“Defending the ‘Indefensible’

“Defending the ‘Indefensible’

I was recently requested and agreed to pinch hit for another claim executive, and participate in a panel at this year’s Claims & Litigation Management Alliance in April 2016.  The panel topic is “Defending the ‘Indefensible’: The Strategic, Moral and Ethical Dilemmas Presented by Claims Evidencing Apparent Misconduct or Indefensible Behavior”.  The topic reminded me of a trial I had several years ago, and I thought it could provide a useful lesson when defending these type of claims – it is not only the defense side that faces strategic and ethical dilemmas, and a plaintiff’s failure to navigate these waters properly could be fatal in prosecuting the “indefensible” claim.

I represented a New York insurance broker who obtained a CGL policy for a Southeastern US trucking company which was issued with a retrospectively rated premium.  The $6 million premium was financed and, in the application for such financing, the broker checked the box “No” in answering whether the policy was issued on a retrospectively rated basis.  The broker’s position was that policy was being negotiated at that time and, since the expiring policy was not retrospectively rated, his answer was accurate.  The broker never failed to disclose that the carrier policy negotiations were all based on a retrospectively rated policy, nor did the broker supplement the application to the finance company (as required on the application) advising of the final premium rating.  The trucking company had a terrible loss experience during the subject policy term and, when the finance company issued a cancellation notice for non-payment of premium, not surprisingly, there was no unearned premium to return to the finance company resulting in alleged damages of about $3.5 million.

Repeated efforts to settle were rejected resulting in years of litigation, with depositions including (i) the CGL carrier that testified that the policy at all times was going to be issued on a retrospective basis; (ii) the premium finance company that testified it would have never financed this policy on such a premium basis (not necessarily supported by financing guidelines); and, (iii) the insurance broker who tried mightily but could not explain why he never supplemented the premium finance agreement and, in a fashion similar to that we are now seeing on the presidential campaign trail, he repeatedly returned to his “talking point” that the application was accurate and truthful when submitted.  (The impact was not too different of how the pundits evaluated Marco Rubio’s New Hampshire debate performance.)

While the broker’s E&O carrier, the broker’s personal counsel, local counsel, and I all faced intertwined strategic and ethical issues, the plaintiff and their counsel similarly had to decide how they would traverse through a lawsuit with an adversary’s apparent liability.  An example of the path chosen was that I was told repeatedly that a New York broker would not be received well by a Southern jury and, for this reason, the premium finance company never budged off of its demand to be paid in full.  (In fact, the plaintiff maintained a punitive settlement position demanding over $4 million on the eve of trial.)

In the end, it was the plaintiff overplaying its hand and strategic and ethical miscalculations that ruled the day.  For example, while it was indefensible that the broker failed to submit the requisite premium financing supplement, the plaintiff did not recognize the similar impact of its inability to answer the question why it never obtained a copy of the CGL policy before loaning $6million if the premium basis was so critical. Additionally, as much as a New York City defendant may not have played well in the South, the premium finance company’s use of a “white shoe” law firm from the Mid-Atlantic and a corporate representative, all wearing a blue suit uniform each day, clearly left an ‘impression” on the jury.  The result – the plaintiff’s own indefensible handling of the case in prosecuting the indefensible claim led to an improbable defense verdict.

By: Dean L. Milber, JD/MA, Director of Claims and Business Development, Lancer Claims Services

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