Large loss insurance claims implicate excess and umbrella insurance policy limits, usually starting at one million dollars and above. These claims typically involve multiple parties, complex legal issues, tens of thousands of discovery documents and a multi-year litigation trajectory. There are a variety of types of large loss claims: catastrophic personal injury, wrongful death, trucking accidents, fires, police excessive force claims, abuse scandals, nursing home claims, construction accidents, products liability, insurance fraud, property damage, natural disasters, sexual harassment, employment discrimination and the like.
Because of the high stakes, critical steps must be taken from the outset. The general principles discussed here can be applied to each unique case. What follows is a guide for insurance professionals, claims handlers, and in-house counsel on best practices for defending a large loss claim.
- Interview the insured
Immediately when a notice of claim is received where it is expected that a large loss has occurred, the insurer should contact its insured with an attorney present. The attorney can be outside defense counsel, or, when time is critical or where outside defense counsel cannot be immediately selected (conflicts check, locating counsel in a new jurisdiction), in-house counsel.
Although it is not guaranteed that a court will uphold the attorney-client privilege even if an attorney is present when an insurer is conducting its routine fact-finding mission (check the law of your jurisdiction), the presence of an attorney where litigation is certainly anticipated should be routine practice. Otherwise, an unprepared insured may make unintentional damaging admissions that will be used throughout the entire case against your insured. Practical Tip: Set up a call-in number for your attorney, adjuster and insured to conduct early interviews with the presence of counsel.
- Retain defense counsel
Critical investigatory work needs to be done before any lawsuit is ever filed. Having an attorney acting on the insured’s behalf will help facilitate and expedite the process. In fact, many negotiations and important pre-suit investigations occur in the years before a suit is filed on the eve of the statute of limitations. Appointed defense counsel can act as the conduit for pre-suit strategies and investigations. In some jurisdictions, an attorney can obtain pre-suit discovery. An attorney present from the inception of a case can also advise the insured facing media scrutiny. Practical Tip: Engage excess insurer monitoring counsel from the outset since the primary carrier will likely tender its limits.
- Retain experts
Experts should be retained early to perform site visits, advise on initial liability issues, and provide defense recommendations. A fatal trucking accident requires dispatching your accident reconstructionist to the scene as soon as possible to negotiate with police for certain information and begin an independent investigation. A computer forensic expert can assist with ensuring an opposing party preserves and does not inadvertently or intentionally corrupt data from a black box or electronic control module (“ECM”) of an involved vehicle. A fire expert can work with local authorities to pinpoint the cause of a fire and collect other data. An engineer and metallurgist can assess whether the cause of your water valve break flooding dozens of apartments resulted from a product defect before environmental factors or third parties alter the evidence. Practical Tip: Have an on-call list of trusted experts relevant in your line of business in different geographic locations who can be ready to assist on short notice.
- Preserve physical & electronic evidence
Cases are often lost because efforts were never taken to preserve critical evidence. A party may face spoliation claims or lose the chance to prove its theory of defense with lost evidence. Take steps early to secure all evidence.
For example, arrange for the secure and undisturbed storage of vehicles, construction equipment and other critical types of property. Preserve company emails. Notify your client to implement a litigation hold internally and work with their IT department to ensure electronic documents like emails are located and backed up. Since emails are ubiquitous, every case should involve the extraction and review of emails in .PST format. Practical Tip: Make sure that storage arrangements are adequate and do not inadvertently contribute to spoliation concerns by, for example, exposing the subject evidence to environmental factors causing rust accumulation.
- Obtain evidence from third parties & social media
Evidence should be obtained from third parties as near in time to the incident as possible in order to replicate the scene. Emails automatically delete in line with a company’s document retention policy. Litigation holds and document preservation letters should be sent out. Run ISO searches to uncover prior claims and injuries of the plaintiff. Seasons change and memories fade. Road construction crews remove signs and paint over lines. Accident scenes should be photographed, videotaped and surveyed. Equipment rusts and wears down with each use. Black box data gets corrupted or overwritten. Public records like 911 calls are not stored by budget-strapped municipalities forever. Text messages get deleted when phone storage is full. Freedom of Information Act (“FOIA”) requests to police, fire, EMTs, OSHA and towns should be sent out early and augmented with broader subpoena power once in suit. Social media provides a treasure trove of discoverable evidence. Consider setting up a program that automatically captures social media posts such as Page Vault. Interspersed among countless selfies are usually damaging admissions by party opponents. (Try entering phrases such as, “I ran a red light” or “I drove drunk” on twitter.com/explore to uncover such public confessions.) Practical Tip: Be persistent with FOIA requests to municipalities and state agencies which may ultimately uncover, despite an initial denial that no documents exist, favorable reports and witness statements supporting your case.
- Evaluate conflicts and appoint separate defense counsel
Large loss claims often implicate criminal elements such as drunk driving, drugs, arson, excessive force by police, assault or allegations of misconduct clearly contrary to an employer’s policies. To prevent the chaos that a sudden conflict of interest creates in the middle of a case when a witness changes stories at a deposition, appoint separate defense counsel in the beginning to represent individual insureds and the company or municipality. Practical Tip: Determine whether any statutes or policy language bars indemnification for an employee’s criminal or reckless conduct.
- Open a coverage file with coverage counsel
A flurry of additional insured and contractual indemnity demand letters will begin to whip across party lines as insurers and insureds begin to assess their exposures. This is especially prevalent in construction accident litigation.
A coverage file should be opened with separate coverage counsel appointed to handle the assessment of these demands and to assert their own. Coverage defenses should be analyzed especially where criminal or intentional act exclusions are at issue. Coverage counsel can respond when the insured’s private counsel inevitably sends a demand letter to the insurer to settle within policy limits and threatens bad faith claims. Coverage counsel can also remind the primary carrier that, where applicable, the primary carrier owes the excess carrier a duty of good faith to adequately defend the claim. Despite maintaining a duty to defend the insured, primary carrier’s counsel’s defense strategy may not be as robust if the decision has been made to tender the primary policy limits. Practical Tip: Excess carriers should consider having their counsel “associate in the defense” alongside primary carrier counsel to steer defense strategy where the exposure mostly lies with the excess carrier.
- Evaluate expert witnesses
The battle of the experts takes center stage in large loss cases. The same experts often testify in case after case in specific jurisdictions. Build an expert witness database of deposition and trial testimony. This will allow the defense to unearth contradictory opinions from experts in past matters. Practical Tip: Continue to build your expert witness database after each expert deposition or trial testimony transcript is received.
- Mock juries & focus groups
When millions of dollars are at stake for a case headed to trial, consider retaining a company specializing in mock juries and juror focus groups. Usually, these one-day sessions with two different cohorts of mock jurors allow the defense to narrow in on the strengths and weaknesses of the case. Practical Tip: Structure juror focus groups with different fact patterns where evidence is excluded and where it is admissible to gauge the impact of such evidence.
- Create large loss units
Companies and insurers routinely faced with large loss cases should create an internal “large loss unit” to systemically assess individual cases and make informed decisions with the benefit of analytics on a macro level. A large loss unit can hold monthly calls to review the highest exposure cases, share ideas, experts, and strategies, and improve future strategy. Technology should be used to develop data on settlements, demands, verdicts, medical specials, defense costs, successes, expert fees, third-party claims, expert testimony, company 30(b)(6) deposition testimony and standard interrogatory answers, 50 state surveys and other litigation trends. The large loss unit should be the epicenter where company employees learn from each other and refine strategies that can then be implemented in individual cases and globally among all cases. Practical Tip: Work with your internal IT department or retain an external IT company to create the most user-friendly and word-searchable database possible.
There are many significant legal, factual and practical considerations that must be considered when defending a large loss case. Adopting the foregoing strategies will improve case resolutions and bolster the insured’s defense.
Benjamin J. Carroll ([email protected]) is a partner at Barclay Damon LLP where he focuses his practice on defending insureds, insurers and businesses in cases involving wrongful death, catastrophic personal injury, products liability, insurance fraud, construction accidents and insurance coverage.
Editor’s Note: For more information on handling complex and large loss claims, join us at the America’s Claims Executive Leadership Forum in New Orleans, La., from March 27-29, 2022.
Large loss cost estimating: What’s needed
Colorado wildfire caused nearly $1B in policyholder losses
16 barriers to successful subrogation recovery
Guarding the details before claims become lawsuits