Limits — continued from Page 14
• The demand must be timed to give the insurer adequate opportunity to investigate “whether, in light of the victim’s injuries and the probable liability of the insured, the ultimate judgment is likely to exceed the amount of the settlement offer.”(Crisci v. Security Insurance Co. of New Haven, Conn. (1967) 66 Cal.2d 425, 430; see also, Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1988) 38 Cal.3d 488, 499.) Practically speaking, you first need to
determine the policy limits in your particu- lar case. If you are already in litigation, then the amount of coverage, the nature of the coverage, and any coverage disputes (i.e. reservation of rights) between the insured and its carrier are discoverable using Form Interrogatory 4.1 of the Judicial Council, Form Interrogatories-General. (See also, Code Civ. Proc., § 2017.210.) If you have not yet filed the complaint, send a registered letter to the adjuster requesting the same information. Assuming the likely verdict in your
client’s case reasonably exceeds the policy amount, determining when to make the policy-limits demand becomes key. To be reasonable, the demand must be timed so that the insurer has had adequate opportu- nity to investigate and discover for itself that the likely verdict exceeds policy limits. As such, some insurance companies may drag out their investigation into the value of your client’s case to forestall exposure to bad faith. You should short-circuit this tactic. If your case is in suit, respond early
and fully to discovery requests about your
client’s damages and contentions concern- ing the insured’s liability. If the complaint has not been filed, put a comprehensive written package together to the adjuster disclosing the liability contentions and damages in your case. Spell it out; don’t pull punches. And
back up what you say with documents, pho- tographs and other evidence, including your client’s medical records, any incident reports, witness statements and, if available, expert reports. While every case is different, the tim-
ing of the policy-limits demand must be linked to the state of investigation and/or discovery. The demand should be made after the insurer has the documentation and other evidence which, when objectively evaluated, would lead to the conclusion that the judgment amount would likely exceed the settlement demand. In other words, you must give the insurer a reason- able opportunity to evaluate the case. (See Walbrook Insurance Co. Ltd. v. Liberty Mutual Insurance Co. (1992) 5 Cal.App.4th 1445, 1457.)
The insurance company’s reasonable-
ness at the time of rejecting a policy-limits demand is the standard that courts use in deciding bad-faith cases. So the fuller your disclosure, the more pressure on the carri- er. If the carrier then refuses to settle, a strong argument exists for bad-faith liability when plaintiff later obtains a judgment in excess of policy limits. You should also give the insurance
company a reasonable amount of time to
accept your settlement demand. (Coe, supra, 66 Cal.App.3d at 994.) While the amount of time deemed “reasonable” will depend on the particular facts of the case, where investigation and evaluation are complete, as little as one week may suffice. (Critz v. Farmers Ins. Group (1965) 230 Cal.App.2d 788, 798.)
“Burning” policies In recent years, “burning” or “self-
consuming” policies have become popular with insurers. Most litigators have seen the clause below or something similar in insur- ance policies: Limits of Liability: The Liability of the
COMPANY for each CLAIM including CLAIM EXPENSES under this Policy shall not exceed $ ______________. If “CLAIM EXPENSES” is defined to
include the costs of defending the claim, including attorneys’ fees, you are faced with a “burning” policy. For many, the first thought might
include an expletive when you realize the policy is ever-shrinking due to forces largely outside your control, like how many hours opposing counsel bills, and the amounts the defense spends for investigation, depo- sitions, experts and other litigation costs. If there is reasonable liability in your client’s case, however, and his damages clearly exceed the starting policy limits, you may be able to turn lemons into lemonade. In that regard, your second thought should be: This could be an opportunity for early settlement at or near policy limits. After you disclose and document the
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liability of the insured and your client’s full damages, a carrier will know that pro- longed litigation or even a drawn-out settle- ment process could leave its insured with- out sufficient coverage. You may be able to take advantage of the decreasing coverage by disclosing quickly, and making an early settlement demand at the current policy limits. A carrier who rejects such a demand
would do so at its own risk. Especially so, because as the case drags on, the coverage diminishes, and the carrier will appear less and less reasonable for exposing its insured to more and more uncovered liability. That prospect alone could drive your case to settle.
See Limits, Page 18
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