National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

OK. I admit it--I didn't wait for Santa Claus this year.  I am now the ecstatic owner of a new IPad.  Having spent much of Thansgiving weekend playing Scrabble on line with a friend in Mississippi and listening to Bob Dylan on Pandora, I am also discovering the wealth of useful legal applications that this new technology presents for coverage practicioners.

A particularly cool new app is "Picture It Settled", a free program designed by a San Antonio lawyer that allows you to automatically track all the demands and offers in a settlement negotiation.  Anyone who has sat through a construction defect mediation can immediately grasp the value of this app.  It also has a particularly cool alogrithm that creates a predictive capability once you've entered the numbers from several past mediations, allowing you to more accurately guess the ultimate cost of settlement and the most likely response to settlement offers and demands.

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The risk of future liability exposures due to MSP issues have caused insurers and defense counsel to resort to various different stratagems in an effort to ensure that Medicare liens will be satisfied without subsequent risk to the settling parties. Among these stratagems is a demand that the plaintiff’s attorney agree to indemnify the defendant and its settling insurers for any ensuing liens due to the plaintiff’s failure to pay them out of the settlement proceeds. The willingness of plaintiff’s counsel to agree to such proposals or the ability of defense counsel to advance them has been significantly compromised by a series of recent state bar ethics opinions, however.

In the most recent such opinion, the Virginia State Bar has approvedLegal Ethics Opinion 1858 which concludes that a plaintiff’s lawyer may not ethically agree to indemnify a defendant’s insurer for future claims resulting from the plaintiff’s failure to satisfy liens which he is obligated to pay from the settlement proceeds because such an undertaking would, in effect, obligate the lawyer to pay the client’s debts in violation of Rule 1.8(e) of the Rules of Professional Responsibility and would create a conflict of interest between the plaintiff and his lawyer pursuant to Rule 1.7(a) as the lawyer’s personal interest in avoiding liability for the debts of his client may be at odds with his client’s desire to settle the case. The Ethics Committee further found that it was a violation of Rule 8.4(a) for defense counsel to include such a provision in settlement agreements owing to the fact that it created an inducement to the plaintiff’s lawyer to violate Rules 1.7(a) and 1.8(e).

The Virginia opinion is in accord with several other recent state or local bar ethics opinions, including Formal Opinion 2010-3 of the New York City Bar Association and Opinion 2010-154 of the Board of Professional Responsibility of the Supreme Court of Tennessee. Similar opinions that seem less specific to Medicare lien issues have also been adopted by Ethics Boards in Arizona, California, Florida, Illinois, Indiana, Kansas, Missouri, North Carolina, South Carolina, Vermont and Wisconsin.

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Today, we continue a new feature on our blog: the Monthly Practice Tip, which considers a practical problem faced by claims professionals and outside coverage counsel, presenting a dialogue created by our five editors.  This month we look at the ever-challenging problem of recoupment claims. 

March is the season of hope.  After a long, dreary winter, March is a time of rebirth and possibilities.  Even die-hard Chicago Cubs fans have hope (for a while).    So this month we’ve chosen to tackle a topic that has always held out hope and promise to insurers yet, while Lucy and Charlie Brown’s football, has often been snatched away.  We refer, of course, to recoupment and, more specifically, to whether insurers can recoup costs of defense or settlement payments if they are later found not to have owed coverage.

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Today, we inaugurate a new feature on our blog.  The Monday Tip will consider a practical problem faced by claims professionals and outside coverage counsel, presenting a dialogue created by our five editors.

The question that we posed is how to write the "right" reservation of rights letter?  Is it better to err on the side of caution and throw in everything but the kitchen sink (is there a kitchen sink exclusion?)?  Alternatively, is there a risk of waiver or estoppel if a conceivably applicable policy term, condition or exclusion is omitted from the RoR?

Sara Thorpe: The purpose of a reservation of rights letter is to communicate and reserve rights. As the California Supreme Court observed in Buss:

"Through reservation, the insurer gives the insured notice of how it will, or at least may, proceed and thereby provides it an opportunity to take any steps that it may deem reasonable or necessary in response--including whether to accept defense at the insurer's hands and under the insurer's control or, instead, to defend itself as it chooses. . . . Through reservation, the insurer avoids waiver . . ."

Chris Martin: There has to be a balance between inclusiveness and comprehensibility. In Texas, I advise insurers to balance the scope of a reservation of rights with understandability concerns. An overly inclusive reservation of rights runs the risk of incomprehensibility.

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As social networking plays an increasingly important role in the way we publicly and privately communicate and interact, it necessarily will influence the practice of law. An article to be published in a forthcoming issue of Pace Law Review examines how social networking might influence workers’ compensation proceedings, and, thus, provides a glimpse into social networking’s potential impact on legal proceedings generally. The article, Social Networking and Workers’ Compensation Law at the Crossroads by Gregory M. Duhl and Jaclyn S. Millner, examines the legal and professional responsibility issues implicated by review and collection of information from social networking sites, and its potential use as evidence in workers’ compensation proceedings. It’s an interesting read.

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California follows federal, and some state, courts in enacting new e-discovery rules. The rules took immediate effect and apply to all pending and future lawsuits.  Cal. Code Civ. Proc. § 2031. The rules for the most part mirror the 2006 changes made to the Federal Rules of Civil Procedure.

The new California rules provide for discovery of electronically stored information (“ESI”). ESI is defined as information stored in an electronic medium and can include technology with electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. Parties are allows to inspect, copy, test, and sample ESI in the possession, custody or control of the other party. The requesting party may specify the form in which ESI is to be produced and the responding party can object and indicate the form in which it will be produced, or if no mention is specified, produce it as it is ordinarily maintained and in a form that is reasonably usable.

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In recent years, the Seventh Circuit has emerged as a beacon of sanity in the morass of federal insurance jurisprudence (well, yes, there was Eljer butr everyone makes a mistake occasionally).  As among the judges on the court, Posner and Easterbrook are particularly interesting to read.  So it is with pleasure that we commend to your consideration a savage new opinion from Judge Easterbrook saving a policyholder who had the effrontery to challenge the scope of the "your work" exclusion in a recent Indiana case.

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While all but two states permit insurers to use staff counsel to represent their insureds, many have adopted rules requiring defense counsel to clearly explain that they are employees of the insurance company.  Yet how can counsel do so in a trial context without improperly introducing the fact of the existence of insurance, to the prejudice of insured and insurer alike?

Five years ago, the Florida Supreme Court adopted a new Rule 4-7.10 back in 2003 requires staff counsel to advise their insured client of their relationship at the very outset of the representation. On the other hand, staff counsel need not disclose their relationship with their insurer during the trial or representation of the policyholder as Florida courts have recognized the public policy of not disclosing the existence of insurance coverage to juries.

Despite this seemingly sensible resolution of the issue, the same problem resurfaced in West Virginia, a state that often seems to create headaches for insurers..

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In Robert Campagnone v. Enjoyable Pools & Spa Service & Repairs, Inc. (2008) ___ Cal.App.4^th ___ [08 C.D.O.S. 6579], the California Court of Appeal, Third Appellate District, denied a motion for sanctions against an insurer for failing to attend a court-ordered mediation, and against a party and its attorneys for failing to notify the insurer of its obligation to attend.  However, the court announced that parties and their counsel will be sanctioned in future cases if they fail to put an insurer with “potential insurance coverage” on notice of the insurer’s obligation to send a representative with full settlement authority to court-ordered mediations. The court also warned insurers with “potential insurance coverage” that they can be sanctioned if they fail to send a representative to the mediation.

The court based its holding on the Third Appellate District’s local rules include Local Rule 1(d)(9) which provides that all parties and their counsel of record must attend all mediation sessions in person and with full settlement authority.  The rule also provides that, if a party has “potential insurance coverage applicable to any of the issues in dispute, a representative of each insurance carrier whose policy may apply also must attend all mediation sessions in person, with full settlement authority...”

The Court reasoned it has authority to impose such sanctions under the Appellate Rules of the California Rules of Court, Rule 8.276(a) and Local Rule 1(g). In addition, the Court explained that sanctions can be awarded against insurers because they are considered parties to a mediation.

Other Districts' and specific court's rules should be consulted to determine whether this ruling will have application outside of the Third Appellate District.

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On January 7, 2008, a Magistrate Judge in California issued a sanctions order imposing over $8.5 million in monetary sanctions on a company for discovery abuses in a case that company lost at trial, in what should be a cautionary tale for companies and their lawyers as they respond to discovery requests. (Qualcomm, Inc. v. Broadcom, Inc., U.S. Dist. Ct., So. Dist. Of Calif., Case No. 05civ958-B (BLM).)  Magistrate Judge Barbara Major sanctioned six of Qualcomm's outside counsel -- junior associates through partners. Although she did not impose monetary sanctions on counsel, she referred the sanctioned attorneys to the State Bar and ordered them and Qualcomm’s in-house attorneys to determine how the discovery breaches occurred and to develop a protocol to prevent similar failures in future cases.

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