Deposition Outline: Breach of Contract – Liability Insurance Policy

Introduction

This deposition outline suggests lines of inquiry to establish a breach of contract generally, and a breach of a liability insurance policy specifically. The broad subject matters addressed include: Identity of the Deponent: Documents Produced: Understanding of Specialized Terms:

and Breach of Contract. Sub-parts of the breach inquiry include: Elements of a Cause of Action, Existence of the Contract, Policyholder Compliance, Investigation, Decision to Provide a Defense, Conflict of Interest, Settlement, Indemnity, Compliance with Regulations. [Bracketed information refers to legal authority supporting the question.] [Italicized text in brackets identifies the purpose of the inquiry.]

This outline may be downloaded in Word or WordPerfect and customized by doing a “find and replace” for the following terms: &Client& means the defendant/policyholder/client; &ClmAgt& means the insurer’s claims agent; &Date& means that a date needs to be designated; &DependentCounsel& means insurer appointed defense counsel who was selected by and represents the interests of the liability insurance company; &IndependentCounsel& means the client’s independent counsel; &InsCo& means the client’s insurance company; &Lawsuit& means &Plaintiff& v. &Client&; &Plaintiff& means the plaintiff who sued the defendant/policyholder/client; &PlaintiffCounsel& means the plaintiff’s independent counsel.

Identity of the Deponent

[Is the deponent qualified to give testimony?] What is your name? Have you appeared here today for deposition in response to a notice of deposition? What is your position with (relationship to) &InsCo&? [Code Civ. Proc. § 2025.230.]

[Does the deponent know how to conduct proper investigation?] Are you a person authorized by &InsCo& to conduct an investigation of a claim on its behalf? [Cal. Code of Regs. § 2695.2(d)]. Have you certified each year in writing under penalty of perjury that you have read and understand the California regulations and its amendments? [§ 2695.6(b)(1).] Did &InsCo& provide you with clear written instructions regarding the California regulations? [§ 2695.6(b)(2)(B).]

[Is the file properly documents?] Does &InsCo& have a claim file? Does it contain all documents, notes and work papers which reasonably pertain to the claim? [§ 2695.3(a)]? Does the claims manual have a copy of the California regulations? [§ 2695.6(b)(2)(A)] Did &InsCo& provide you with clear written instructions regarding the regulations? [§ 2695.6(b)(2)(B).] Please show them to me. Are they in the claims file? [§ 2695.3(a).]

[Do insurance regulations apply to the deponent?] A “Claims agent” is defined by Code of Regs. § 2695.2.(d) to mean any person employed or authorized by an insurer, to conduct an investigation of a claim on behalf of an insurer or a person who is licensed by the Commissioner to conduct investigations of claims on behalf of an insurer. Are you a “claims agent” of &Insco&? What position or title do you have with &InsCo&? Are you licensed to practice law?

[Is the defendant an insurance company?] An “insurer” is defined by Code of Regs. § 2695.2.(i) to mean a person licensed to issue an insurance policy or that otherwise transacts the business of insurance in California.” To your knowledge, is &Insco& an insurer?

[Has the deponent been trained?] Has &Insco& provided thorough and adequate training regarding Code of Regs. § 2695 to you? Has &Insco& certified that you have been trained regarding Code of Regs. § 2695? Has &Insco& executed, under penalty of perjury, a annual written certification that &Insco&’s claims adjusting manual contains a copy of Code of Regs. § 2695 and all amendments thereto and that clear written instructions regarding the procedures to be followed to effect proper compliance with Code of Regs. § 2695 that were provided to you? Will you please identify them to me? Please describe the training you received.

[Does &InsCo& have standards for processing claims?] Do you personally know the standards for the prompt investigation and processing of claims adopted by &Insco&? Can you state them from memory? Did you ever need to refer to written standards in order to promptly investigate and process claims? What standards do you personally implement to promptly investigate and process claims? Please tell me all of the standards you implement.

[What investigation was done on this claim?] Are you aware of a claim made by &Plaintiff& against &Client&? From now on, when I use the phrase “Plaintiff’s claim” I will mean the &Lawsuit&. By your understanding, did &InsCo& issue a policy of insurance to &Client&? Are you the person who investigated and processed the Plaintiff’s claim? For what period of time did you do so? To your knowledge, did anyone else investigate or process the Plaintiff’s claim on behalf of &InsCo&? During the time you investigated and processed the Plaintiff’s claim, did you keep a claims file? Identify it. During the time you investigated and processed the Plaintiff’s claim, did you ever refer to a claims adjusting manual? [Code of Regs. § 2695.6.] Identify it. Why did you need to refer to it? To your knowledge, has &Insco& adopted written standards for the prompt investigation and processing of claims? Have you produced a complete set of these standards? How do you know these are the standards and that they are complete? Has &Insco& communicated to you written standards for the prompt investigation and processing of claims? Describe them. Please point out to me that portion of documents you have produced constitute such communication(s). [Code of Regs. § 2695.6) When were these communicated to you? Did you implement any standards for the prompt investigation and processing of adopted by &InsCo& when you investigated and processed the Plaintiff’s claim? Identify them. Did you ever in fact refer to these standards in order to investigate or process the Plaintiff’s claim? Why did you need to refer to these standards?

Documents Produced

[The “trial of the file” colorfully describes how very important it is to make a record of what is in the insurer’s Claim File. If the insurer seeks to present evidence that something happened that is not shown in the Claim File, testimony may be precluded.[1]]

[Identify documents produced.] Do you understand that the deposition notice commands the production of business records, documents, electronically stored information, and tangible things described as follows:

  1. All policies of insurance issued by &Insco& to &Client&
  2. All documents constituting or referring to all claim files as legible hard copy documents regarding &Lawsuit& as described in Code of Regs. § 2695.3, including but not limited to all documents, notes and work papers (including copies of all correspondence) which reasonably pertain to &Lawsuit& in such detail that pertinent events and the dates of the events can be reconstructed and &Insco&’s actions pertaining to the claim can be determined.
  3. All documents constituting or referring to all written standards for the prompt investigation and processing of claims arising under insurance policies adopted by &Insco&.
  4. All documents constituting or referring to all training regarding insurance regulations, including but not limited to Code of Regs. § 2695 et. seq., including certification that &Insco&’s claims agents have been trained regarding the regulations and &InsCo&’s claims adjusting manual referred to in Code of Regs. § 2695.6.
  5. The form in which any electronically stored information is to be produced is a thumb drive readable in Word or WordPerfect. [Code Civ. Proc. § 2020.510(4).]
  6. &InsCo&’s agreement retaining &DependentCounsel& to defend &Client&, including all litigation or other guidelines provided to &DependentCounsel&. [&InsCo& will likely have a master agreement of some sort that controls all cases assigned.]

Have there been any catastrophic losses, or other unusual circumstances that have materially affected &Insco&’s ability to produce any documents? [§ 2020.510(m)]

Have you brought all of these documents with you today? Why not? I’d like to mark as a group Exhibit, all documents that are responsive to each of the above categories. Throughout this deposition, I will refer to Exhibit 1 as the “policy”; Exhibit 2 as the “claim file”; Exhibit 3 as the “standards”; Exhibit 4 as “training materials”; Exhibit 5 as “electronic data”; Exhibit 6 as &InsCo&’s contract with &DependentCounsel&; and Exhibit 7 as &InsCo&’s guidelines.

Describe the investigation you conducted to comply with the document request. Are any documents missing from this production? Are there any documents that you were requested to produce that you have not produced?

[Identify the contract.] Is the policy complete? How do you know? Is there any language in the policy itself that specifies the forms that are to be included in the complete policy? Please show me. Have you personally gone through this document to verify that all of the forms designated in the policy are included in the document your have produced today? Off the record, would you please do so now? What forms are missing? Have any endorsements been issued after the date of issue of this policy? How do you know? Is this information known or reasonably available to &Insco&? Why have you failed to produce it?

Understanding of Specialized Terms

[NOTE: to attorney. Many of the following questions are intended to elicit the claims’ agents’s ignorance of the law. Be satisfied with weak responses. Do not be argumentative. Do not supply answers to the witness, that are provided in parentheses below. If opposing counsel objects to questions on the ground that it calls for a legal conclusion, of that the claim agent is not a lawyer, or not versed in the law, ask for a stipulation and explain that the objection misinterprets this question. You are not asking the witness to state any legal conclusion. You are instead asking the witness to describe the standard of law, if any, the &Insco& adopted and implemented in this case as required by Ins. Code § 790.03(h)(3).]]

[Lay foundation to establish a “knowing” violation of standards.] Are you familiar with California insurance code § 790.03(h)? Describe it for me. Do you know how it came to be adopted in California? Do you know whether similar statutes have been adopted in other States? Do you know what entity drafted this statute to be considered for adoption by the various States?

Do you understand that it is unlawful to knowingly commit or perform with such frequency as to indicate a general business practice any of certain unfair claims settlement practices? [Ins. Code 790.03(h)]

Do you know what the phrase “knowingly committed” means? Please define it for me. [“Knowingly committed” means performed with actual, implied or constructive knowledge, including, but not limited to, that which is implied by operation of law. [Code of Regs. § 2695.2(l).]

Describe to me the frequency with which you believe an unfair claims settlement practice must be performed so as to indicate a general business practice.

Do you know what the word “claimant” means? Please define it for me. [“Claimant” means a first or third party claimant, an attorney authorized to represent the claimant. Code of Regs. § 2695.2C) (ellipses omitted).)]

Do you know what the phrase “first party claimant” means? Please define it for me. [“First party claimant” means any person asserting a right under an insurance policy as a named insured, other insured or beneficiary under the terms of that insurance policy. Code of Regs. § 2695.2(f).)]

Do you know what the phrase “third party claimant” means? Please define it for me. [“Third party claimant” means any person asserting a claim against any person or the interests insured under an insurance policy. Code of Regs. § 2695.2(x).)]

Do you know what the word “investigation” means? Please define it for me. [“Investigation” means all activities of an insurer or its claims agent related to the determination of coverage, liabilities, or nature and extent of damages afforded by an insurance policy and other obligations or duties arising from an insurance policy. Code of Regs. § 2695.2(k) (ellipses omitted).)]

Do you know what the phrase “notice of claim” means? Please define it for me. [“Notice of claim” means any written or oral notification to an insurer or its agent that reasonably apprises the insurer that the claimant wishes to make a claim against a policy issued by the insurer and that a condition giving rise to the insurer’s obligations under that policy may have arisen. Code of Regs. § 2695.2(n) (ellipses omitted).)]

Do you know what the phrase “proof of claim” means? Please define it for me. [“Proof of claim” means any documentation in the claimant’s possession submitted to the insurer which provides any evidence of the claim and that supports the magnitude or the amount of the claimed loss. [Code of Regs. § 2695.2(s).)]

Do you know what the word “willful” means? Please define it for me. [“Willful” when applied to the intent with which an act is done or omitted means simply a purpose or willingness to commit the act, or make the omission referred to in the California Insurance Code or Code of Regs. § 2695. It does not require any intent to violate law, or to injure another, or to acquire any advantage. Code of Regs. § 2695.2(y).)]

Do you know what the phrase “reservation of rights” means? Please define it for me. [“Upon receiving proof of claim, every insurer shall immediately, but in no event more than forty (40) calendar days later, accept or deny the claim, in whole or in part. Where an insurer denies a claim, in whole or in part, it shall do so in writing and shall provide to the [policyholder] a statement listing all bases for such denial and the factual and legal bases for each reason given for such denial which is then within the insurer’s knowledge. Where an insurer’s denial is based on a specific policy provision, the written denial shall include reference thereto and provide an explanation of the application of the provision to the claim.” [Cal. Code Regs. § 2695.7(b)(1)].]

[Purpose of reserving rights.] Do you know why you issued a “reservation of rights” in this case? Please explain it for me. Did you reserve rights in order to encourage the plaintiff to take less in settlement? Did you reserve rights in order to avoid waiver of coverage defenses? Did you reserve rights in order to be able to deny coverage to your policyholder? Did your reserve rights create a conflict of interest between &InsCo& and &Client&? Why (not)? Please explain. Do you understand that the result of a reservation of rights is that the insurer could avoid paying, thus making the policyholder pay? Does that not create a conflict of interest between the insurer and the policyholder?

[In order to make decisions while processing a claim, the claims agent must implement substantive standards established by law. In contrast, procedural standards how to create a record of what was done.] I will sometimes use the phrase “substantive standards”. By this, I mean for example that Code of Regs. § 2695.7(b) provides in part: “Upon receiving proof of claim, every insurer, shall immediately, but in no event more than forty (40) calendar days later, accept or deny the claim, in whole or in part.” I would not expect a juror in this case to know how to make that decision to accept or deny the claim, in whole or in part, without some substantive guidance. For example, here is a brief statement of law regarding a liability insurance company’s duty to defend “Determination of the duty to defend depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy. If any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer’s duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage.” (Scottsdale Ins. Co. v. MV Transp. (2005) 36 Cal.4th 643, 654-55 citations, ellipses and quotation marks omitted).) Do you understand the phrase “substantive standards”? Please tell me in your own words what the phrase “substantive standards” mean to you.

I will sometime use the phrase “independent counsel”. By this, I mean an attorney hired by the policyholder to defend a liability dispute, which lawyer has no attorney-client relationship with the insurer but who is paid by the insurer. Do you understand the phrase “substantive standards”? Tell me in your own words what the phrase means to you?

I will sometime use the phrase “dependent counsel”. By this, I mean the counterpart to “independent counsel”, whom &Insco& hires to defend its insured and to protect the interests of &Insco& in an attorney client relationship. Do you understand the phrase “substantive standards”? Tell me in your own words what the phrase means to you?

 Breach of Contract

      The Elements of a Cause of Action

1) The policyholder and insurer entered into a policy contract; 2) the policyholder did all things that the contract required; 3) the condition required for the insurer’s performance occurred; 4) the insurer failed to do something that the policy contract required of it (investigate, defend, settle, indemnify); and 5) the policyholder was harmed by that failure. [CACI 303.]

      Existence of the Contract

[It is often very difficult to identify a complete insurance policy. The forms that should be included are listed on the declarations page and/or on an endorsement. Additions may be made after the initial issue. Insurers frequently produce an incomplete contract. Xeroxing errors are common, frequently failing to copy the reverse side of double sided originals.]

Did you produce the policy(ies) identified in the request to produce documents?

Is the policy complete? Have you examined the document to make sure that all forms and endorsements that are supposed to be part of the policy are in fact present in the document you have produced? If not, at a break, would you please review the endorsement identifying the forms that comprise the policy and confirm that this document is complete?

Policyholder Compliance

Did &Client& notify &InsCo& of the &Plaintiff& lawsuit? When? Where is that noted in the Claim File?

Did &Client& fail to do anything required of him/her/it by the terms of the policy? If so, what? If not, seek a stipulation that the policyholder did all things that the contract required of him/her/it.

Investigation[2]

      After &InsCo& was notified of the &Plaintiff& lawsuit, describe the investigation of the claim conducted by &InsCo&?[3] Where is that noted in the Claim File?

Did &InsCo& interview witnesses?[4] Where is that noted in the Claim File?

Did &InsCo& diligently search for evidence which supports its insured’s claim?[5] Where is that noted in the Claim File?

Did &InsCo& fully inquire into possible bases that might support the insured’s claim?[6] Where is that noted in the Claim File?

Did &InsCo& ignore evidence which supports coverage?[7] Where is that noted in the Claim File?

Did &InsCo& information known or reasonably available to it at the time of denial?[8] Where is that noted in the Claim File?

Did &InsCo& believe that there was a genuine dispute as to what happened that justified reserving its rights or denying the claim?[9] Where is that noted in the Claim File?

Did &InsCo& continue to investigate after &Client& sued &InsCo&?[10] Where is that noted in the Claim File?

Defense

[One of the two primary promises a liability insurer makes is the promise to defend. A breach of the duty to defend may yield a measure of damage equal to the measure for breach of the duty to indemnify.]

After &InsCo& was notified of the &Plaintiff& lawsuit, did it provide a defense to &Client&? What substantive standard did &InsCo& implement to make this decision? What did &InsCo& do to provide a defense? What substantive standard did &InsCo& implement to make this decision? Did it do anything other than pay money? Where is that noted in the Claim File?[11]

      Did &InsCo& reserve its rights to deny coverage to &Client&? What substantive standard did &InsCo& implement to make this decision? When? Was the reservation of rights timely? Did more than 40 days elapse between the time it received notice of the claim and the time it sent the reservation of rights letter? If so, why? If so, do you believe that the reservation of rights was valid? What substantive standard did &InsCo& implement to make this decision?

[The duty to defend is necessarily delegable.] Is &InsCo& licensed to practice law? Did &InsCo& defend &Client&? Did &InsCo& delegate the conduct of the defense to someone else? To whom? What substantive standard did &InsCo& implement to make this decision? Does &InsCo& have a written contract with &DependentCounsel&? Will you produce it? Oral agreement? Does &InsCo& have litigation guidelines that it requires &DependentCounsel& to follow? Why? Will you produce it?

What is the purpose of these guidelines? Does &InsCo& require &DependentCounsel& to comply with these guidelines? Why? Does &InsCo& require &IndependentCounsel& to comply with these guidelines? Why? Are these guidelines a means by which &InsCo& seeks to control the conduct of the policyholder’s defense? Are these guidelines a means by which &InsCo& seeks to control the cost of the policyholder’s defense?

Does &InsCo& have a duty to defend &Client& in the &Plaintiff& lawsuit? What substantive standard did &InsCo& implement to make this decision? [An insurer’s agreement to defend does not necessarily imply that the insurer concedes that it have a duty to defend.] When did that duty commence? Does &InsCo&reservation of rights letter state that it denies that it has a duty to defend? Why? Did &InsCo& intend for that denial to reserve the right to dispute whether it had a duty to defend? Did &InsCo& determine that it had an uncondition duty to defend?[12] When? What substantive standard did &InsCo& implement to make this decision? How was that communicated to &Client&? Where is that noted in the Claim File?

Did &InsCo&’s reservation of rights letter create a conflict of interest that obligated it to provide independent counsel to defend &Client&? What substantive standard did &InsCo& implement to make this decision? Does &InsCo&’s reservation of rights letter state that it denies that a conflict of interest exists that obligated it to provide independent counsel to defend &Client&? Why? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& intend for that denial to reserve the right to deny that a disqualifying conflict of interest exists? Did &InsCo& determine that a disqualifying conflict of interest did not in fact exist? Did &InsCo& determine that a disqualifying conflict of interest did in fact exist? What substantive standard did &InsCo& implement to make this decision?[13] How was that decision communicated to &Client&? Where is that noted in the Claim File?

Did &InsCo& appoint &DependentCounsel& to defend &Client&? Who? When? What substantive standard did &InsCo& implement to make this decision? Where is that noted in the Claim File? Did &InsCo& hire &DependentCounsel& to protect the interests of &InsCo& in the &Plaintiff& lawsuit? Did &DependentCounsel& to protect &InsCo&’s interests in the &Plaintiff& lawsuit to its satisfaction? Did &InsCo& understand that it had an attorney-client relationship with &DependentCounsel&? Did &InsCo& understand that &DependentCounsel& had an attorney-client relationship with &Client&?

Did &InsCo& advise &DependentCounsel& about the reservation of rights letter? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& request that &DependentCounsel& comply with Rule 3-310? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& ever learn that &DependentCounsel& did not comply with Rule 3-310? When? How? Where is that noted in the Claim File? Did &DependentCounsel& make written disclosure to &InsCo& of any conflicts of interest? Did &InsCo& ever give to &DependentCounsel& informed written consent for them to represent the interests of &InsCo& and &Client&? Did &InsCo& ever request that &DependentCounsel& make written disclosure to &Client& of any conflicts of interest? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& ever request that &DependentCounsel& obtain informed written consent from &Client& to represent &Client& in the &Plaintiff& lawsuit? Why/not? What substantive standard did &InsCo& implement to make this decision?

Did &InsCo& ever have telephone communication with &DependentCounsel& regarding the &Plaintiff& lawsuit? Where is that noted in the Claim File? In any of these telephone communications, did &Client& participate? Why/not? What substantive standard did &InsCo& implement to make this decision?

Did &InsCo& ever communication by e-mail with &DependentCounsel& regarding the &Plaintiff& lawsuit? Where is that noted in the Claim File? In any of these e-mail communications, was &Client& copied? Why/not? What substantive standard did &InsCo& implement to make this decision?

Did &InsCo& ever have written communication with &DependentCounsel& regarding the &Plaintiff& lawsuit? Where is that noted in the Claim File? In any of these written communications, was &Client& copied? Why/not? What substantive standard did &InsCo& implement to make this decision?

Did &Client& ever request that copies of communications between &InsCo& and &DependentCounsel&? Did &InsCo& or &DependentCounsel& ever provide copies to &Client&? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& ever request &DependentCounsel& to provide copies to &Client&? Why/not? What substantive standard did &InsCo& implement to make this decision?

Did &InsCo& require that &DependentCounsel& obtain its prior consent before authorizing any work to be done to defend the &Plaintiff& lawsuit? Why? What substantive standard did &InsCo& implement to make this decision? Did &DependentCounsel& ever request authorization to do any work to defend the &Plaintiff& lawsuit? Was consent ever denied? If not, why was authorization required? What substantive standard did &InsCo& implement to make this decision? Where is that noted in the Claim File?

Did &InsCo& agree to provide &IndependentCounsel& to represent &Client& in the &Plaintiff& lawsuit? What substantive standard did &InsCo& implement to make this decision? When? Why not earlier? Tell me everything that &InsCo& actually did to provide &IndependentCounsel& to represent &Client& in the &Plaintiff& lawsuit? Did &InsCo& do anything other than pay money? Did &InsCo& have a contract with &IndependentCounsel& to represent &Client& in the &Plaintiff& lawsuit? Written or oral? Where is that noted in the Claim File?

What hourly rate did &Insco& say it would pay to &IndependentCounsel& to represent &Client& in the &Plaintiff& lawsuit? What are the rates that &InsCo& actually paid to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended? How much did &InsCo& pay to &DependentCounsel&? Why did &InsCo& communicate a different hourly rate to &IndependentCounsel& than it actually paid to &DependentCounsel&? What substantive standard did &InsCo& implement to make this decision? Was it to gain a commercial advantage? Was it to exercise control of &IndependentCounsel&’s conduct of the defense? What hourly rate did &InsCo& actually pay to &IndependentCounsel&? How much in total did &InsCo& pay to &DependentCounsel&? Will you produce invoices and checks? How much in total did &InsCo& pay to &IndependentCounsel&? Will you produce invoices and checks?

Did &IndependentCounsel& submit invoices for costs of defense to &InsCo&? When &InsCo& received each of &IndependentCounsel& invoices, did &InsCo& consider each invoice to be a first party claim for policy benefits? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& comply with California regulations in processing invoices for costs of defense submitted by &IndependentCounsel&? After receipt of each invoice, did &InsCo& determine whether or not to pay it? Within 30 days? Why/not? Did &InsCo& pay each of invoice submitted by &IndependentCounsel&? Within 40 days? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& pay interest to &IndependentCounsel& for invoices not paid within 40 days? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& pay interest to &Client& for invoices not paid within 40 days? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& withhold prompt payment as a means by which &InsCo& seeks to control the conduct of the policyholder’s defense? Did &InsCo& withhold prompt payment as a means by which &InsCo& seeks to control the cost of the policyholder’s defense?

Was &InsCo& aware that &Client& had entered into a written retainer agreement with &IndependentCounsel&? Was &InsCo& aware that &Client& was obligated to pay to &IndependentCounsel& the differential between the hourly rate stated in the retainer agreement and the rate that &InsCo& actually paid to &IndependentCounsel&? Was &InsCo& aware that &Client& was obligated to pay to &IndependentCounsel& for defense work that &InsCo& did not pay to &IndependentCounsel&?

Settlement

Did &InsCo& ever offer to settle the lawsuit with &Plaintiff&? What substantive standard did &InsCo& implement to make this decision? When? What were the terms of the offer? Was it in writing? Was it communicated through &DependentCounsel&? &IndependentCounsel&? Where is that noted in the Claim File? Did &Plaintiff& ever offer to settle the lawsuit with &InsCo&? When? What were the terms of the offer? Was it in writing? Did the case settle? Why/not? What substantive standard did &InsCo& implement to make this decision?

Did &InsCo& ever agree to pay the amount of money requested by &Plaintiff& to settle the lawsuit? Why/not? What substantive standard did &InsCo& implement to make this decision? Did &InsCo& decline to pay the amount of money requested by &Plaintiff& to settle the lawsuit because &InsCo& believed that the settlement offer was not reasonable? Why did &InsCo& believe that the settlement offer was not reasonable? From whom did &InsCo& obtain the information it used to determine that the settlement offer was not reasonable? Did &InsCo& receive any confidential information from &DependentCounsel& that led it to believe that the settlement offer was not reasonable?

Indemnity

Did &InsCo& decline to pay the amount of money requested by &Plaintiff& to settle the lawsuit because &InsCo& believed that there was no coverage? Did &InsCo& decline to pay the judgment entered in favor of &Plaintiff& because &InsCo& believed that there was no coverage? What substantive standard did &InsCo& implement to make this decision? Why did &InsCo& believe that there was no coverage? From whom did &InsCo& obtain the information it used to determine that there was no coverage? Did &InsCo& receive any confidential information from &DependentCounsel& that led it to believe that there was no coverage? What was it? Where is that noted in the Claim File?

[1] (a) Every licensee’s claim files … shall contain all documents, notes and work papers (including copies of all correspondence) which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed and the licensee’s actions pertaining to the claim can be determined; (b) … all insurers shall: (1) maintain claim data that are accessible, legible and retrievable for examination so that an insurer shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, date of acceptance, denial or date closed without payment; this data must be available for all open and closed files for the current year and the four preceding years; (2) record in the file the date the licensee received, date(s) the licensee processed and date the licensee transmitted or mailed every material and relevant document in the file; and (3) maintain hard copy files or maintain claim files that are accessible, legible and capable of duplication to hard copy; files shall be maintained for the current year and the preceding four years. (Cal. Code Regs. § 2695.3.)

[2] “[The insurer’s] figurative hiding its head in the sand (or hiding adverse reports) is not a law-sanctioned approach to reasonable investigation and performance of its duty.” (Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 707.)

[3] “The insurer may not just focus on those facts which justify denial of the claim. If an insurer unreasonably refuses a claim, it is liable for breach of the covenant of good faith and fair dealing inherent in every insurance policy.” (Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1623 (Mariscal).)

[4] An insurance company’s duty to conduct a thorough investigation may include the duty to interview witnesses with significant information. (See, Downey Sav. & Loan Ass’n v. Ohio Cas. Ins. Co. (1987) 189 Cal.App.3d 1072, 1084.)

[5] “When investigating a claim, an insurance company has a duty to diligently search for evidence which supports its insured’s claim. If it seeks to discover only the evidence that defeats the claim it holds its own interest above that of its insured.” (Mariscal, supra, 42 Cal.App.4th at 1619-1620.)

[6] “For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement . . . it is essential that an insurer fully inquire into possible bases that might support the insured’s claim.” (Egan, supra, 24 Cal.3d at 819; Hughes v. Blue Cross of No. Calif. (1989) 215 Cal.App.3d 832, 846.) “[I]t is essential that an insurer fully inquire into all possible bases that might support the insured’s claim. . . . [The adequacy of investigation is among] the most critical factors bearing on the insurer’s good faith. The insurer’s duty to investigate is not limited to the facts and coverage theories advanced by the insured. Its duty extends to whatever facts or coverage theories would support recovery under the policy. The insurer must fully inquire into possible bases that might support the insured’s claim.” (Jordan v. Allstate Ins. Co. (2007) 148 Cal. App. 4th 1062, 1072 (Jordan) (citations and internal quotation marks omitted).)

[7] “An insurance company may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured and breaches the covenant of good faith and fair dealing.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 721 (Wilson).) “An insurance company may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured and breaches the covenant of good faith and fair dealing.” (Mariscal, supra, 42 Cal.App.4th at 1624.

[8] An insurer which fails to adequately investigate its duty to defend may not attempt to justify its breach “by hindsight.” (Mullen v. Glens Falls Ins. Co. (1977) 73 Cal.App.3d 163, 173; Wausau Underwriters Ins. Co. v. Unigard Security Ins. Co. (1998) 68 Cal.App.4th 1030, 1044.) The reasonableness of the insurer’s denial of a claim is determined by the information known or reasonably available to it at the time of denial. “[T]o see if there was any unreasonable conduct by the Company, it is essential that no hindsight test be applied. The reasonable or unreasonable action by the Company must be measured as of the time it was confronted with a factual situation to which it was called upon to respond.” (Austero v. National Cas. Co. of Detroit, Mich. (1978) 84 Cal.App.3d 1, 32.)

[9] “The genuine dispute rule does not relieve an insurer from its obligation to thoroughly and fairly investigate, process and evaluate the insured’s claim.” (Wilson, supra, 42 Cal.4th at 723.)

[10] “(A)n insurer’s duty of good faith and fair dealing does not evaporate after litigation has commenced. To hold otherwise would effectively encourage insurers to induce the early filing of suits. . . . The policy of encouraging prompt investigation and payment of insurance claims would be undermined.” (Jordan, supra, 148 Cal.App.4th at 1076.)

[11] Reservation of rights “letters were only an expression of [the insurer]’s future intent to comply with its duty to defend, and not an actual acceptance or agreement to provide a defense or to appoint plaintiffs’ chosen counsel as Cumis counsel. [The insurer]’s payment of defense fees at the end of the litigation [was] the equivalent of a defense denial. [Any other rule] would encourage insurers to reject their Cumis obligations for as long as they chose.” (Housing Group v. PMA Capital Ins. Co. (2011) 193 Cal.App.4th 1150, 1156-1157 (Housing Group) (emphasis added; citations, quotation marks and ellipses omitted).)

[12] “[I]n the absence of a stipulation or unconditional agreement between the insurer and insured, unless and until there has been a judicial determination of an insurer’s duty to defend and the existence of a conflict of interest, the provisions of Civil Code section 2860 are inapplicable.” (Handy v. First Interstate Bank (1993) 13 Cal.App.4th 917, 926.)

[13] “[T]he insurer’s fiduciary obligations were consistent with those of the attorney retained to represent the insured, and as a result the insurer should have informed the insured of the conflict of interest and of the opportunity to have independent counsel. (Manzanita Park v. Insurance Co. of North America (9th Cir. 1988) 857 F.2d 549, 555.)” (State Farm Fire & Casualty Co. v. Superior Court (1989) 216 Cal.App.3d 1222, 1235-1236.)

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