Insurance: Duty of Good Faith--Statutory Basis

Statutory criteria for insurer bad faith in dealing with insureds exists in almost all states. Sometimes it is based on the Model Act, sometimes not.  The Model Act requires that insurers have rules, principles or guidelines for claims adjustment.

Texas law is more-or-less typical. Section 542.004(b)(4) of the Insurance Code that is--as a whole--over 2000 pages and reads in part as follows: "[The following act] by an insurer constitutes [an] unfair claim settlement practice: failing to adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer's policy[.]"

Now, how should the words "adopt" and "implement" be understood.  Here is a suggestion. "Adopt" means: "create, draft and make company rules."  Taking over someone else's system counts as these. Nothing can be "adopted" unless it exists.

"Implement" means that the system of rules, principles, guidelines, and so forth, must be made be known to and required of adjusters.  A system of company directives are implemented only if there are negatives for failing to follow them (or--at least--act in accordance with them).  Every act or omission counts as a violation that is inconsistent with implementation. The components of the system must be enforced. Violators have to be penalized in some way for prohibited acts or omissions and there are lots of ways to do that.  Probably such penalties should be formal and written ranging from negative marks in a periodic review to discharge.

A failure to do any of these counts as a violation of 542.004(b)(4).  At the same time, the formulation here is obvious enough, and it can be conformed with easily. Arguably what is said here is nothing but an orderly conceptualization of already existing understandings and practice.

Depositions and the "Uniqueness Answer"

DEPOSITIONS AND THE "UNIQUENESS ANSWER"

Michael Sean Quinn*

It is not unusual in coverage litigation for the attorney for the insured to ask a question something like this:

Q. Does this policy cover losses of the following sort [fill in the blank]?
A. It can't be answered.  Every claim is unique.

Or this one:
Q. This is a construction motor vehicle.  Your policy covers such vehicles using wheels, true?'
A.  Setting aside the exclusions, the answer is still unclear.
Q. Why?
A. Each claim is unique.
A. [Or.]  The facts underlying each claim are unique.

These sorts of questions can go on for hundreds of pages--thousands of combinations.  The answer is certainly not unique.  This answer is a more or less universal pattern.  Adjusters learn it in the analogue of the University of Farmers Claims, The College of Hartford Adjustments, The Sort of Graduate School of Tennessee Mutual Workers Comp Insurance Work, and so on.  Even coverage litigators for insurers know the routine, although I'm not sure the lawyers have to teach it to the adjusters; it may be the other way around.

The insurers are quite wrong about the power of the "It's Unique Answer" (IUA).  In fact, it is quite dangerous, especially in jury trials. For this reason, insurer lawyers should not "authorize" its unlimited or even substantial use, and lawyers for insureds should use it often and encourage it.  Questions which trigger that answer are in the category of those wonderful questions where the examining lawyer does not really care what the answer it.  What ever answer is given will help his client--the more times the better.

(1)If the adjusters point is "I can't even start answering that question because every case is unique,"  the answer is obviously false, and everyone either knows that or can be taught it in about 5."

(2) If the adjuster starts giving an answer without thinking about it, s/he may well make a usable error.

(3) The best answer, "I'm not sure, but I'll try to give you a conjectural answer.  I may get it wrong, since I am hearing the question for the first time, so far as I can remember.

What is so terribly wrong it the "Every claim is unique, so the question cannot be answered" answer.
The answer to this question is both simpler and more complex than one might think.

First, in a trivial sense.  The insurer is right.  All claims are unique.  Consider two claims, otherwise of the same sort, one of which occurs at 6 PM while the other occurs at 6:01 PM.  The are unique with respect to each other.  But that is not really the meaning of "unique." 

Second, in substantive and non-trivial cases, the insurer is wrong.  This facts the "It's unique" answer little more-if anything more--evasive.

Michael Sean Quinn, Ph.D, J.D., Etc.

1300 West Lynn #208

Austin, Texas 78703

(o) 512-296-2594

(c) 512-656-0503

mquinn@msqlaw.com

Coverage Opinions: A Very Small Bit of History

Ever wonder what the early history of coverage opinions was?  When was an early one written in a formal mercantile context involving reinsurance?  Here is a possibility.  It arose in the context of reinsurance.

"[U]nder the date 25th May, 1633, we have a legal opinion by Drs. D. de Jonge and J. van Andel on the meaning of the clause 'to pay when the reinsurer shall have paid' contained in a marine policy. This was interpreted to give the insurer a reasonable time to collect cash from its reinsurers, but not so as to deprive the insured of his right against the insurer, if for any reason outside the original contract, the latter failed to obtain, if for any reason, the latter failed to obtain payment from his reinsurers.  Again in 1694, an opinion was given by Paulus Buys and other lawyers of Amsterdam, that where a ship had been insured with the special condition "to sail in convoy," the underwriters were not liable if the ship sailed without convoy because they had been prevented from minimizing their risk by reinsurance."

C[ecil]. E[dward]. Golding, A History of Reinsurance with Sidelights on Insurance, p. 27 (Waterlow & Sons Ltd,  1st Ed. 1927 & 2nd Ed. 1931).  Sub-Subtitle: Offered as a Memento of Fifty Years' Service in the Reinsurance World ).  The book was offered for private circulation in honor of  A.F. Pearson & Co., Insurance Brokers, Est. 1877.  This book contain a number of Appendices, which contain reinsurance policies over several hundred years; some are in English, some not; some are in hand writing, others printed.  The book was translated into either Chinese or Japanize; I can't tell the difference.

Quinn's Commentary #1: Somehow I doubt we are getting the whole story regarding the 1694 opinion and therefore the policy.

Quinn 's Commentary #2: What might bad faith causes of action look like in these two cases?

Question of Mystery:  When was the first opinion written for cases of reinsurance involving life insurance?