sent to her by the plaintiff. The legal assistant will review the claims investigation file provided by First Insurance, contact and interview witnesses, obtain damage repair appraisals and receipts, and obtain medical records under affidavit regarding the plaintiff's previous physical condition and medical treatment in addition to medical treatment and expenses related to the accident in question. An alert and inquisitive legal assistant reviewing and summarizing medical records can be invaluable in locating tiny bits of information that become the key to uncovering undisclosed pre-existing conditions or treatments which might have escaped the attorney's or the adjuster's scrutiny. The legal assistant may also be involved in locating possible expert witnesses. Such experts can be needed for accident reconstruction, biomechanical evaluation, review of medical records and bills to determine reasonableness and necessity, vocational rehabilitation and retraining, and life needs planning as a result of permanent impairment.

While all the usual written discovery tools are employed, the use of depositions is increasingly the discovery tool used in these cases. The depositions are frequently video-taped for use in subsequent mediation or trial. They can be very useful in obtaining detailed descriptions of the change in the plaintiff's activities, employment, or income for which she seeks compensation. Serious discussions about settlement usually never begin until after depositions are taken. The legal assistant will be very useful in summarizing the depositions so important information in the deposition can be accessed quickly. An investigator can be contacted to provide surveillance of the plaintiff's activities for substantiating or impeaching her claims regarding limitations on her life style.

As dockets of the courts become increasingly crowded, mediation is often used to settle the claims prior to trial. Insurance defense cases are a good example of the type of case that can be mediated successfully. However, it can be an area of conflict between the insured and insurer if the insured wants to fight the suit all the way to the courthouse. Here is where the attorney's astute evaluation of the case and the prospects of a jury award becomes very important. Such an evaluation should be candidly set forth in correspondence to the insurance company with a copy to the insured. In the letter, the attorney should make a point of agreeing with the amount authorized by the insurance company for settlement or should explain in detail his reasons for disagreeing with the company. This allows the insured to be informed about what the professionals feel is the value of the case and why. In discussions with the insured, the legal assistant can help the insured to see the wisdom in the attorney's evaluation and help divert an adversarial relationship between the company and the insured. It is imperative that the legal assistant promote the defendant's trust in the insurance company and the firm representing the defendant.

The general consensus among plaintiff attorneys has generally been that insurance companies will settle any lawsuit if they can be made to believe that it is more financially prudent to do so, and they have been right. As a consequence, just about any kind of personal injury case that a person would dare bring to an attorney got filed as a lawsuit and eventually got settled for some amount by the insurance company just to make it go away. However, some insurance companies are beginning to balk at being a gravy train any longer and are refusing to settle any slightly-questionable cases, period. These companies are willing to take the cases all the way to the jury and are experiencing a gratifying number of successes at trial. The argument before a jury of plain ole' working folks that the rush to file suit for any kind of frivolous reason has gotten out of control is one that is making sense to more and more juries in conservative venues. Jurors are expressing their frustration over increasing insurance rates, unreasonable medical expenses incurred with doctors recommended by the plaintiff's attorney, and excessively high awards for those intangibles such as pain and suffering, mental anguish, and loss of earning capacity. Insurance companies are taking advantage of that growing sentiment and are telling more and more plaintiffs to "prove it." It is unfortunate, because the plaintiff who is truly injured, permanently impaired, and economically devastated by the negligence of another will get caught in the backlash against excess and greed of litigants before him.

The presence of the insurance company and the associated conflicts, the possibility of multiple parties and attorneys and the varied interests that accompany them certainly create an interesting and often difficult challenge for defense counsel and legal assistants. These factors cause insurance litigation to be classified as a strange animal unto itself.

¹ Collier's Living Encyclopedia

TEXAS PARALEGAL JOURNAL
Summer 1997
©1997 Legal Assistants Division, State Bar of Texas

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