Essential strategies for insurance companies in Washington state
Mitigating consent judgment risks: Washington state presents unique and difficult challenges to insurers.
Insurers operating in Washington state must navigate such distinct challenges as exposure to extra-contractual liability for breach of the duty to settle, even when the insurer is defending the insured.
What can an insurer do to protect itself from the threat of consent judgments? Here are some general guidelines…
Practice claims-handling best practices
- Acknowledge communications in a timely manner, and investigate the claim. Hire reputable and experienced defense counsel. Listen to them while also independently evaluating and re-evaluating the claim as new information is received. Be open to changing the case evaluation and the resolution strategy for the case based on new information and changing circumstances.
- Work with insured’s personal counsel throughout the case. Establishing a relationship of trust before a demand will make it easier to work with them upon receipt of a demand.
- Keep your insured informed of the process and the progress of the investigation. If they know their insurer is actively working to bring the case to a reasonable resolution, they will put their trust in the insurer to protect them.
What to do when you get a demand
- Immediately determine the deadline and make sure you have enough lead time to obtain any approvals or authority you may need. Request more time if you need it.
- Evaluate any non-monetary conditions of the demand and determine whether they are realistic. Review the demand to confirm what claims are being released if the demand is accepted.
- Review your file to determine what additional information is needed to evaluate the demand, and contact defense counsel, the insured, or plaintiffs’ counsel to request any information.
- Get defense counsel’s assessment of the liability and damages, and find out what additional information they need to evaluate the demand.
- Reach out to the insured to inform them of the demand and seek their input. Even if defense counsel is communicating with the insured, the insurer also needs to independently confirm that the insured is advised of the demand.
Considerations in responding to a demand
A decision to turn down a settlement within limits is always going to be subject to hindsight bias by a reviewing court after an excess judgment or settlement. It is important to consider the following factors when deciding how to respond:
- The strength of the injured claimant’s case on the issues of liability and damages;
- The ranges of probable outcomes and the likelihood of each;
- The adequacy of the insurer’s investigation and evaluation;
- The adequacy of the insured’s policy limits and the risk of an excess judgment, willingness or refusal to negotiate;
- Any other action by the insurer demonstrating greater concern for the insurer’s monetary interest than for the financial risk attendant to the insured’s predicament;
- Counsel’s experience and capabilities (on both sides);
- Witness credibility, and
- advice of defense counsel.
I also is essential to document your reasoning for accepting or rejecting the demand contemporaneously with the decision.
It’s also key to consider all options. Discuss whether to accept the demand or not, and whether further negotiations could be fruitful (remembering to be careful in negotiating off the demand, as negotiation could be considered a rejection, allowing the insured to enter into a consent judgment).
In he right case, consider waiving the policy limits. This is not the right answer in every case — not in a strong defense case. But it can give the insured the peace-of-mind a consent judgment would, while allowing the insurer to still defend the case and protect the insured.
Of course, after waiving limits, the insurer must be prepared to pay what the case is worth, whether by judgment or settlement, and does not have the limits as a defense.
Responding to a demand
If you decide to accept a demand, do so in writing before the deadline and make sure plaintiffs’ counsel receives the acceptance. Do not leave it to chance.
If you decide not to accept a demand, either because additional information is needed to evaluate the claim or because the evaluation of the claim does not support accepting the demand, respond in writing to the demand. Document what steps have been taken to investigate the claim so far, as well as what information or steps remain outstanding, and be specific.
If the case value does not support accepting the demand, include an analysis of the reasons and consider whether further negotiation might be warranted to resolve the case.
If a consent judgment arrives…
Prepare for the possibility that a time-limited demand could come at any time in a case and be ready to respond. Document your case file with your evaluation and plan. The key to defending against a consent judgment is to have a thoroughly documented claim file that explains the basis for the decisions made contemporaneously with the decisions that demonstrate the reasonableness of the position taken at the time.
Terri A. Sutton is a partner at Kennedys in Seattle. She advises insurers and litigates complex coverage issues under general, professional, pollution, and excess/umbrella policies, treaty and facultative reinsurance, medical malpractice, and directors and officers and employment practices liability coverages, and bad faith. Contact her at Terri.Sutton@kennedyslaw.com or at (564) 224-9101.
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