One of the most important areas of corporate insurance recovery law is insurance carrier bad faith. Bad faith laws have developed for good reason. The relationship between insurance carriers and policyholders is unbalanced. Insurance carriers draft the policies, unilaterally decide whether claims are covered, exert financial control over defense panel counsel attorneys, and financially benefit when defense costs are minimized and claims are denied. This imbalance in the insurer-policyholder relationship applies equally to personal and corporate insurance claims, as no amount of policyholder sophistication can overcome the unique power and control possessed by insurers. The bottom line is that insurers are financially motivated to improperly deny claims, and bad faith is often the only detriment against improper insurer conduct.
Bad Faith in Corporate Insurance Claims
Bad faith claims can also be incredibly helpful to corporate policyholders. A successful bad faith claim may entitle a corporate policyholder to recover its coverage counsel’s fees as well as consequential and punitive damages. Yet, corporate bad faith claims are far less common than one might expect. One reason for this is that the vast majority of large law firms are prohibited from bringing bad faith claims against insurers because of potential conflicts, internal law firm procedures, and various panel counsel restrictions. See Where Have All of the Insurance Lawyers Gone? For financial reasons, law firms want to be listed as panel counsel because they are guaranteed a steady stream of litigation defense work by insurance companies. See AIG Panel Counsel List. Major conflicts arise when a policyholder approaches panel counsel to pursue an insurance claim. The quid pro quo for being listed as panel counsel is the law firm’s agreement that it will not engage in bad faith litigation against the insurer. By imposing these restrictions on how law firms can pursue insurance claims, insurers have, in essence, insulated themselves from corporate bad faith claims.
In today’s video, we discuss the first steps a corporate policyholder should take when facing an insurance claim. Because bad faith is often the only way that policyholders can be made whole, a critical first consideration when a claim has been denied is to determine whether or not the insurance carrier has acted in bad faith. In the corporate context, very few law firms can pursue bad faith insurance claims. Our specialty at Miller Friel is the pursuit of corporate insurance claims, and our clients, some of the largest and most well-known corporations in the world, have entrusted us to evaluate and pursue their claims in the most professional manner possible. Our absolute freedom from insurance carrier restrictions permits us to pursue bad faith, when appropriate, and to obtain incredible results for our policyholder clients. See Colorado Interstate v. National Union
If counsel has informed you that they cannot pursue a bad faith claim against an insurer, or if you are in need of a second opinion regarding coverage, please give us a call.
Here is a transcript of today’s video:
Understanding insurance coverage denials and whether insurers have engaged in bad faith contact.
Something that a lot of policyholders don’t even think about is that insurers typically hire coverage counsel outside independent coverage counsel when they receive a claim to evaluate coverage for that claim. Unfortunately policyholders a lot of times don’t retain outside coverage counsel soon enough.
Ideally you retain outside coverage counsel before you even submit notice of the claim, so you have some expectations of how the insurer may handle the claim and evaluate the claim but certainly once you get coverage determination from the insurer, if it’s a negative, if it’s a denial, then certainly at that time you should retain outside coverage counsel, rather than relying on in-house analysis or evaluation by some other third-party like a broker.
If the next step once you receive outside coverage counsel is determining a course of action. Either engaging in a letter writing campaign, in an attempt to reverse the insurance coverage determination or whether it’s initially or eventually filing a coverage action. But a critical aspect of evaluating the insurance coverage denial is determining whether or not the insurer has engaged in a bad faith conduct.
Every insurance policy has an implied good faith and fair dealing the breach of which is bad faith. That covenant is born from the unique relationship between an insurer and a policyholder. And when I say unique relationship what I’m really referring to is the one-sided nature of the relationship between the insurer and the policyholder.
And it’s one-sided because the insurer dictates, largely dictates, if not entirely dictates the terms of the insurance policy and then the insurer has sole control over the claim evaluation and determination as to whether it’s even going to pay a claim. This relationship is supposed to provide the policyholder with certain tangible benefits, the peace of mind and security of being treated fairly, and equally, and having its concerns treated with equal consideration as the insurer concerns. When they insurer wrongfully denies coverage, it undermines and damages the security of the insurance that the policyholder purchased in the first place.