This entry is part 2 of 2 in the series Insurance Bad Faith, Expert Witnesses, and Lawyers

Expert Witnesses (Sometimes Lawyers) in Insurance Bad Faith [IBF]Cases[1]:
An Mostly Elementary Introduction to Some Fundamentals in Two Parts (Part One)
 
Table of Contents
 
I.                  
Introduction
(Part One)
 
II.               
Insurance Bad
Faith (IBF)—Broad Characterization of Coverages (Part One)
 
III.   Types of Insurance Bad Faith (Part One)
 
IV.   Typical Issues and Conduct of Insurers &
Adjusters in an IBF Case:        Expert Witnesses
(Part Two)
 
V.  Other Uses for Insurance Expert Witnesses
(Part Two)
 
VI.  Qualifying
and Preparing Proposed Experts & Other Recommendations (Part Two)
 
VII. Lawyers as Insurance Expert Witnesses (Part Two)
 
 VIII. Conclusion
Part (Part Two)
 
 
 
 
 
I. Introductory
Remarks
 
          Widespread Error in
Nomenclature.  One way to describe
all acts of (at least) common law bad faith is to say that they lack bond fide or that each act which
constitutes an act of insurance bad faith is one not characterized by bona fide. 
 This is quite a popular name
in various appellate courts around the country. 
This is by itself a mistake, however, since it is not terribly helpful.  The Latin phrase being discussed originally
applies to contracts, and it means “made in good faith, that is, without fraud
or deception.”  It also means an act which
is “sincere or genuine.”  There are five
distinct theses wrong here.  (1)
Insurance bad faith does not refer to contract formation. (2) Insurance bad
faith cannot be defined in terms of its self, to wit, bona fide which is a phrase meaning “bad faith.” And (3) fraud and
deceit in an insurance adjustment process are by themselves insurance bad
faith. A lack of sincerity in at least part of the adjustment practice is not
sufficient to establish IBF.  Imagine an
adjuster posing as being attentive or loyal to an insured’s problem if he is
not.  He still may do it right, even if
he despises.  An adjuster might act as
though he believed every word of a claimant, and yet believe that the claimant
is a lying can of cheap and odor filled black shoe polish. Genuineness is
somewhat similar, and my case it is even easier to make.[2]  (5) The reader will see shortly that one of
the names for insurance good faith is “good faith and fair dealing.”
Bona fide obviously
matches up the first phrase, but it doesn’t fit well with the second.
Thus,
one has to try again.  Most courts have
done exactly that and often setting forth reasonable several-element standards.  It is the name bona fide taken by itself that’s wrong and unhelpful; usually the
more complex and more jury-understandable standards actually set forth by
courts are not consistent with the definition of bona fide to be found, for example, in any recent edition of
BLACK’S LAW DICTIONARY and THE OXFORD COMPANION TO LAW.
B. Revision of Nomenclature.  Here is one way the duty of good faith is
that the insurer must deal with the insured in a fair manner and process claims
in a good faith manner.  As all ready
pointed the second conjunct of this definition is unhelpful, but the first
conjunct is extremely helpful.  Thus all
instances of insurance good faith in the adjustment context require fairness or
faith dealing.  Interestingly, the
requirement of insurer bad faith is often actually called the “duty of good
faith and fair dealing.” 
          Sometimes the duty of good faith is
formulated as something like this.   An
insurer has failed to adjust a claim in good faith if it has failed to provide
or negotiate a settlement of a claim when it knew or should have known that the
validity and/or value of the claim were reasonably clear.   Insurer bad faith is not terribly
interesting, when an insurer fails or refuses to “settle” a claim when it knows
that it is valid and (roughly) its monetary value is not terribly interesting. 
C.Insurer Had Knowledge.  Often an expert witness is not needed to prove the existence
of this knowledge.  An expert may not
even be needed if the insurer denies that it had the requisite knowledge. In
that type of case, the insured would have to prove that it probably had the
require knowledge; in that latter type of case some sort of expert testimony
may be required.  It would be this no
insurer of even minimal competence could possible have failed to know the
significant propositions.
D. Insurers Should Have Had Knowledge.  Expert testimony is much more required when the issue is
whether should have known some crucial proposition(s).  In these types of cases, the testimony will
be much more probabilistic and sophisticated that regarding what even a near
“idiot” insurance company would have to know.  
The kind of expert testimony required in the second type of context will
have to do what must be understand and believed because it is
insurance-adjustment-context-reasonable (“reasonable”) and because its opposite
is not reasonable, or is less reasonable, to a significant degree.  This kind of testimony has many dimensions
and is much more interesting than “This insurer knew that it a claim was valid
(a) because it admits that this is true, (b) has admitted that it is true, or
(c) was and still is the greatest “idiot” insurance company in the history of
economies with the slightest component of free markets.”
II.
Insurance Bad Faith (IBF)—
Broad Characterization of Foci
 
Insurance
related expert witnesses are usually
called only to testify on insurer bad faith matters, and not directly on
coverage or legal issues.[3]  Thus, this outline will appear to be simpler
than these types of discussions generally are. 
Then again, it will not be as boring as these “papers” and presentations
often are.   So, let’s begin with the
underlying substance:  typical areas of
bad faith.
A.      First
Party Coverage (FPC) involves insurance policies where the insurance
proceeds or benefits are to be payable to the insured(s) or beneficiaries
directly and usually involve disputes between one or more insureds and one or
more insurers, e.g., property insurance, health insurance, or workers
compensation insurance.
B.       Third Party Coverage (“TPC”) occurring most
frequently with liability insurance “LI”), involves insurance policies (or that
part of them), where the insurance proceeds are to be paid, not directly to the
insured, usually but to third parties on behalf of the insured.  The coverage is designed so that the insurer pays
in the insured’s stead the damages owed or probably to be owed by the insured
to others for certain types of liabilities.  
Those covered liabilities of an insured must always arise under certain
specific circumstances. Most commonly when the injurious event was (1) not “fortuitous”
or (what pretty much amounts to the same thing, (2) was an accident, or (3) was
certainly unintended, at least, usually. (4) Sometimes the act causing the
injury was intentional but had an injurious consequence which was both
unintended and unexpected.  Whether
damages arise from an accident, whether fortuity characterizes a casual event,
or whether its one if its linguistic “cousins” apply, are jury issues.  Still, an insurer’s decisions regarding these
issues can constitute bad faith; this too is a jury issue.
 
         As a general rule, the law of insurance bad
faith has a much more diverse and complex relationship with FPC than it does
with LC.  (In at least some states for
example, common law insurer bad faith does not apply to LC at all, and in
others it does not apply to parts of LC.)
III.
Other Ways
to
Outline
Types of  IBF Types
 
          In this section I spell out
additional details generally outlined in the previous section.  In this way, I focus a bit more on the
functions of adjusters and experts on adjustment practice
A.       Different Types of Bad Faith.  I start with the claims adjustment process
and insurer decision-making conduct.
                  1.       Common Law IBF (CL/IBF) Issues: performance
of significant matter in the adjustment of a claim or claims, and whether it
was done or decided with or without a reasonable basis.  
a. If a
denial is decided without a reasonable basis, the insurer is guilty of common
law bad faith.
b. In proving
or defending against allegations of common
law bad faith, reference need
only be to general principles of insurer performance and the acts or omissions
of the carrier and applied to the situation(s) in which those decisions, acts,
or omission took place.  Statutory bad
faith is the opposite. 
c. This rule
can be understood as something starting with a negligence rule, namely that the
insurer failed to meet the industry-business adopted or prescribed standards of
care for performance.  Many applications
of the negligence rule apply to bodily injuries and damage to physical
property.  This is not really true,
however.  IBF is like or starts with the
negligence rule because it is actually very much like a rule of professional
malpractice. It is as if there is such a thing as “adjuster malpractice.”  There is another principle involved in
judging malpractice however, as we shall see, and it is a breach of  a fiduciary duty (as it may be for lawyers).
d. Some
observers and a court here and there, have contended that IBF has only to do
with the insurer having been unreasonable with respect to discovering, analyzing,
and coming to conclusions about the facts, and they try to say that there can
be no IBF when it comes to the language of the policy.  This idea is non-sense.  A person can make an unreasonable error in
interpreting language in a whole variety of different ways.
e. Many
states have this rule CL/IBF, but some states don’t.  Some states use this idea.
f. In many
states who have adopted this rule, it applies only in cases of first party
insurance “FPC”.  This means that it does
not apply across the board to liability insurance, except—maybe—to the duty to
defend.
                  A. 
    Statutory Bad Faith—Specific Statutes[4]: A
number of acts or omissions are explicitly required of insurers in connection
with an insurance claim.  E.g.:
                  1.   
Specific Acts: for example, misrepresentation, failure to settle in a
reasonable manner, giving erroneous reasons for denial, etc.
     
            2.      Certain
acts must be performed “promptly” and reasonably understood in context.  Often promptness is fixed to a specified
number of days.  It is also, however,
linked to having received needed and requested documents, etc.
          3. 
In states at least insurers must provide insureds with the reasons or
justification for certain of its decisions, e.g., denial of a claim, substantial
delay of deciding a claim, the reasons it does or does not do something in
adjusting a claim, or reserving its right(s) to do something (or several things)
later.
                    4.  
IBF allegations and/or the defenses against them should refer
specifically to the terms at issue in the relevant statute.  The term “specific” does not require that the
specification be perfect—or even really—precise.
          At
the same time the difference between the two types of IBF are recognized, it needs
to be kept in mind that they have a similar spirit and virtually identically
purposes. My creativity energy and my imagination is always more at home with
the common law because of its generality than it is with statutes because of
its being more specific. The reader might find that attitude helpful.
III
Bad Faith and the Expert Witness
 
 
A.   Types of Actionable Insurer IBF Errors.  A great many cases of insurer bad faith
involve situations in which an insurer has significantly misconstrued, misunderstood,
or misrepresented the meaning of its own insurance policy.
          B.  The Idea of “Long Distance.” Alternatively,
it could be that the insurer understood its policy, but its adjustment behavior
was at a “long distance,” conceptually conceived, from what is required by the
meaning of at least one relevant term in      its
policy.  An insurer’s mistake is a “long
distance” from (i) what it ought to do or, (ii) how it should take its policy
language to mean when it makes either a quite substantial error or makes an
obvious and injury casing error, e.g. of money. 
These mistakes need not be deliberate (i.e., intentional), but they can
be. 
B. Another Source of “Long Distance.” Rules
and principles, if they exist in writing, for all  of these various types of errors can often be
found in records of various types of the insurance company. Usually they are to
be found in the records of insurer’s adjustment department, if they exist.  If they existed in the past, but no longer
exist, the chances are that the insurer destroyed them for some reason.  It may be important for the policyholder to
pursue this topic, to the extent possible. 
The rules and/or principles are often called something like “Adjustment
Guidelines” or “Adjustment Manuals.” 
Policyholder lawyers should not set up their inquires to insist that
these exact words or titles be used or counsel for the insurer will avoid
producing them. 
Interestingly,
sometimes these manuals are designed to independent adjusters. Sometimes these
matters are handles in training and education sessions provided adjusters when
they first enter the company or thereafter on a periodic basis.  Sometimes the adjuster’s have kept the
“textbooks” sometimes not.  The chances
are that the insurer has them in its library, or something like it.  Many big insurers have education departments.  Sometimes they are kept in the general
counsel’s office.  Sometimes an outside
educational or training firm is used. 
Such companies will almost certainly have the texts it used, and it will
probably have been approved by the insurer at some point.  Experts often find these texts valuable.  This true of experts on both sides of an
insurer-policyholder controversy.
In any
case, often policies are standard form policies, so there may be well-established
case law on a good deal of the important language or topics.
          An expert witness on insurance adjustment should be ready
to testify about the “distance” between the meaning of the terms of the
insurance contract and the conduct of the insurer in performing the
investigation, its decision-making, the language, contents, and omissions in
its—say—denial letter, the language, contents, and omissions in its reservation
of rights letter, and so forth.  Interestingly, to do this the expert will have
to testify to some degree about the law or about accepted law.
          If there are no guidelines or printed principal-books or
pamphlets of any kind, this may be a problem for an insurer.  If there are or were such things, and they
are not produced, that too will be a problem. 
Of course, if any of all this occurred in recent years, it will be in
electronic “storehouses” and will hence be “findable” and subject to production
in litigation.
B.      General
Principle of Common Law IBF—simply put—This principle is that an insurer
may not make substantially unreasonable adjustment or claims decisions,
as a result of which the policy holder is, in effect, deprived of money to
which it is entitled.          (Of course, those involved believe or at least
hope that the coverage decision is the end of the “game.”  Very, very often, the hope is satisfied.)  In any case, the actions and/or decisions
cannot be “unreasonable in a minor way” or “unreasonable in minor ways.”  In addition, there must be an error as to
coverage, whether its existence or its amount.        
Thus, as
just indicated the policyholder must have been deprived of some or all proceeds
under the policy to which it was entitled. That policyholder may also be
entitled to money damages as the result, having nothing to do with the nature
and extent of coverage in of itself, but caused by the bad faith conduct,
including omissions.  Its damages may, in
the end, be far larger than the award of coverage to which the policyholder is
entitled. 
Consider
the following illustration.  What if an
insured hotel owner sustains $1m physical damage to its hotel as the result of
a storm but the insurer denies coverage on the ground that they physical
injury  is not the result of wind damage
and the water damage it causes, but water damage by itself without there having
been preceding and causative wind damages. 
Now suppose the insurer is wrong, and did not perform anywhere near a
satisfactory investigation, investigative reasoning, or inquiry into how state
law works when an insurer, in effect, water over wind.  So the insured gets its $1M, but it hasn’t
been able to attract customers for 2 years, and it has lost $5M.  The hotel might well recover the $1M in
coverage and  an additional $5M for the
insurer’s conduct, of course, plus interest and perhaps some of its attorneys
fees.  Thus, bad faith claims can be
extremely powerful.
  Adjustment actions or decisions can include
many various things, such as:
                   1.       denial
of coverage;
                   2.       issuance of amounts of recovery under the policy;
                   3.       calculation amounts of policy holder entitlement from
insurers, [5]
                   4.       issuance
of a reservation or rights;
                   5.       language of the reservation of rights communiqué (letter);
                   6.       and
so forth. 
If these acts or
decisions are manifestly unreasonable,[6] irrational,
and/or falling way, way below the accepted standard of care generally accepted
in the “industry,” it is obvious there will be insurer bad faith.  It must be remembered that adjusting a claim
is not as simple as driving a motor scooter. 
The more complex the case, and hence the more the adjustment process,
the less resemblance there is between the analogy used here—or anything like it—and
the “real thing” of the adjustment process. 
The same goes for situations in which the insured is, shall we say,
unhelpful, uncooperative, deliberately difficult to deal with, and/or so forth.  This is true in general and across the board.
 Still, if the insurer “screws” the
policy holder or blunders into its equivalent, there is IBF.
C.      Epistemology.  Many of the principles of sound
adjustment are principles of epistemology, i.e., how we can know truths, what
are sound ways of discovering truth, what counts as truth in this or that
situation?  What is to done about
inconsistent stories, especially when each of them is probably?  What is to done about inconsistent but
plausible disagreements as to the meaning of policy language?   
So here
are some epistemologically based principles of reasonable insurance adjustment:

1. Look for the truth as well as
coverage.   Indeed, look hard for the
truth.
2. Empirical evidence must be the
foundations of denying a claim.
3. 
All evidence must be sought in an energetic manner.
4. All evaluations of empirical
methodology and empirical evidence must be objective, and neither subjective or
biased in
any direction.[7]
5. Determine what are the most
appropriate and best methods for obtaining appropriate and needed empirical
information?
6. Determine the right method for
dealing with evenly but clearly conflicting empirical evidence.  (Of course, in many situations there is
exactly only one way to do this.)
7. 
Determine how conflicting stories should be dealt with. Maybe determine
what other back-up evidence should be devised and use.
8. Determine what experts, if any,
need to be used.
9. 
Determine the logical reason which should be used in making coverage
decisions.
10. Determine what sort of dialogues,
“round table discussions,” objective reviews, and so forth, should be
performed.
11. 
At some point, and perhaps at an early point in the reasoning process,
determine how long a reasonable adjustment should take. 
12. 
At every stage an adjustment process is slowed down or blocked, a new
schedule should be devised, checked, reviewed, shared, and so forth. 
a. Often
problems of scheduling and rescheduling should be discussed, etc., with the
policyholder. 
b. Determine
a reasonable temporal decision-making process, if at all possible, which can be
decided by both the insurer and the policyholder.  (It is amazing how frequently exactly this is
not done.)[8]
Of course, after all this
epistemological work has been performed, appropriate behavior and actions must
follow.  Equally, “of course,” is the
fact that in many types of at least simple adjustments, all of these
propositions have been thought out well in advance.  Nevertheless, whether there is any need for
any of these must be considered on every adjustment.  It doesn’t take very long in many simple case.
          D.      Common
Law Bad Faith vs. Negligence
 
                   1.       As
already asserted, common law IBF is NOT identical to negligence, inadvertence by
itself is not enough; it is not a sufficient condition for there being IBF. (Some
might say that it is nothing like negligence at all.)  Here are different approaches. One can light
a match negligently, call somebody by the wrong name, or misspell a word
negligently.  One can even drive a car in
a sloppy or inattentive way. Such errors do not constitute acts performed in bad
faith.  IBF requires seriousness,
relevance (or materiality), and guilt laden diversion from honorable practice.  Accidental blunders are not IBF if they are
corrected.  Curiously, the extent of an
injury caused is not relevant to whether an event has been caused by negligent
conduct.  The same may not be true of
IBF, at least in the practical world.
                    2.
Common law bad faith requires a complex system deliberate, purposeful conduct
by the insurer into which IBF actions must fit. 
This is something close to the immediately preceding remarks.  IBF is relatively complex over-all conduct which
is to be pursued integral to the complex framework.                                             
                    3.  Someone might analogize bad faith insurer
conduct to gross negligence, although that isn’t quite right either.[9]  Actual recklessness is not required for
IBF.  Maybe something close to it may be
sufficient, though not necessary, condition.
                   4.   In contrast to IBF, negligent acts must be
almost completely an unintentional performance or one not explicitly motivated
by its actor-oriented self-interest, evil, or close-to-evil’s, distant cousins.
 (Here “performance,” also includes
omissions.)
                    5.
 Still, even an excessive lack of
intentionality—something like intensely ignoring something relevant—can itself be
a symptom of IBF, since adjusters—given that the insurer,  insurer’s employees and its independent contractor
adjusters—are supposed to treat policyholders, and their interests, as at least
equal to the insurer, together with its interests. All adjusters are supposed
to be thorough, careful, objective, rational, and equality-committed.
                   6. Of course, all of the
types of conduct just listed require that the adjuster pay close and careful attention to what s/he is doing.  This entails that very speedy adjustment can be
contrary to principle, even if conclusions turn out to be correct.  Why? 
We’ll see presently.
                           g. Still, IBF has a
connection to negligence.  An act (or
omission) constitutes bad faith only if it is at least negligent or worse. 
This principle is necessary for IBF, but it is not sufficient.  Thus, negligence, recklessness, or problematic and disturbing intentionality
are necessary conditions, under normal conditions, of insurer bad faith, but
none of them are not sufficient conditions. 
Materiality and injury-or-damages are also necessary.
                                     b. Probably, an expert will (or should
be) permitted to testify about these matters.
          3.       Different Standard of Care than
Negligence.
                   a.       Here is a different approach to what has
now been  discussed for a while.  In the negligence context, actors owe each
other only the duty of ordinary care.  Insurers, because they have a  special relationship with each of their
insureds, owe each of their insureds the duty
of good faith and fair dealing.  Generally,
as already indicated, in many, and perhaps most states, this means that an insurer must treat the insured’s interests
on a par with its own, or at least
equal to its own.  Quite frequently, findings
of IBF involve an insurer not following this important principle.  Adherence is often a matter of perspective,
which is easily lost in the heat of the moment. 
In any case, if a policy holder wants to prove IBF this is key principle
to emphasize, of course, among several others.
          b.       Significantly,
an expert witness should be allowed to testify as to whether an insurer objectively
acted in good faith.  This is not simply
a matter of law.
        c.       With two exceptions, IBF does not apply
to LI.   Often, generally speaking, as already
observed, the standard common law of insurer bad faith does not apply to the
“we the insurer will pay specified losses” parts of the policy.
          (i)
     First Exception:  Unreasonably wrongful failure or deliberate
failure to provide a defense to the insured, if called for in the policy.[10]  As a general rule, the duty to defend
requires notice from an insured.  Once
notice is provided the insurer must treat the duty to defend as FPC (or its
equivalent).[11]
          (ii)
    Second Exception: IBF in LI situations
can be created by unreasonably wrongful failure or wrongfully deliberate
failure or refusal to settle a covered case against an insured, after a
reasonable demand has been made to settle within policy limits.[12]  (Often this is called a “Stowers Demand.”[13]  This name originates from a Texas case, but it is used by at least some
insurance adjusters, examiners, and more senior claims department people all
over the country.)  
(iii) 
Experts on LI claims practice and related decision-making are usually
permitted to testify about whether an insurer made a reasonable “Stower’s decision” and is therefore not
“guilty” of IBF.   Thus, the Stowers situation is distinct from most
dimensions of insurer conduct pertaining to liability policies.
(iv) If an LI insurer has erroneously
denied coverage and the insured has received a “Stowers demand” and settled it for amounts beyond policy limits, is
the insurer liable for the whole sum? 
Would it matter if the settlement sum was reasonable?  What if it was unreasonable?  What if the underlying case was tried?  Suppose the verdict and/or judgment exceeded
policy limits.  Would the nature and
structure of the underlying case matter? 
Insurance experts should be able to testify as to parts of all this.
(v) Would it matter whether or not
the insurers denial was reasonable or not? 
Some experts should be able to testify about some of this at least.
(vi) Suppose an insurer indicated
that it would defend under a Reservation of Rights but the insured rejected
that “offer” of defense? It is saying, “You defend me without a reservation of
any rights, or I will go forward without you.”[14]
        4.       FPC mostly focuses on “property damages,”
and/or what used to be called “Business Interruption Insurance,” and which is
now “officially” called “Loss of Business Income Insurance”[15]  is entirely different, although the latter is
usually tied to the former.  There are
exceptions; there is FPI which is not tied 
to “property damage.”
      
          a.  Here is examples of first party insurance
which concerns property but not “property damage:” 
(i) insurance
upon art work which is designed to deal with the risk of its being stolen, or
sold to the policyholder fraudulently;[16]
  (ii) insurance upon making a motion picture
when one of the actors drops out;[17]
(iii)
insurance triggered by a kidnapping of a business worker and his/her family
while in a foreign country;
(iv) There
are other FPC business insurance which are rather esoteric.  Here are four of them:
b.
Disability, health, and accidental insurance all focus on “bodily injury,” and
they are first party insurance.
c. How should
we think about life insurance?
d. How should
we think about insurance on jet airplanes which cover not only the plane but
also those who are killed when the plane crashes. 
 

[1]  This
is a revised version of a speech-paper distributed at a Continuing Legal
Education program held in the winter of 2011 at South Texas School of Law.
There have been no changes in the fundamental dimensions of the applicable law.
 
[2]
Then again, an adjuster can be genuine (and/or sincere, for that matter) and be
guilty of bad faith.  I “saw” this not
long ago.  The adjustment was passing
through difficult stages: data collection and recollection, sworn proof after
sworn proof, equivocal indicators from the insurer, and statement from the
insurer which the policyholder took to be devious.  At one point he said the the adjuster, “I am
through with your shell games.”  The
adjuster replied, “I will engage in shell games with you as often as I please.”
Now there’s an adjuster who should be sacked forthwith.  Imagine how dreadful if a coverage litigator
said something like this in a deposition

 
[3] As
a general rule, when testifying before a jury, experts on insurance—insurer
conduct, for example—are not asked or allowed to testify as to the precise
content of cases or statutes, per se. 
(Sometimes, when an expert is testifying before a judge only, the
opposite may be true when the expert is acting as an explanatory witness about
how insurance policies work; this is also frequently the case in
depositions.)  It often helps for the
expert to have the short relevant sections of the pertinent statutes or law
photocopied and on hand, as well ad a summary of the most recent pronouncement
of—the elements of  common law bad faith
(either off to the side or in “the” stack to be used anyway, or in one’s
pocket).  The same is true for lists of
all of those who are part of the cast of character in the pending case, as well
as the lawyers examining the expert witness. 
[4] See for example §§ 54l.060 and 542 of
the Texas Insurance Code. This law is derived to some degree from model
statutes, and many states have statutes like those of Texas and/or which are
drawn in whole or in part from the rule just mentioned. 
[5] This one
applies to both small amounts and most interestingly to complex commercial
cases.
 
[6]
This one might be described in the following slang, “Wow; Unreasonable,”  “By God! Unreasonable,”  “Intolerably unreasonable,” and so on.  
[7]
Here is amazing story which is difficult to believe.  My deposition was taken on April Fool’s Day
in 2011.  I asserted that in an
adjustment process insurance carriers had a duty to be empirically-oriented,
objective, and logical in their reasoning. 
Deposing counsel actually asked me what was my “authority” for
making that assertion.  
[8] Of
course, complex adjustment processes will resemble construction projects.  They will never run on schedule.  But if everyone has laid out the plan and
everyone is working according to the plan agreed upon, bitter complaints and
bad faith suits are less likely., 
[9] Reckless
is still classifiable as unintentional, even though it is close to
intentional.  Reckless conduct is
something like negligent conduct performed in the context of a flagrant
disregard of other’s rights, “I don’t give a damn,” or even worse, “F-them, I
do as I see fit without paying any one’s interests, except under my own
narcissistic conceptions.” 
[10]
And it is called for in most liability insurance policies.  Sometimes liabilities are also called
“indemnity” policies.  Ignore this
difference, except in some rare situations. 
Be sure adjusters and experts know what they are talking about
here.  Perhaps the expert cannot testify
as to the semantic difference.  
Semantics differences can be treated as matters of law.  This strikes me as unjustified. The usage and
the evolution of meaning is a historical matter, as a rule.  If an insurer has actually issued a real
“indemnity” contract of insurance, this fact must be, and probably will be,
clearly indicated in the policy.  In any
case an expert can testify to an insurer’s mistake in confusing the two terms,
if it has influenced its behavior or indicates that the insurers’ rationale is
unreasonably defective as to generally applicable knowledge.  (From now on we will refer to all adjusters
and all experts as “he.”  It is not
Sexist in the slightest.  It is simple
that the word “he” is shorter and easier to type.)   In any case, observation in this footnote
applies across the board.  Thus,
explaining how an insurer misused the phrase “surety bond”—which is or is close
to a type of insurance–indicates that the insurer is ill informed, and this
may indicate something indicative of bad faith or something dangerously close
to it.
 
[11] To
trigger the obligations of an insurer, notice is always required.  Under many or most circumstances, notice must
come from the insured, or someone very close to that policyholder.
 
[12] At
least most jurisprudence (and therefore its courts) rejects the idea that
insurers have a duty to make the settlement offer themselves.  An expert should not this mistake.  This is true though that some believe that
this rule is a mistake—a legal mistake and a relatively “ancient,” useless
anomaly, which is nothing but insurer protective.
 
[13] G.A.Stowers
Furniture Co.v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929,
holding approved).
[14] I
regard this as almost always as a bad 
idea for policyholder, even if it will not end up being a lack of
cooperation on the part of the insured.
 
[15]
Experts better know the accepted vocabulary difference and the unreasonableness
of an adjuster misusing these phrases.
 
[16] Of
course, this insurance involves, it just isn’t tied to physical damage/injury
to tangible property.
 
[17] Of
course this also looks like business interruption insurance.

Originally posted on 07/17/2014 @ 10:05 pm

Series Navigation<< Insurance Bad Faith, Expert Witnesses, and Lawyers–Part II
Michael Sean Quinn, PhD, JD, CPCU, Etc

Michael Sean Quinn, PhD, JD, CPCU, Etc. (530)

One of Texas's leading insurance scholars, Michael Sean Quinn is a past chair of the Insurance Section of the State Bar of Texas and has a broad legal practice.

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