Handling Abusive Insurance Disclosure Practices
By DOUGLAS K. SHEFF
How many cases with “dead-on” liability and huge damages have you settled for a mere fraction of fair value? “None,” you would respond if asked. “I would never settle a client short and, when damages greatly exceed insurance coverage, I never settle for less than full policy limits!”
In fact, you have probably settled many cases short without knowing it: While exhausting disclosed policy limits often represents the most zealous representation that can be provided to a client, by accepting “policy limits” without fully exploring coverage issues, you may be settling for mere cents on the dollar.
How is it that these unintended results become reality, despite your skilled representation?
The answer is simple: Insurers are failing to fully disclose available coverage limits with alarming and increasing frequency.G.L.c. 175, Sect. 112C[1] requires insurers to disclose the “amount of the limits of [the] insured’s liability coverage” upon written request, within 30 days of receiving such request. This statute is not limited to auto insurers, but applies to “[a]ny insurer doing business in the commonwealth.
”While the statute is entirely clear as to an insurer’s obligation, it is also entirely toothless — an insurer that fails to comply with the provisions of the statute “shall be liable to pay the claimant the sum of five hundred dollars plus reasonable attorneys’ fees and expenses incurred in obtaining the coverage information …”It’s no wonder there is scant case history on G.L.c. 175, Sect. 112C. Who takes a $500 dispute to the Supreme Judicial Court? The court has refused to sanction an insurer based upon a six-month delay in revealing coverage limits,[2] and, incredibly, upon a “wholly unexplained” two-year delay in revealing coverage limits![3]
The issue before the court in these cases was whether the acts of the insurer violated G.L.c. 93A and/or G.L.c. 176D (Unfair Claims Settlement Practices Act). As no prejudice to the plaintiff was established, the court found no violation of the statutes in question.But what about the bigger picture — what message is sent to insurers when the court brushes off an unexplained two-year refusal to reveal coverage?
The lack of significant caselaw on the issue emboldens insurers. But decisions such as Brandley and Doe serve as a tacit endorsement by the court of the coverage “shell game” insurers often play. While the plaintiffs in Brandley and Doe may not have been prejudiced, it is impossible to know how many cases have settled on inaccurate or misleading coverage statements, and at what cost to consumers (and saving to insurers).
There is no telling where prejudice may have been found, or the degree of prejudice, when a case has been settled and closed.
We’ve all handled cases with the sneaking suspicion that there was more coverage than revealed.
Then there are the “red flag” situations: interrogatory answers stating that the coverage is “more than adequate” to compensate the plaintiff for alleged damages; the mysterious policy that cannot be located; luxury vehicles insured with the minimum coverage limits; cases involving homeowners’ coverage where the defendant refuses to produce documents mandating that certain policy limits be maintained; the tractor/trailer accident where the insurer reveals coverage on the tractor, but not the trailer (or vice versa).
In construction site cases, the latest twist in coverage is the OCIP (Owner Controlled Insurance Program). In these situations, the site owner procures the coverage and pays all premiums for the general and all subcontractors on the site. Does revealing the OCIP coverage satisfy G.L.c. 175, Sect. 112C? What if the injury-causing events fall outside the scope of the OCIP?
As to an insurer’s willingness to hide or conceal coverage — again, why not? The worst that can be expected from the court is a mere slap on the wrist. Pick your poison: allege violation of G.L.c. 93A/176D and prejudice must be established; allege violation of G.L.c. 175, Sect. 112C and, assuming you prevail, you get a whopping $500.
The reality is that most plaintiffs’ lawyers accept as true the limits disclosed in answers to interrogatories, pressing the issue no further. For that matter, many plaintiffs’ lawyers will accept a written disclosure provided pre-suit and, if liability is fairly clear and damages excessive, accept the alleged policy limits in full settlement.
And that’s the end of the story. No further inquiry is made, no one asks about the umbrella coverage that was never disclosed, the excess policy that wasn’t revealed, or about the “clerical” error where a $1 million limit was stated as a $100,000 limit. Once the litigation concludes, by settlement or otherwise, counsel no longer has any authority to seek further disclosure; it’s simply too late.
In our office, we’ve had no fewer than six cases in the last year where coverage beyond what was initially disclosed was discovered through the extraordinary measures.
The failure of insurers to provide full and accurate disclosure of policy limits mandates that plaintiffs’ counsel be vigilant in their efforts to determine the extent of available coverage.
Some simple practice tips for unearthing undisclosed coverage: Always tailor “form” discovery requests to target excess or umbrella coverage; serve KOR subpoenas on insurers and their agents; incorporate coverage questions into your deposition of the defendant — ask the auto defendant if he knows his policy limits (you may be shocked when you get a response that varies from what has been disclosed); take a 30(b)(6) deposition of the corporate defendant on coverage issues; and, most importantly, take the deposition of insurance agents who effectuated coverage (you’ll be amazed at how frequently the defendant claims that the wrong coverage was placed by the agent, and offers to “assign” the plaintiff his claims against the agent).
The failure of insurers to fully disclose available coverage limits is most prevalent in cases involving catastrophic damages and potentially prohibitive medical liens. Sound familiar? Have you taken 100K in a case worth exponentially more than that, because you were assured in writing that 100K was the full extent of coverage?These are pressurized situations for plaintiffs’ counsel. Insurers sense and prey upon the pressure: As looming medical liens would exhaust all settlement funds, counsel must protect the clients’ interests by expeditiously settling the case (pre-suit) for alleged “policy limits,” releasing insured and insurer.
Asset searches should be performed and, while these remain a viable tool in this decision-making process, the court has restricted the extent and means utilized to gather background information relative to a defendant’s assets.[4]
Protecting the privacy rights of consumers is certainly laudable, but the delicacy with which asset investigations must now be conducted places additional stress on counsel forced to “pull the trigger” when confronted with insufficient coverage.
Whereas, in the days of Thaler,[5] plaintiffs’ counsel could exhaust what the insurer claimed to be “policy limits” and then initiate suit, fully investigating the true extent of coverage (and other sources of recovery) through discovery, plaintiffs today no longer have that luxury.
By overturning Thaler, the SJC opened the door to abusive disclosure practices that hold plaintiffs’ feet to the fire: Accept what the insurer claims are the policy limits and execute full releases. The alternative: Risk that while you initiate suit and explore the coverage issue through discovery, medical liens exceeding coverage will accumulate and ultimately usurp every cent of settlement funds, leaving your catastrophically injured plaintiff penniless.
These days, plaintiffs’ counsel must leave no stone unturned to accurately assure their clients that all coverage has been discovered and/or disclosed. The simple message: Dig deeper, never assume the accuracy of the coverage disclosure, and when you have that “sneaking suspicion” regarding coverage, explore it.
The answers are not be found in G.L.c. 93A/176D or G.L.c. 175, Sect. 112C. And there is no easy solution to the Thaler dilemma. To thoroughly investigate coverage, you must initiate suit, and therefore risk that settlement proceeds will be diverted away from your client. In this regard, trust your instincts, look for “red flags” reflecting a lack of full disclosure and, with the client’s assent, file suit.
No matter how good your Cuba Gooding Jr. impression may be, no matter how loud you scream “Show me the money,” you may never know the full extent of coverage unless you are willing to run some new plays.
Endnotes
[1] G.L.c. 175, Sect. 112C (Disclosure of coverage limits to claimants; penalty) states: Any insurer doing business in the commonwealth shall reveal to an injured party making claim against the insured, the amount of the limits of said insured’s liability coverage, upon receiving a request in writing for such information from the injured party or his attorney. A reply shall be made within thirty days of receiving such request. Any insurer that fails to comply with the provisions of this section shall be liable to pay the claimant the sum of five hundred dollars plus reasonable attorneys’ fees and expenses incurred in obtaining the coverage information provided herein.[2] Doe v. Liberty Mut. Ins. Co., 423 Mass. 366, 667 N.E.2d 1149 (1996).[3] Brandley v. U.S. Fidelity & Guar. Co., 819 F.Supp. 101, opinion withdrawn and vacated on reconsideration, 1993 WL 327683 (1993).[4] Comm. v. Source One Associates, Inc., 436 Mass. 118, 763 N.E.2d 42 (2002).[5] The ruling in Thaler v. American Insurance Co., 34 Mass. App. Ct. 639, 614 N.E.2d 1021 (1993), was overturned by Lazaris v. Metropolitan Property and Casualty, 428 Mass. 502, 703 N.E.2d 205 (1998).Douglas K. Sheff practices at Sheff Law in Boston.
