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Do You Have It Covered? - Handling Policy Limits Demands for Less than All Claimants Releasing Less than All Insureds

It's 4:45 on Friday afternoon. You're going to finish up one last claim note and sprint out of the office toward your weekend with no further thoughts of claims until the 10:00 p.m. Sunday-evening-dread sets in. You are seconds away from hitting "Enter" on your claim note when it happens - ANOTHER email. You recognize the file number from the subject line right away. (That can't be good) It's the one with all of the insureds (three of them) and all of the plaintiffs (four of them). Yikes.

You click the attachment and there it is-your weekend ruiner. You are staring at a policy limits demand with a short response deadline. And the kicker is, plaintiff will only release 2 of your 3 insureds. For two of the four plaintiffs. And there is no excess insurance. What now?

Step 1: Call Morgan Carroll at McMickle, Kurey and Branch. Step 2: Start your weekend. For those who have heard me speak on this topic, you've already heard some version of that line. Sorry. While it is certainly a blatant marketing pitch, I say it for two reasons: 1) coverage counsel is very beneficial in these situations; and 2) I actually really like these types of cases. They combine two of my favorite puzzles to solve - coverage and negotiation strategy.

Quite frankly, the law can be all over the place when it comes to these types of demands. Plaintiffs' lawyers are becoming more and more savvy to that fact and are exploiting it at every opportunity to build bad faith claims against insurers. In dealing with one of these situations recently, the insured's defense counsel on the case exasperatedly stated to me, "But they are putting the insured and insurer in an impossible situation!" Bingo. That's the point. Plaintiffs rely on the fact that the already over-worked and stressed out adjuster will make a misstep that will open the door for extra contractual damages. The bad news is, bad faith claims in these situations are not always avoidable. But, with the right preparation, they can be defensible.

There are three important things to remember with these type of settlement scenarios: 1) timeliness; 2) communication; and 3) venue. Timeliness is key. No matter what law applies to the settlement demand you are working on, if you fail to respond to the demand by the deadline, you are sunk. That is not to say that the deadline cannot or should not be extended. But it cannot be ignored. The easiest win for the plaintiff is for you to fail to respond on time. That said, these are often complex claims. There are many moving parts and considerations to take into account. It is often reasonable and appropriate to ask for a short extension to conduct an investigation. But if you do so, always get confirmation of that extension in writing. Also, be wary of the deadline to respond within "a reasonable time." It is a ploy. "Reasonable time" is a moving target. For an adjuster with 150 files on her desk, a "reasonable time" might be sometime next year. But you can bet it will not be a "reasonable time" to a plaintiff who is trying his best to set up the bad faith claim in the first place. Best to get a clear deadline, even if it is shorter than what you would prefer.

Open communication is vital in this scenario. Not only should you or your coverage counsel be in regular contact with the plaintiff to ensure compliance with deadlines, but also there should be open communication with all potential insureds and all potential plaintiffs that may be impacted by the settlement. While knowing the applicable law in these cases is essential to planning the best and most appropriate response, communication is a key issue discussed in cases nationwide that address this issue. If it comes to litigation, the court is most likely going to look at how you communicated with your insured. In negotiating these demands, it is typically appropriate to show all the cards early, informing your insureds of the potential pitfalls of the settlement, advising the insureds that you are considering the demand, seeking the insureds' input on the settlement and recommending they obtain separate counsel to provide advice on same. Don't expect a uniform response - especially if you are leaving someone uninsured. In addition to creating coverage questions for insurers, these demands can raise potentially uninsured business issues for insureds required to indemnify and defend other insureds.

Your third consideration is venue. This is a time when it is important to know the law and know it well. Some states impose bad faith for failing to resolve all claims and/or to secure releases for all insureds in any situation. Others allow the insurer to enter into a policy limits settlement that will benefit some but not all insureds, and/or that will extinguish some but not all claims against an insured. Additionally, it is important to know the rules governing acceptance or rejection of a demand to make sure your response to the demand has the intended effect. Otherwise, your acceptance of the demand with the innocuous request that there be no admission of liability may just turn into a counteroffer and/or rejection. The applicable law will likewise dictate your options in withdrawing from or continuing the defense of the non-released insureds once your policy limit is paid. A knowledgeable coverage attorney can identify and advise on all of these legal issues, allowing the insurer to weigh all options and decide on the best approach under the facts of the claim.

No insurer likes these demands. They are designed to create problems and to place insurers and insureds alike in sticky situations. Because the response to these types of demands is often driven by facts and business decisions, there is no cookie cutter response. These situations warrant diligent and careful consideration of all available facts on a case-by-case basis to ensure the best possible outcome for insureds and insurers alike.

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