CHAPTER 5 INSURED PLAINTIFF'S TRIAL PREPARATION AND TRIAL

• Jurisdiction: United States
• Publication year: 2018

If an insurance company denies the claim of a client, counsel for the insured has multiple options available. Counsel must explain to the insured that he or she does not have to accept that initial denial as the final answer. As a first step, counsel for the insured should ask a supervisor at the insurance company to review the claim and denial after providing the supervisor with facts that establish the client's concern that the denial was in error. If the supervisor or claims manager affirms the position taken by the claims personnel, counsel, on behalf of the client insured, can also contact the state's insurance regulatory agency about the claim. If, after meeting with the client and conducting an investigation, counsel and the insured still believe that evidence exists that is sufficient to conclude that the insurance company breached the contract of insurance and acted in bad faith in processing or denying the client's claim, filing suit is appropriate.

A. Document Denial of the Claim

Counsel and the client insured should keep notes of every conversation with the individual who reviewed the claim, including the person's name, and dates and times of all conversations. In addition, counsel should advise the client to keep copies of all written correspondence with the insurance company regarding the claim.

B. Initiate the Lawsuit

When drafting the complaint, the insured and counsel will need to decide whether it should be filed in state or federal court. Furthermore, care must be taken to select a forum that will have jurisdiction over the defendant insurance company. The complaint will likely include claims for breach of contract, bad faith, fraud, and negligence. If there is an unfair settlement practices statute in the jurisdiction, a claim for violation of that statute could be added as well. The complaint should seek payment of the benefits promised by the policy and tort damages for the defendant's bad faith. Even if the insurance company later pays the claim, the plaintiff can still proceed with the bad faith lawsuit.

What Makes a Plaintiff Successful When Pursuing Punitive Damages

There is a two-part pattern that successful plaintiffs' lawyers follow in seeking large punitive damages. The first component is to revisit and reemphasize all the conduct the jury is being asked to find to embody wanton disregard of the rights of the injured plaintiff. The second element focuses on the defendant's finances. Although basing punitive damages in part on a corporate defendant's financial status is wholly unwarranted in principle, it is a valid consideration under the law of [most states], and it is the strongest weapon in the plaintiff's arsenal. Typically, plaintiff's counsel urges the jury to frame its punitive award in terms of the defendant's net worth, income, or revenues, arguing that a company of such large size needs a commensurate sanction in order to make it pay attention. (The Supreme Court's recent statement in the [ State Farm v. Campbell] case that a defendant's wealth may not be used to justify an otherwise unconstitutional punitive award seems to call into question the continued legitimacy of this strategy[, although plaintiffs' counsel continue to use it and will do so until they are slapped down by a judge or appellate court].) ^{[ 1 ]}

"Bad faith failure to settle is a tort claim. Therefore, the statute of limitations for filing"^[2] a bad faith suit must be honored depending on the state where the suit is to be filed.

Out of an abundance of caution, it is important to file suit for bad faith as soon as is practical and no more than one year after the denial of the insured's claim. Most policies contain a one- or two-year private limitation of action provision, and—depending upon how that provision is interpreted in the state where the suit is to be filed—the limit could be from the date of loss. Carefully pleading a lawsuit is essential to avoid a judgment on the pleadings. All relevant facts and allegations must be pleaded in order to avoid dismissal motions or demurrers, both of which require the court to take the allegations in the complaint as true.

Consider, in Chase v. Nationwide Mut. Fire Ins. Co., 160 A.3d 970 (R.I. 2017), what is probably the most clear policy condition: the standard fire policy condition requiring suit be filed no later than 12 months after the loss—language that is incorporated in every policy that insures against the peril of fire. Some policies extend the time to two or more years but require a prompt suit.

Chase appealed from a Superior Court order granting the motion of the defendant, Nationwide Mutual Fire Insurance Company (Nationwide), for judgment on the pleadings because his suit was not filed within the two-year limitation period required by the policy.

According to plaintiff, a property that he owned on Bosworth Court in Newport suffered a casualty loss on June 25, 2010 that caused extensive interior and exterior damage. The plaintiff timely reported the loss to defendant, which insured the property pursuant to a policy that it had issued to plaintiff. After investigating the loss, defendant accepted the claim as covered under the policy. The defendant then authorized plaintiff to repair the property and further authorized a partial release of funds to enable plaintiff to begin the repairs. However, the funds released were not sufficient to pay for the repairs and to cover plaintiff's alternative living expenses. Plaintiff demanded that defendant release additional funds, but defendant refused.

After nearly four years had elapsed since the casualty loss plaintiff attempted to invoke the policy's appraisal provision. Defendant rejected plaintiff's demand for an appraisal, citing the passage of time and that plaintiff had failed to submit certain documentation that the insurer had requested under the terms of the policy.

Four years after the loss, plaintiff brought a two-count suit against [Nationwide], alleging breach of contract and bad faith. [Nationwide] then moved the court for judgment on the pleadings highlighting two provisions from the policy:

3. Your Duties after Loss. In case of loss, you must:

* * * c) as often as we reasonably require:

(1) show us the damaged property; and (2) provide records and documents we request and permit us to make copies.

(3) submit to examinations under oath and sign same.

* * *

8. Suit Against Us. No action can be brought against us unless there has been full compliance with the policy provisions. Any action must be started within two years after the date of loss or damage."

[Nationwide] argued that, even assuming everything that plaintiff alleged in his complaint were true, the claim must nevertheless fail because plaintiff did not fully comply with the provisions of the policy and because plaintiff brought suit more than two years after the date of loss. The plaintiff argued that [Nationwide] should be estopped from asserting the contractual two-year limitations provision, but offered nothing to support that argument.

The hearing justice noted that defendant "admits the date of loss is June 25, 2010. The complaint was filed on November 11, 2014[,] which is four years and four months later." Accordingly, the hearing justice granted defendant's motion for judgment on the pleadings.

The Supreme Court has routinely upheld provisions in insurance contracts that require the insured to commence legal actions within a time period that is less than the legislatively enacted statute of limitations.

It is true that in exceptional circumstances, settlement negotiations can estop a party from invoking the statute of limitations if accompanied by certain statements or conduct calculated to lull the claimant into a reasonable belief that his claim will be settled without a suit. However, mere negotiations between the insurer and a claimant cannot, alone, justify the application of estoppel.

Estoppel may occur only if (1) the insurer, by his actions or communications, has assured the claimant that a settlement would be reached, thereby inducing a late filing, or (2) the insurer has intentionally continued and prolonged the negotiations in order to cause the claimant to let the limitation pass without commencing suit.

Because this case [came to the Supreme Court] on defendant's motion for judgment on the pleadings, [the court was required to] assume that everything plaintiff alleges in his complaint is true. [The court] may, however, look to the insurance contract to apply the facts, as alleged by plaintiff, to the contract.

Here, the insurance contract requires that plaintiff be in "full compliance with the policy provisions" before he may bring suit. It is clear from the pleadings that plaintiff did not comply with the terms of the insurance contract because he failed to bring suit within two years from the date of loss.

The plaintiff argue[d] that the two-year clock should not begin to tick "until the [d]efendant insurer formally rejects the [p]laintiff's claim because the causes of action for breach of contract and bad faith did not accrue until the insurance company breached the contract by refusing to pay the claim."

The Supreme Court noted that

as appealing as this reasoning may be on the surface, it is unavailing because the insurance contract clearly states that "[a]ny action must be started within two years after the date of loss or damage[,]' and not from the date that the claim is rejected."

The plaintiff's only possibility of extracting himself from the two-year limitation provision is if he were to succeed on an estoppel argument. However, as with the compliance issue, the plaintiff simply did not plead sufficient facts that would create a prima facie estoppel argument.

The plaintiff probably relied, unsuccessfully, on the California Supreme Court decision in Prudential-LMI Com. Ins. v. Superior Court, 51 Cal. 3d 674, 798 P.2d 1230, 274...