A Guide to Insurance Company Tactics
Insurance companies are in the business of making money. To make money, they collect premiums from clients (policyholders) in exchange for a promise to compensate them in the event of a covered loss. Imagine the financial condition an insurance company would be in if it paid every policyholder 100% of coverage limits for every claim the policyholder made? To ensure this doesn’t happen, the insurance company hires claims adjusters to investigate, evaluate and negotiate claims with policyholders. Claims adjusters work for and are paid by the insurance company. When you litigate a property claim, opposing counsel is a defense attorney who is paid by the insurance company.
As a result, insurance companies zealously defend against every claim that is brought to litigation. While they usually have strong factual and legal defenses (more on this later) to litigating cases fairly or under bad faith, they know that it’s cheaper to settle cases than to go to trial. So, they settle cases for much less than policy limits and at much lower figures than what might be awarded by a jury. Adjusters can immediately assess a claim’s value because the adjusters have exposure to the defense attorneys to determine case value and jury verdicts for similar factual scenarios. In addition , claims adjusters know that juries rarely award every penny that a policyholder claims or submits in a demand (consider all of the bad press that juries hear about how insurance companies have to fight to pay policyholders the money that they deserve). It doesn’t matter if someone wrecked your car if you weren’t actually hurt. It doesn’t matter that you went to the ER and a doctor said that you had bruising and swelling because the doctor failed to find a fracture. It doesn’t matter that you took hundreds of dollars of medications. A jury is generally not going to award you every penny of your medical bills. They know that these expenses "just add up" when a person is in a car accident, fall, etc. This general skepticism of a policyholder’s good faith is what insurance companies use to tender a low-ball offer that is "just enough to get the policyholder to dismiss the case." Yes, insurance companies will usually tender a low-ball settlement offer to their own insureds to protect their interests even in a first-party case.
Pros and Cons of Insurer in Litigation
For insurers, going to court can be a double-edged sword. The pros and cons development depends on the underlying facts of the case and most importantly the insurer’s predicted level of exposure. For a court case, the insurer is subject to a loss regardless of the verdict rendered. If the Plaintiff prevails with a jury award, the insurer is subject to pay that award. The main pro of going to court for an insurance carrier is the potential for lower payout overall. Depending on the jurisdiction, insurers have the potential to secure a favorable verdict for the defendant. This could also lead to a reduced loss exposure if the insurer can argue that co-defendants are equally or more liable than their insured. Similarly under most rules of civil procedure, the insurer is entitled to an apportionment of fault and can potentially receive a verdict that finds their insured blameless, decreases the insurer’s defensibility and claims handling exposure, and reduces the insured’s exposure as well.
The cons of going to court for an insurance carrier is their overall unpredictability. Even the best litigators do not always know what jurors will do and in terms of implementing the Becker decision and bad faith lawsuit exposure, insurers must err on the side of caution. Some jurisdictions are known to be more plaintiff friendly than others. Accordingly, in jurisdictions with a reputation for being plaintiff friendly, insurers may prefer settlement over litigation. When an insurer’s coverage position is less than clear, they may choose to settle rather than risk an exposure for coverage in a state with great damages.
Considerations for Deciding to File Suit
The question of whether or not an insurance company prefers to litigate or settle a case is a complex one that depends on a number of factors. Often, the decision may be less about an insurance company’s general policy toward court versus settlement, and more about the particulars of a given situation.
One factor that may affect a decision to litigate is the applicant’s prior insurance record. If past claims against an applicant suggest the possibility of greater than typical risk, litigation may be seen as beneficial to the insurance company as it may help to expose issues of questionable honesty.
Proximate cause can be another relevant factor, particularly in fire cases, where arson or fraud may have been the root cause of the incident. Again, this is more about the particular potential pitfalls of a given case than a generally held policy position regarding litigation versus settlement, but it will impact the decision.
Another possible factor that may contribute to an insurer’s decision to litigate is the precedent it may establish. If a given case would set bad legal precedent for an insurance company, litigation may prove beneficial, even when settlement might otherwise be preferred.
How Insurers View Settlement as a Preferred way to resolve disputes
For insurance companies, settlement is often the preferred method of resolution, and the reasons for this are typically four-fold. First, settlement generally allows claims to be resolved more quickly than litigation. Second, settlement typically costs insurance companies less in the long run than prolonged litigation. Third, asserting contractual and tort defenses in litigation can often alienate customers . In addition, insurance companies may have an interest in keeping insureds compensated in potentially catastrophic claims situations. Finally, insurance companies may have a strategic interest in obtaining information relating to particular loss situations, thereby allowing the insurance company to properly assess risks and develop more accurate, data-driven statistical models as part of their actuarial calculations.
How Suing an Insurance Company Affects the Policyholder
Whether an insurance company settles a claim or litigates it can have a significant impact on policyholders. For example, if there are multiple lawsuits against the insurer in a short period of time, an insurance company may be motivated to be more proactive in working with insurance regulators to settle claims. Conversely, if a claim involves substantial sums of money in dispute, an insurance company may ignore its own policy and force the matter into court rather than settling it. If a claim is subject to litigation, the policyholder can expect significant delays. While an insurer can eliminate delays by settling pre-litigation (many insurance contracts have provisions that require the insurer to "settle promptly" rather than forcing an insured into a lawsuit, however, this is rarely the case on high-value claims), an insurer does not have to actively settle claims once litigation begins. As such, the policyholder may need to address one or more of the following issues:
- Potential arguments about whether the parties actually have a valid claim or defense to litigate
- The insurer’s right to investigate the claim while reserving the right to deny coverage
- Delays in handing over the claim file
- The time it takes to complete discovery
- The time it takes to collect evidence during discovery
- When and how experts will be identified and retained
- When and how trial will occur
- When and how settlement negotiations will continue
- Whether any of the communications exchanged between the insured and the insurance company during the adjustment are confidential and cannot be revealed to others in court
- The parties’ rights to exclude evidence from trial through motions in limine
However, regardless of the presence of contractual and legal defenses to litigation, the insurer still has a strong desire to resolve the matter amicably and favorably if at all possible. This may be tempered by a stronger commitment to litigating the case if the company perceives that doing so will build a more favorable appellate record. The parties often still have an incentive to settle even after litigation has started and throughout the duration of litigation. The policyholder should also be prepared for the insurer to argue that they are violating the terms of the insurance contract by refusing court-approved attempts to settle their claim. The policyholder must carefully consider what claims will be maintained if a settlement offer is made.
Guidance for Policyholders with a Lawsuit against their Insurer
The first thing a policyholder should do if faced with a claim filed against them that will have to be litigated is to retain an attorney who specializes in insurance law. Insurance coverage attorneys have the experience necessary to help the policyholder through their claim and most importantly through their litigation. Policies written in Illinois, and other states generally require that either the insurer or the policyholder initiates a lawsuit within 2 years of the date they are denied coverage. The policyholder should make sure that they understand these dates so that they do not miss the deadline. Oftentimes , the plaintiff and defendant will be filing and answering motions for months, if not years, before they reach the point where they will go to trial. Periodically monitoring the case and making sure that deadlines are being met is a good thing for the policyholder to follow. If an insurer offers a settlement amount early on, the policyholder should consult with their attorney as to whether the settlement will cover the full extent of damages to their property. In some instances, the settlement amount is much lower than the damages, and another appraisal may be necessary.