Prize: Price or Pride – PP

INTRODUCTION

There are two prizes in civil litigation: money and vengeance. In any developed society, money is the medium of exchange by which, most, but not all, things are measured. In civil litigation a person who has unlawfully lost money can get it back from a wrongdoer. A plaintiff may recover the cost of medical care, property repair, or replacement. Juries may try to translate non-monetary losses such as bodily injury into cold, hard cash. Our civil justice system is well equipped to redistribute money. Insurance is all about money. In civil litigation, most remedies have a price.

Sometimes, plaintiffs and defendants get mad at each other. Each may be insulted, cheated, or taken advantage of such that each wants something more than money. These few demand vengeance. Our civil justice system does a very poor job of dispensing vengeance. In civil litigation, pride is usually a very costly goal.

LIABILITY INSURANCE IS ALL ABOUT MONEY

Liability insurance companies are financial institutions. They collect premiums, invest the revenue, and pay claims. A typical standard insuring clause makes a promise to indemnify that reads: “We will pay those sums that the Insured becomes legally obligated to pay as damages.” The verb “pay” appears twice. If the policyholder must pay, then the insurer will pay. The promise to indemnify is simply a promise to write a check. Nothing more or less. A standard promise to defend reads: “We will have the right and duty to defend the Insured.” Since an insurer is not licensed to practice law, the only thing a liability insurer can do to defend the policyholder is pay a lawyer.[1]

INSURER DUTY TO ACHIEVE PROMPT, FAIR, AND EQUITABLE SETTLEMENTS

Insurance Code §790.03 defines “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.” Insurers must “adopt and implement reasonable standards for the prompt investigation and processing of claims,” “affirm or deny coverage of claims within a reasonable time,” attempt “in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear,” and “to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.”

IDENTIFY THE GOAL

All participants in civil litigation should try to answer the question: Why am I doing this? For various participants, litigation is time consuming, expensive, profitable, exciting, distracting, the right thing, and/or hateful.

1.   Achieve Closure

Most parties to a lawsuit want it to finish. Most parties are willing to compromise in order to get it over with. As many as 96% of lawsuits of some kind settle.[2] With California courts under-funded and under-staffed, few cases are actually tried quickly.

2.   Minimize Costs

Most parties to a lawsuit do not want to pay costs and fees of litigation. Lawyers charge a lot and costs can run into tens, even hundreds of thousands of dollars. Most defendants eventually make a cost-benefit analysis of how much it will cost to avoid the cost of settlement.

3.   Recover Money

Most plaintiffs sue to recover money. They are usually willing to take the time and pay the costs to recover for a genuine loss. Defendants usually focus on avoiding paying the plaintiff by attacking the legal and factual basis of liability and the amount of the plaintiff’s injuries.

4.   Win the Contest

Many lawyers enjoy the excitement of the contest of wits inherent in litigation. Sometimes the difficulty of the judicial process is sufficient to wear down an adversary and an opposing party.

5.   Reduce Stress

As much as the lawyers may enjoy the excitement of battle, usually litigation is no fun for any of the parties. They worry about the uncertainty of the jury system and the justice system. They have better things to do with their time and money and would like to end the distraction of a lawsuit.

6.   Justice

Sometimes, a lawsuit is necessary because it is the right thing to do. Some plaintiffs feel that some immoral, corrupt, or unfair practice of a defendant needs to be stopped and a lawsuit is the only way to do it.

7.   Vengeance

Occasionally, plaintiffs and defendants are really, really mad at each other and use the judicial process to punish one another while hoping to eviscerate the opponent.

IDENTIFY THE MEANS TO ACHIEVE THE GOAL

Most plaintiffs want to recover money, minimize costs, achieve closure, and reduce stress. Most defendants want to minimize costs, achieve closure, and reduce stress, ie. all the same things as the plaintiff, except recovering money. Many lawyers want to win the contest and bill fees, which means not minimizing costs, achieving closure, or reducing stress. Many insurers want to minimize costs, win the contest, avoid having the plaintiff recover money, and avoid closure so that they may invest the money.

Thus, plaintiffs and defendants tend to favor prompt, fair, and equitable settlements, while insurers and lawyers tend to favor delay and contentiousness.

1.   Tell the Truth

Neither plaintiffs nor defendants may commit perjury.[3] The policyholder’s contractual duty to cooperate includes the obligation to testify truthfully.[4] However, the duty to tell the truth does not require the policyholder to succumb to the lawyer’s desire to win the contest nor increase costs or fees, nor to succumb to the insurer’s desire to delay resolution. “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.’”[5]

2.   Cooperate

To achieve their shared goals of minimizing costs, achieving closure, and reducing stress, plaintiffs and defendants may properly cooperate with each other.[6] However, they may not collude by failing to tell the truth.[7]

3.   Encourage Settlement

Plaintiffs and defendants who are not motivated by the competition of litigation, a sense of pure justice, nor hateful vengeance often share a common goal of achieving settlement. While a performing insurer has a contractual right to control settlement, an insurer that fails to faithfully defend its policyholder may loss this contractual right.[8] Insurers have a common law duty to settle, breach of which may expose them to bad faith liability.[9] When an insurer fails to defend, the parties are free to enter into a non-collusive settlement, with favorable rebuttable or conclusive presumptions.[10] No California reported opinion prohibits plaintiffs and defendants from cooperating with each other to achieve settlement.[11]

4.   Incentives for Policyholders and Plaintiffs to Welcome Covered Liability

Defendants tend to want to minimize costs, achieve closure, and reduce stress. When the insurer concedes coverage,[12] the policyholder may properly advance one’s interests by cooperating with the plaintiff to invite a policy limit settlement offer. If the case is settled, all goals are achieved. If the case is not settled, the policyholder should not be exposed to a judgment in excess of the policy limit.

When coverage is denied, the interests of both the policyholder and the plaintiff may be advanced by the plaintiff pleading into coverage,[13] and by both the policyholder and the plaintiff testifying truthfully into coverage.[14] If the policyholder has committed liability producing conduct that is covered by the policy, then the insurer should pay for the policyholder’s defense and an adverse judgment and may pay for a settlement. If the insurer has wrongfully denied coverage, then the plaintiff and the policyholder may settle[15] and sue.[16]

When the insurer reserves its rights to deny coverage, again the interests of both the policyholder and the plaintiff may be advanced by the plaintiff pleading into coverage and testifying truthfully into coverage. Many insurers will be more likely to settle if they are satisfied that the policyholder’s wrongful conduct is covered. Also, the policyholder will likely have reduced exposure to a Buss reimbursement[17] claim for defense costs that were never even potentially covered. Finally, the policyholder will likely have reduced exposure to a Blue Ridge reimbursement[18] claim for a non-covered settlement.

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