An object of deposing insurance claims agents is to establish that they make bad decisions, and that they were made knowingly or as a general business practice. Insurers are regulated by Ins. Code § 790.03(h), Cal. Code Regs. § 2695, and California common law. Violation of these standards may form the basis for concluding that the insurer violated fiduciary like duties and is exposed to punitive damages. It is likely to be necessary to hire and insurance expert witness to interpret and explain to a judge or jury that how decisions were made wrongly and knowingly or as a general business practice. Therefore, the examiner should be careful to not lead the witness too much. Often open ended questions (identified as OEQ, below) that ask the witness to explain everything the know about a given subject should be followed up by simply asking if the witness has finished and answer or has anything to add. An expert can then attack their lack of accurate knowledge. Even if the witness has wised up at the time or trial, an expert can point out that the witness did not possess necessary information or training to make correct decisions at the times they were made.
Another object of deposing insurance claims agents is to find out what happened. Regulations require an insurer to maintain a claims file that must note all significant events in the processing of claims. If a witness says that something happened, ask where that is noted in the claim file. If it is not noted, ask why not, and attack the veracity of the statement. This is sometimes known as the trial of the file.
For brevity, the following outline is divided into broad subject matters categories and starts with a series of suggested follow up questions that the examiner may consider asking for each of these categories. Some following questions may seem awkwardly worded, but are intentionally phrased to match some case, statute, or regulation, so that an expert can point out violations or law and procedure. Text in brackets are guides to the examiner and should not be revealed to the witness. RoR mean reservation of rights.
Name. Employer. Employment history. Are you a person employed or authorized by &InsCo&, to conduct an investigation of liability claims on its behalf? Are you licensed by the Commissioner to conduct investigations of claims on &InsCo&’s behalf? Are you licensed by the State of California to do anything other than drive? Do you hold any certificates? Are you certified by anyone to do anything? OEQ [§ 2695.6(a) requites annual certification.] Are you a lawyer? Do you have any training in the field of liability insurance? Are you familiar with any California statutes or regulations regarding the investigation, processing, or settlement of liability claims? OEQ What? Explain in your own words what each says. OEQ
Have your brought any documents with you? Policy, claim file, claims adjustment manual, licenses and certificates, written standards [790.03(3), 2695.7]. Is each complete? How do you know?
Does the policy have any list of forms that are to be included and have you confirmed that what you have produced is complete? Please do so now.
Does the claim file contain all documents, notes, work papers, and correspondence which pertain to the &Plaintiff& vs &Client& claim 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? [2695.3(a).] Does it contain dates that &InsCo& received, processed, and sent every document in the file? Has anything been redacted? What? Why? How do you know that each claim of privilege applies? Have you read the entire claim file, including redactions? Do you promise to not testify regarding any redacted material, under penalty of waiving the claim of privilege? Where are the amounts of claims that are accepted or denied specified? [2695.7] In your own words, describe the claim being made that is reflected in this file.
Is the claims adjustment manual complete? Has it been modified during the time that this claim was being processed? Have you read the manual? Did you ever actually read to it help you process this claim? Why? What did you not know that you needed to know? Did the manual provide the information you were seeking? Do you understand that this manual states &InsCo&’s general business practices that you are supposed to follow? Does the manual include a copy of any statutes or regulations? [Go through the manual to see if any questions come up regarding the handling of this claim.] [Manual must have a copy of regs 2695.6.]
Did you bring any licenses or certificates? OEQ [annual certificates required that claims agents have been trained regarding these regulations. 2695.6]
Has &InsCo& adopted reasonable standards for the prompt investigation and processing of claims? [790.03] Are the written standards that you brought those standards? Are these &InsCo&’s written standards for the prompt investigation and processing of claims? [2695.6] Are these &InsCo&’s standards for achieving prompt, fair and equitable settlements? [2695.7] Is what you brought complete? Has this been modified at any time while this claim was processed? If so, specify? Can you determine from the claim file that these standards were implemented in the processing of this claim? How? Have you received any special training regarding these standards? OEQ If so, specify? Please point out to me where these standards address a decision to accept or deny the claim, in whole or in part? [2695.7] Where do these standards specify when these decisions must be made? In your own words, tell me your understanding of when. OEQ Where do these standards specify communicating these decisions to the policyholder? OEQ Where do these standards specify what information should communicated to the policyholder? OEQ In your own words, tell me your understanding of what, if anything you are supposed to tell the policyholder about these decisions. OEQ [“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 of a first party claim 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 in writing.”] Where in the claim file are any written communications to the policyholder regarding &InsCo&’s decisions to deny any claim, accept any claim in whole, or accept any claim in part?
[Go through the standards. Any objections regarding standards on the ground that the question calls for a legal conclusion, should be rebuffed by a statement that the question does not go to a question of law, but instead to standards, if any, actually adopted and implemented by &InsCo&. Whether those standards do of do not comply with applicable law is for a judge to decide. Discovery regarding the standards is proper. Most address only procedural standards, not substantive standards guiding a claim agent as to how to make a correct decision.] What is your understanding of the purpose of these standards? Point out to me where these standards provide guidance to claim agents as to how to make correct coverage decisions. OEQ
[Follow up: Where in the claim file is you answer noted? If missing, how do we know?] What investigation did &InsCo& conduct? OEQ What investigation of &Plaintiff&’s first party claim did &InsCo& conduct? OEQ What investigation of &Client&’s first party claim for a defense did &InsCo& conduct? OEQ What investigation of &Client&’s first party claim for indemnification did &InsCo& conduct? OEQ
[All Q relate to first 40 days] Describe everything &InsCo& did to investigate all claims within the first 40 days after receiving notice of a claim? OEQ Did anyone ask &Client&, &Plaintiff&, or any witnesses regarding the merit of any claims? Did &InsCo& review any documents other than the complaint, the policy, and the notice of claim? If so, specify. [“Of course, as stated some years ago by Judge Cardozo, a cooperation clause may not be expanded to require the assured ‘to combine with the insurer to present a sham defense.’” (Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322, 329.)] What valid defenses to any claims was &InsCo& aware of when it decided to deny the &Plaintiff&’s claim? Did &InsCo& receive any information from &DependentCounsel& relating to any coverage decisions? If so, specify.
Major Coverage Decisions
[There are ten major decisions that any insurer may make in processing a first party claim for coverage: 1. Accept full coverage? 2. Deny all coverage? 3. Reserve its rights to later deny coverage? 4. Hire dependent counsel to control the defense? 5. Agree to pay independent counsel? 6. Pay independent counsel on time and in full? 7. Accept a settlement offer? 8. Sue for declaratory relief? 9. Seek reimbursement of defense costs? 10. Seek reimbursement of settlement costs?]
[As to each applicable category, follow up questions are: Why did &InsCo& make the decision it did? OEQ Where in the claim file is this decision noted? [An insurer must give “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 of a first party claim 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 in writing.”] Where in the standards is there guidance to make this decision? Where in the claims manual is there guidance to make this decision? State in your own words that standard, if any, that should guide &InsCo& in making this decision – Memos of Law on each decision are available at DutytoDefend.com, but do not lead the witness to correct answers. Most claim agents do not know the correct standard, which is what a deposition should establish.]
What is the difference between a first party claim and a third party claim? OEQ In this matter were both first party and a third party claims made? Describe them. OEQ
- Did &InsCo& accept full coverage for &Plaintiff&’s third party claim? Did &InsCo& accept full coverage for &Client&’s first party claim for a defense? Did &InsCo& accept full coverage for &Client&’s first party claim for indemnification? Did &InsCo& agree to defend? Was that agreement to defend unconditional? Did &InsCo& reserve the right to deny that is have any duty to defend?
- Did &InsCo& deny all coverage for &Plaintiff&’s third party claim? Did &InsCo& deny all coverage for &Client&’s first party claim for a defense? Did &InsCo& deny all coverage for &Client&’s first party claim for indemnification?
- Did &InsCo& reserve its rights to later deny coverage? Within 40 days? If not, why not? Do the standards or claims manual provide guidance regarding the adequacy, timeliness, or legality of a reservation of rights. [RoR is a denial in part that regulations say must be made within 40 days following a thorough investigation.] Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 279 says: “[I]f the insurer adequately reserves its right to assert the noncoverage defense later, it will not be bound by the judgment.” Was &InsCo&’s RoR adequate? How do you know? Was the RoR timely? [If &InsCo& accepted a duty to defend within 40 days, but later reserved rights ask for explanation of delay. – “[T]he insurer’s unconditional defense of an action brought against its insured constitutes a waiver of the terms of the policy and an estoppel of the insurer to” deny coverage. (Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 754.)] When &InsCo& agreed to defend but did not assert a RoR, did it intend to waive coverage defenses? Mislead &Client& as to &InsCo&’s coverage position? Forfeit coverage defenses? [If &Client& rejected the RoR, what was &InsCo&’s response?] Did &InsCo& decide that its RoR created any conflict of interest that created a duty to provide independent counsel? Did &InsCo& agree unconditionally that a disqualifying conflict of interest existed? [impact on applicability of Civ. Code § 2860] Did &InsCo& reserve the right to deny that any disqualifying conflict of interest was created?
Since &InsCo& is not licensed to practice law, what is &InsCo&’s business practice to discharge its promise to defend? To provide a defense to its policyholder, does &InsCo& do anything other than pay defense counsel? What? Why? [claim manual, standards.]
- Did &InsCo& hire dependent counsel? Why? Point out any guidance in manual or standards. Is &InsCo& licensed to practice law? Point out in the policy all language regarding &InsCo&’s right to defense? Right to appoint defense counsel? Right to control the policyholder’s defense? Modify &DependentCounsel&’s ethical obligations to the policyholder? [There are none.] Did &InsCo& notify &Client& regarding a right to have independent counsel? Why? Did &InsCo& notify &DependentCounsel& regarding &Client&’s right to have independent counsel? Why? [standards, claim manual?]
- Did &InsCo& agree to pay independent counsel? Was &InsCo& then aware of any California statute that [The [insurer] is bound to defend actions, but [the policyholder] has the right to conduct such defenses, if he chooses to do so; Civ. Code § 2778(4).] Did &InsCo& analyze whether its policy language modifies any statutory right of the policyholder to control its own defense? [2778(4) applies “unless a contrary intention appears.”] Why not? Did &InsCo& analyze whether its reservation of rights created “a conflict of interest . . . which creates a duty . . . to provide independent counsel to the insured”? Describe the analysis. [claim manual, standards] Did &InsCo& provide a written explanation of the factual and legal bases, reasons, and the application of policy provisions? [2695.7] Why not? [claim file.]
- [If &InsCo& did agree to pay for independent counsel,] did &InsCo& make any decisions how much and how often to pay &IndependentCounsel&? Explain analysis. [full rate owing of 2860 does not apply] [claim manual, standards]. Did &InsCo& make any decision how often to pay &IndependentCounsel&? Explain analysis. [claim manual, standards]. Did &InsCo& receive invoices from &IndependentCounsel&? Did &InsCo& process those invoices as first party claims for policy benefits? Why not? [accept or deny by paying in 40 days] [claim manual, standards.] Did &InsCo& initiate any procedure such as arbitration to resolve any attorney fee disputes?  Why not? Do you agree that &InsCo& was in breach of its duty to defend if it did not pay defense counsel in full and on time? Why? [claim manual, standards.]
- Did &InsCo& receive any settlement offer from &Plaintiff&? Did &InsCo& accept any settlement offer? Why/not? Did &InsCo& initiate any settlement offer? Why/not? Did &InsCo& offer to settle within policy limits? Why? [claim manual, standards.] Did &Plaintiff& offer to settle within policy limits? Was that offer reasonable? Why/not? Did &InsCo& accept that offer? Why/not? [claim manual, standards.]
- Did &InsCo& consider whether or not to sue &Client& for declaratory relief? When? Why? What analysis? What decision? [claim manual, standards.] Why? Did &InsCo& evaluate whether any issues to be decided in a declaratory relief action were related to the subject matter of or issues raised in the &Plaintiff&’s lawsuit? Are any coverage issues related to the subject matter of the &Plaintiff&’s lawsuit? Specify. Did &InsCo& consider whether or not coverage defenses are not related to, have nothing to do with, are irrelevant to, are independent of, are extrinsic to, do not overlap the subject matter of or issues raised in the liability action, or turn on the nature of the policyholder’s conduct, or could be controlled by the way counsel defends the case. What decision as to each standard [related to, nothing to do with, irrelevant, etc]?
- Did &InsCo& consider whether or not to seek reimbursement of defense costs? [claim manual, standards.] What decision? Why? Did &InsCo& RoR to recover defense costs? Comply with Buss case? [claim manual, standards.] Seek reimbursement of defense costs from the policyholder? [claim manual, standards.] Seek reimbursement of defense costs from independent counsel? [claim manual, standards.]
- Did &InsCo& consider whether or not to seek reimbursement of settlement costs? When? Why/not? What procedure followed? [claim manual, standards.] [The insurer may seek reimbursed for a reasonable settlement payment made by the insurer over the objection of its insureds if the insurer (1) timely expresses a reservation of rights; (2) expressly notifies the insureds of the insurer’s intent to accept a proposed settlement offer; and (3) expressly offers to the insureds that they may assume their own defense. (Blue Ridge). If multiple policyholders, each may respond separately.]
[Go through page by page to establish what happened with the claim, when, why, how. For all redactions, determine the reason and privilege asserted. No in camera inspection will be allowed for attorney-client privilege, but may be allowed for other grounds. Determine identity of lawyer and whether advise related to coverage or liability. Redactions may be a good thing if the claim file produced does not justify a factual and legal basis for each decision made by the insurer.]