THE SHIP "EVER GIVEN" AND THE SUEZ CANAL DISASTER OF 2021

I have published several pieces regarding the story of the diagonally trapped ship stuck in the Suez Canal beginning on March 29, 2021 and then for six more days at the cost of several billion dollars and shipping and hundreds of millions of dollars in damages.  

On Sunday, July 18, 2021, the New York Times (A-8) published a substantial piece about the incident and the controversy the immediately followed.  Alas, it did not explicitly discuss the insurance aspects of the story.  However, the article is accompanied by marvelous photographs that give the best pictures yet of the position of the ship. One of the photos is a close-in areal pic. Another gives one a good sense as to how long the diagonal of the ship was when it touched both banks. 

The article is so good I wish I could reprint it. Alas, the paper hasn't agreed to let me.  Readers have Vivian Yee and James Glanz to thank for the new information. Their piece is worth reading. 

Michael Sean Quinn, mquinn@msqlaw.com

THE CHAMPLAIN TOWERS DISASTER

 

POSITIVE NEWS AS TO PROPERTY INSURANCE

MICHAEL SEAN QUINN, Ph.D., J.D., C.P.C.U. ETC, AUSTIN, TEXAS

COVERAGE LAWYER

(512) 656-0503

mquinn@msqlaw.com

It is a pleasure for a commercial property insurer to get good press. In this case, Great American Insurance Company has indicated that it would tender its entire basic policy limits and pay additional coverages. These will total $30m. 

I would love to see a journal history of how it handled this claim. 

INSURANCE UNDERWRITING, CLAIM HANDLING, BAD FAITH & DISCOVERY

 

KEEP UNDERWRITING SECRET 

MICHAEL SEAN QUINN, PH.D., J.D., ATTORNEY,  AUSTIN, TEXAS,  AND ADVISOR, CONSULTANT, LECTURER, ETC., ON INSURANCE MATTERS AND INSURANCE BAD FAITH, BOTH STATUTORY AND COMMON LAW. mquinn@msqlaw.com

Many times, over more than a few years, I have seen insurance companies and third-party administrators refuse to give information in response to all sorts of discovery requests. Of course, some lawyers and some carrier officials resist providing anything and nearly everything, but information regarding underwriting is especially like that. Even truly professional lawyers and insurers fight giving up this sort of information. They claim it is irrelevant to coverage and bad faith cases.

This contention is obviously false if any of the text of the insurance contract is actually drafted by the insurer, its lawyer, or a risk manager. (What risk managers do is itself often a component of underwriting.) The pricing of policies is also sometimes an underwriting function. 

Insurance is a business, and large insurance companies are often publically held. Such an insurer has duties to its stockholders. If there are sufficient profits over time, some investors will bolt. This fact has two consequences. First, underwriting must get done in such a way as to keep stockholders happy--or at least minimally satisfied. Second, claims must get paid, in whole or in part, or denied in frequency and amount to keep stockholders satisfied. These functions interact; holism is the order of the day. Anyone who thinks otherwise is ill-informed, ignorant, and doltish.

So far as underwriting is concerned, an insurer must sell at least X number of policies of Y sort and the Z price. This is a necessary insurance business truth. In addition, it is required for business-flourishing. 

So far as claims handling is concerned, an insurer must pay at some level of dollars not more than a specified amount. This fact means that somewhere in the company there is a person, a unit of artificial intelligence, or both who/which knows those amounts and the acceptable variants. 

A general underwriting file will have computations, records, reflections, and probable arguments regarding those numbers, even though the claims department does not have them. If an insurer is failing to pay claims at a reasonable level, if an insurer is unreasonably denying a claim, and it is facing a number of large claims which are in controversy, the chances are that the insurer is under pressure from its stockholders, absent excess insurance or reinsurance Information about that will probably be in the files of the Underwriting Department. 

• How many of X policies have been sold?
• At what price?
• Any unusual term?
• What sorts of endorsements?
• How main policy and components thereof prices?
• How were relevant decisions made and by whom?
• Statistical studies as the X policies, e.g., pricing, marketing, dealing with agents and brokers?
• What about probabilistic studies regarding expectable coverage claims?

If stockholders or other investors are dissatisfied with the return, they are likely to look at underwriting decisions,* agency decisions, and claim-handling decisions.  Where is the relevant data to be found? Setting aside counsel, the aggregate information is likely to be in the underwriting files and in the files of the office which handles stockholder relationships.  If there is any suggestion that claim payments are running too high or policies are selling too cheaply these two categories of files are likely where the relevant information may be found. (*I am talking about "real underwriting." I am not talking about the work of those who review applications for insurance." That not really underwriting.)

Information like this not relevant to claims disputes? Nonsense. There are two other features of this situation that are worthy of notice. 

First, discovery disputes over this range of information will be expensive. It should not be pursued by a policyholder lawyer unless the claim is quite a large one. An expert witness may be required just to get a court order giving access to the information desired. 

Second, underwriting departments are full of people who know very little about the fundamentals of underwriting, e.g., statistical and probability theories practices. It is often nearly pointless to depose these people. Be sure to get corporate representatives as to underwriting who actually understanding underwriting and its foundations. 

Of course, we now live in a digital age, so lots of this sort of thing will appear to be computerized, and no doubt this is true. But digitalization begins with human discourse and decision. The team of policyholder lawyers needs to have a relevant member. If an insurer witness says, "All such information controlled by algorithms, and none of us really understands it," the policyholder has been given several treasures. (1) What is being said is almost certainly false. (2) Probably someone is lying.* (3) The discovery route into the underwriting files--and some other--has just opened. (4) Immediately seek the deposition of the head of the underwriting. (5) Seek the deposition of all IT guys who tend to underwriting affairs. Of course, all this is expensive, so make sure records get kept for which fees can be obtained from the relevant court. (*There is an alternative. Suppose no one in the underwriting department knows anything about any of this. Someone does. That person will be connected to another affiliated company or it will be a genuine vendor. Go to one or both of those two types.)

 

(There is at least one exception. If the lawyer for the policyholder has the intent of making the insurer look really bad, get a corporate regarding underwriting who knows about as much as Sargent Schultz.)

Finding the right people may be difficult. This is particularly true in the surplus lines market where some of the insurers are really shells or near-shells, and where the underwriting functions of the company are presented to regulators, stockholders, claimants, and lots of others as being handled by "Managing General Agents as to Underwriting." 

Often "affiliates" of large insurers are, legally speaking, the actual insurers. Insurance companies and their employees are awful about this vocabulary and its legal implications. For example, two cooperating companies are often referred to as "partners." Of course, they are not legal partners and there is no legal partnership. Potentially this could matter when it comes to service or process and things like joint liability or respondeat superior.

By the way, it seems to me that what has been said applies to mutual companies as well as publically traded companies or affiliates of larger companies. The members of a mutual company are really a sort of investor, so they will have at least some of the same concerns.

I suppose that it must be admitted that the education textbooks in the CPCU group and in similar groups do very little to educate students as  systematic underwriting. 

SOME FINAL REMARKS: IF THE UNDERWRITING DEPARTMENT, AND THOSE WHO REPORT TO OR SERVICE IT, THINK THAT PRICING IS TOO LOW, THAT POLICY CONTENTS ARE MISCONCEIVED, OR THAT PAYMENTS OF/ON CLAIMS ARE TOO HIGH, SOME PAYMENTS ON SOME CLAIMS WILL DROP (i.e., BE DRIVEN DOWN). ALL OF THIS IS RELEVANT TO A COVERAGE CASE, WHETHER BREACH OF INSURANCE CONTRACT OR SOME SORT OF INSURER BAD FAITH.   

Policyholders should be able to get relevant information as to this. After all, at least in Texas, insurers have "special relationships" with their customers who are also their insureds.

 

LOOK FOR COVERAGE

 

   "Look for coverage" 

Michael Sean Quinn, Ph.D., J.D., Austin, Texas, Coverage and Bad Faith Consultant, Lecturer, Expert Witness, &c.  mquinn@msqlaw.com

For many years, I have reported or advocated the view that the phrase "Look for coverage" is a key foundation and pillar to understanding and practicing sound claims handling practices aka adjustment. I learned this proposition and its status in the 1980s from Al Mueller, a big-claims manager, or something of that sort, at Kemper. 

Maybe it's an axiom; maybe it's a postulate; maybe it's a strongly felt norm among honorable, ethical claims persons.  It has been never been explicitly challenged by any adjusters, although I have repeatedly asked them what they think of it.  No court has ever disqualified me for using this phrase as a component in a bad faith argument. Judges seem to find it nourishing.

Once an ignorant to state insurance official claimed I was wrong, rather indirectly, when he said in court that it was my "brainchild." Recently a lawyer taking my deposition asked me what authority I had for what I claimed, and I was "forced" to say, "My own extensive experience in dealing with insurance claims and adjusters thereof and several pieces I think I remember writing and/or speaking on the matter. 

I recently ran across something like authority. Everyone would agree that Chubb is one of the best insurance companies in the US, if not the world. (I am including its various affiliates in that name, a common practice at least in the surplus lines market.)

I was examining its description of its jewelry policy. There was the motto, "We search for [or was it pursue]  ways to say yes to your claims." It seems to me that this sentence is equivalent to the Quinn-Mueller phrase, "Look for coverage." maybe it's a little stronger.

Another insurer states in its "Best Practices 'Manual'" that it looks carefully through the policy to make sure that everything for which there is coverage is treated positively. Obviously, this principle covered all evidence pointing toward possible coverage and amounts of loss. Granted, this formulation does not say that it will do the same for determinations of what actually is covered, but I suspect they intend that. 

Back to Chubb, of course, jewelry insurance is a high-end policy. I told the company once that I wanted to insure a $100,000.00 neckless for replacement cost in case of a loss, and it did not flinch, though I was told I needed to provide something about ownership, possession, appraisal, and so forth. (Keep in mind that "loss" here includes any accidental loss. If Paula drops it by accident into the briny deep, that's a covered loss; my throwing it there is not. The loss must be something like an accident or occurrence, but there not be some other sort of injury or damage preceding it.

Someone might argue that an insurer might have a different adjustment practice for the richer than for the poorer. Maybe so, but that sort of discrimination would not sit well with the many and perhaps not even the few. 

(Of course, there might be a response to this. After all the rich are more likely than the rest of us to be very careful about their possessions (or property). Thus the so-called moral hazard takes care of itself.  But the real difference in adjustment practice of this sort--accidental loss--is not governed by the absence of a moral hazard. 

It is also good to remember that "Best Practices Manuals," of many admitted carriers include at least indirect ways of proclaiming "Look for coverage!" as a fundamental principle. 

So. Quinn is right. "Look for coverage" is a fundamental principle of some sort governing (or centrally influencing) claims handling. If there are principles found in codes of ethics regulating professional adjusters, "Look for coverage!" is one of its fundamental provisions. If it or its equivalent is not there, it should be. Probably all adjusters and claims manages would agree. 

By the way, under Texas law, insurers are required to recognize that they have a "special relationship" with their policyholders. Part of that rule, I suspect, is the duty of the insurer to "Look for coverage." Of course, this principle does not require an insurer to find it; it doesn't forbid it to examine contrary evidence. What it does forbid is ignoring the Quinn-Mueller principle and adopt either of the following three: "Pay no attention to what's in the claims manual just search assiduously for ways to say "No coverage," and rely on them, or (ii) "Do as you please when conducting an adjustment, but conceal what you are doing," or "Pay as little attention as possible to individual claims, just keep you aggregate payments under this aggregate: $XXX.00. These three, (i)-(iii) are anathema to sound claims handling practice and ethics.