2. Roll the dice more.

Houston lawyer Christopher W. Martin, a founding partner at Martin, Disier Jefferson, & Wisdom, gave a riveting presentation about winning bad faith cases, during which he implored insurers to take more of these cases to trial. Martin argues that too often insurance carriers are unduly cautious and afraid.

3. Trade secrets in claims manuals? Really?

In many bad faith cases, plaintiffs often seek production of insurer claims manuals. They hope these are fertile grounds for bolstering a bad faith claim. One example is “Our mission in claims is to preserve the company's financial health and settle for the lowest possible amount.”

Insurers typically balk at this use of claims manuals, objecting that the claims manual contains trade secrets. If you use this argument, though, prepare your claims staff to be able to explain what secret and proprietary information is actually included in such documents.

4. Avoid “game-day” deposition prep for adjusters.

Too often, defense attorneys defending bad faith cases schedule prep time with the adjuster the morning of the deposition. This is not a best practice. Prepping the adjuster for his or her deposition is not something to leave for the morning of the event. Adjusters are tense and distracted the morning of their deposition. They cannot absorb all the information and advice when defense counsel does a “data dump.” Better practice is for the adjuster to meet with counsel days or even a week ahead of the deposition.

5. Small but expanding storm clouds.

A growing minority of courts are finding bad faith even in the absence of coverage. Some courts have held that, even if an insurer prevails in proving no coverage, it can still be sued when its claim-handling was deemed unreasonable beyond good faith mistakes. Still, even in those jurisdictions recognizing bad faith in the absence of coverage, the putative insured must still prove damages.

6. Do eroding policies equate to eroding good faith?

Defense-within-limits policies pose interesting (and volatile) bad faith potential. Should those policy dollars be spent more on settlement than defense? Do these policies entitle policyholders to a greater say in selecting their defense counsel? Does the insurance company have a heightened liability exposure for mismanaging legal fees if they deplete the policy limits? This could be a burgeoning subset of bad faith in the future. (Refer to the sidebar on the top right for more information about these policies.)

7. No easy wins for policyholder attorneys.

Despite fears of runaway verdicts or bad-faith lawsuits against insurance companies, these are not easy cases plaintiffs to win. Don't just take the word of the defense bar, either.

“Even good bad faith cases are relatively rare and hard to win,” explains David W. White, a founding member at Breakstone, White & Gluck, who typically represents policyholders. “Even if the plaintiff wins, two-thirds [of those decisions] are reversed on appeal.” This observation dovetails with Martin's thoughts in item 2. 

8. Watch the “ear test” as a barometer of insurer bad faith.

Plaintiff attorneys read body language of the claims adjusters and executives during the deposition. They infer signs from the body language of key insurer personnel. Opposing lawyers read such body language as poker players read the tells of others sitting around the card table. It lets them gauge whether or not they have a promising bad faith claim.

According to White, the odds of a punitive award “correlate directly with the redness of the claim manager's ears during deposition.” Therefore, the takeaway for adjusters and claims executives is this: Manage your emotions during testimony. Expect to be hit and hit hard, as in tackle football.

9. You win or lose a bad faith case long before trial.

As in other matters, preparation pays off. “Most bad faith cases are usually won or lost long before trial starts,” says Rick Hammond, a Chicago-based equity shareholder at Johnson & Bell. “Problem areas are investigations that identify information adverse to the insured's interests as 'good news' in the claims file.”

Another adjuster pitfall, he adds, is choosing to believe someone other than the insured. Hammonds also cites adjusters who hang dirty laundry in the claims file, such as a supervisor commenting about adjuster performance in the claims file. He has also seen claims file entries to the effect that, “the line unit really screwed up this claim” or “it looks like we are in bad faith because of the long delay.”  These are essentially the bad faith equivalents of dynamite sticks.

10. Looking at Facebook And Bad Faith

Social media use in claims handling is becoming a new wrinkle in bad faith cases according to Paul Berne, senior vice president of claims at Lancer Insurance Company. While claims people may be excited about social media tools, Bernecautions that jurors may view an insurance company's use of social media in claims as an invasion of privacy. This might extend to sending a friend request as a pretext to access information that jurors feel should be private.

As a final thought, if you want to guarantee that attorneys will stay until the bitter end of a conference, hold the ethics presentation until the very last session. Many attorneys must have a certain minimum number of hours of annual ethics continuing education (CE) credits. Periodic ethics training could arguably be one safeguard against, well, bad faith.

Do Self-Eroding Policies Heighten Bad Faith Risks?

William Kobokovich, vice president and associate group general counsel at Travelers, and the Hon. Enrique Romero, a retired Los Angeles County Superior Court judge and a mediator with ADR services, commented on perils of defense-within-limits liability insurance policies. Four observations that impact adjuster case-handling are:

1. Communicate with the insured. There may be a duty to keep the insured informed of the defense costs incurred.
2. Watch the meter. Avoid unreasonable defense costs that deplete the coverage at an accelerated rate.
3. Explore settlement early. Such policies may put a heavier onus on adjusters to explore early settlement in order to avoid ballooning defense costs.
4. Brace yourself for demands for Cumis counsel. Some argue that such policy features create an inherent conflict between insureds and insurers, which creates a right of independent counsel for the policyholder.