The Concept of "Settlement," "Settlement Process," & "Settling" in the Insurance Process.

Insurance: The Related Concepts of Claims, Claims Adjustment, Claims Adjusting, Claims Settlement, Claims Settlement Process  & Settling Claims

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

2630 Exposition Blvd  #115

Austin, Texas 78703

(o) 512-296-2594

(c) 512-656-0503

mquinn@msqlaw.com

As a conceptual matter all adjustment must be viewed as part of a settlement practice. The term "settlement" in the context of litigation pertains to the resolution of a dispute by negotiation and/or agreement, without proceeding to final judgment, unless by agreement. The word can also mean something like this in the context in the context of transaction conflicts.

The meaning of the term "settlement" in the context of insurance adjustment covers virtually the whole process. This is because the entire process is working toward a resolution of a contract and money matter. There is nothing that is part of the process that is not part of the settlement process. The mere fact that a claim is not likely to settle does not make the process any less a process of trying to settle and therefore a settlement process.

These two separate meanings should be distinguished at all times and never confused, except when they are both being satisfied at once, a rarity since there is a good deal more "power v. weakness" characteristics in the litigation settlement process than is permitted in adjustment. Litigation is not as just as a correct adjustment process. 

The theses here in are nicely structured by at least one section in a clause in one of the most highly used models for formulating statutory insurance bad faith.  Portions the model act are to be found in the Texas Insurance Code. Section 541.060, entitled "Unfair Settlement Practices" a bricolage of requirements.  To be sure, what is often taken to be the essence of settlements is to be found there in section (a)(2) but so is a prohibition misrepresentations (a)(1), failure to provide an insured a reasonable investigation (a)(7), and more.  These idea make adjustment settlement broader than simply settlement as understood in litigation. 

Settlement is not part of the essence of litigation; it is simply something that happens more often that not.  Settlement regarding insurance claims is part of the essence of the insurer-insured relationship.

Ironshore Cyber Insurance Policy--Part XII: Professional LIability Inasurance Again

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

TechDefender

Tech E&O, Network Security, Internet Media and MPL Insurance Policy 

Insuring Agreement I.K.:

 MISCELLANEOUS PROFESSIONAL LIABILITY  COVERAGE 

Remember: This Blog is organized around insuring agreements, definitions and exclusions. Conditions, etc., may be remarked upon briefly, but they often resemble not only so-called "Real World" policies and those found in other currently existing so-called  "Policies for the Virtual World." It also ignores policy limits, retention matters, notice requirements, time intervals for coverage, etc., important as all these are. As usual, the discussion of everything in this blog is preliminary, tentative, sometimes speculative, and--no doubt--occasionally wrong.

After all, there is almost no correcting authority, and some of the most important vocabulary is both new and diversely defined, whether in clear ways or subtle.  There may even be topographical errors here and there.

Also remember, this blog is about substantive sections of the policy only the length of an actual policy is ignored here, though it is a matter of practical  importance in several ways.  Nor is this blog concerned with policy limits at the high end or the size of retentions of the insured at the other. And so on. 

No doubt many of you, dear readers, have grown weary of "Essays on Ironshore."  It's over. OK?*

No doubt you have found this to be an amazing experience, of one sort or another.* [*/* See the end of this blog."



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 The Insuring Agreement

This insuring agreement is easy to understand. Since it is liability insurance, it involves a promise of the Insurer to "pay on behalf of the Insured all Loss the Insured is legally obligated to pay as Damages as the direct result of any covered Claim alleging a Miscellaneous Professional Service Wrongful Act," except that I.K. does not cover any portion of any claim covered insuring agreements B and C, assuming the insured purchased those coverages. (The Insurer's duty to defend is found specified in some detail elsewhere in the policy, and the amount spent on defense is deducted from the policy limits.)  

[Unlike other insuring agreements devoted to liability coverage, the "pay on behalf of" component of this agreement is not restricted to Damages that are both the direct result of a covered Claim which it itself is the direct result of a specified Wrongful Act. In addition, in at least one other insuring agreement the last phrase in the agreement indicates that this is a package policy. When one insuring agreement is purchased it need not be the case that all of them are.]

The explication of this insuring agreement begins with the definition of Miscellaneous Professional Service and then turns to the connected Wrongful Act.

Roughly speaking the definition of Miscellaneous Professional Service is any service listed in a part of the "Declarations Page" of the policy, but it does not include Technological Services or Electronic Publishing. [Presumably, an Insured need not have purchased I.K.]

The definition of the relevant Wrongful Act is nearly as simple, although the underlying concepts are deeper and therefore more complex. The phrase means "any actual or alleged act, unintentional error, omission, neglect, or breach of duty by an Insured, or by a Service Provider, in connection with a Service Provider, in connection with the rendering or failure to render Miscellaneous Professional Services for others for a fee."

[Significantly, I.K explicitly makes clear the Doctrine of Fortuity, since it utilized the concept of intentionality in a prominent place where it spreads out over everything else.  At the same time, breaches of contract are not outside the definition. The concept of a Service Provider has already been discussed elsewhere in this string of blogs. What is important to remember is that one that is covered must be under written contract with the Insured to render relevant services to it.]

This problem is one of appearance only.  There is a separate section in which the duty to defend liability cases is set forth.  This fact may be confusing even to the more experienced reader.  The reason is that the duty to defend is usually set forth in the insuring agreement section of a policy. Here the opposite is true.  That duty  gets its own section,  The insurer's duty to defend in this policy may be weaker than in many so-called real "world policy."  Most policies of the so-called "real world" require a liability insurer to defend its insured if the plaintiff's pleading states--or, probably in many jurisdictions, sketches  a covered claim; it does not require that the claim actually be covered.  The plaintiff (and possible victim) can be wrong about what is asserted in the pleading or even lying, and there still be a duty to defend. The liability sections of this policy don't appear to say that.  It at least appears that the claim must actually be covered.  I don't see how that can be true, but if I have understood the language, that is what is says.

Exclusions

I have not noticed any Exclusions that are unique to I.K.  Moreover, I have not recognized an exclusion for breaches of contract.  Finally, I presume that the description of the professional service to be insured might itself exclude at least some exclusions.

Conclusion

I confess that I am not quite clear about what activities might count as "other" professional services.  If the general possibilities that appear to be available by filling a portion on the "dec" page and procuring an agreement from the insurer, they stretch as far as the imagination. This is not true. The Technological Services "exclusion" drives out virtually all of the professional services one would link to a high tech company, e.g., designing networks and lots of other cyber stuff.  In addition, I have understood the definition of Electronic Publishing to be, every kind of informational, therapeutic, or spiritual electronic publication, not to mention preachings of the gospel, etc. would all be excluded from I.K.  [One can almost hear the policy saying, "If you want coverage for broadcasting, etc., and it is not covered elsewhere in this policy, go buy another type of policy, perhaps a newspaper or other media coverage--you know, the type that already exists. OK?"*)

Observation: the reader will have notice that the word "directly resulting from," and its linguistic siblings and cousins appear frequently in this report on the Ironshore policy.  Sometimes in a chain of events which are linked together to create insurer liability the words appear more than one to describe the chain.  These words are becoming ever more used in various kinds of insurance policies but one sees them repeatedly in cyber policies, and certainly this one.

Disputes as to meaning are developing full boar in coverage litigation. See Retail Ventures Inc. v. National Union Fire Insurance of Pittsburgh, PA., 691 F.3d (6th Cir. 2012) 

Insurance History

Does this sound familiar?:

"Insurance business could be encouraged by offices maintaining a good relationship with the building industry....Most fire offices had surveyors on their staff, either a permanent salarymen, or employed on a casual basis....It was important for insurers to obtain the services of competent and knowledgeable men, for the accuracy of valuations and loss adjustments, and ultimately the level of underwriting profits, could depend upon their reports. Most offices contracted out the work of rebuilding insured houses destroyed by fire, and thus had to maintain a reliable pool of builders. Classifying insured property by type of construction was also a task for which expertise was sought from the building trades. Another area of cooperation related to building regulations. Insurance offices were troubled by the shoddy work of speculative builders who failed to comply with the London building acts. As early as 1763 London insurers combined to promote  regulation to prevent the spread of fires in the metropolis....For most of the eighteenth century such cooperation remained feasible because the number of competing insurance offices remained limited , and some overview was possible of the quality of new building, and the virtues and vices of different building contractors....Fewer damaged houses were rebuilt by the fire offices, and fewer common residential properties were subjected to inspection."

Robin Pearson, INSURING THE INDUSTRIAL REVOLUTION: FIRE INSURANCE IN GREAT BRITAIN, 1700-1850, p. 38 (Ashgate Publishing Company, 2004).

In my view, the answer is Yes and No, at the same time.  The close connection between insurers and the building trade is not exactly right in organizational terms, but the the substance might be right. Still, it seems odd to me that there is no explicit reference to adjusters. They must have existed. My bet is that the insurer got all sorts of recommendations of builders, etc., and then worked within its self determine coverage.

As with many volumes of insurance history, where the authors are not interested in the policies, whether their language, the various types of attitudes toward them, and how insurers handled the contracts, particularly the exclusions, Pearson falls in line.  They--including he--are principally interested in finance, and how insurance companies fit into the financial structures of the times.

Here is something else Pearson says:  "For most of the eighteenth century such cooperation [the cooperation of the sort just mentioned] remained feasible because the number of competing insurance offices [i.e., companies or "syndicate-centers"] remained limited, and some overview was possible of the quality of new buildings, and the virtues and vices of different building contractors. . . . Fewer damages houses were rebuilt by fire offices, and fewer common residential properties were subjected to inspection." p. 39.

I am not sure what all this means. First, the insurer may not themselves have rebuilt burned-out structures, but they still may have insured them, and--second--they may have used builders to help them determine the worth of buildings that had been destroyed. Third, it is difficult to see why as an economy grows and there are more wealthy people, there would be less insurance of residences. Fourth, everything Pearson says about the change from the 18th to the 19th century in fire insurance, turns on what the policies looked like, how revenues were dealt with, how reserves (or their predecessors) were set, and how revenue worked.  Fifth, a lot of this turns on how the claims process worked, how doctrines of moral hazard were used, the dedication of insurer to enforce their contracts as written, and how devoted they were to avoid using their power to inflict injuries on insureds. Professor Pearson discusses none of this, nor are their authoritative citations. (Professor Pearson is scornful of company history, and it is easy to see why.  It seems likely to me that the topics I just laid out having to do with the history of claims performance and management are not topics insurer would want to talk about unless their performances are sterling all the way through.)