Log Notes, E-Mails, and Bad Faith Lawsuits
June 2003
Modern technology has made discovery of written
records, even those thought to be deleted, more thorough -- as evidenced by
Enron. These records can reveal prejudicial, careless, and politically incorrect
comments that can haunt insurers in a bad-faith lawsuit. Following some simple
do's and don'ts when writing to or about claimants can spell the difference
between winning and losing a lawsuit.
by Gary
Blake
The Communication
Workshop
In a bad faith lawsuit, it’s the claim file that is on trial. The jury will
be persuaded in favor of the insurer or in favor of the plaintiff based on its
contents and the claim practices of the defendant insurer. When the plaintiff
prevails, the consequences can be devastating to the insurer’s bottom line.
The Law of Bad Faith
Insurance claims involve either first-party or third-party claims. First-party
coverage is an insurer’s promise to pay its own insured. Your homeowner’s policy
protects your house from damage from a covered event such as a fire. If your
home is damaged in a fire, your claim with your insurer is a first-party claim.
Third-party coverage is the insurer’s promise to pay some third party who
makes a claim against you. If a neighbor trips and falls in your front yard
and makes a claim against you, your insurer has a duty to defend and a duty
to indemnify under your third-party coverage. The law of bad faith originated
in the third-party context and then has been extended into the realm of first-party
claims.
The courts generally treat the third-party bad faith claim as a tort action,
not a contract action, arising out of a duty independent of the contractual
relationship. The common third-party bad faith claim is based on a liability
insurer’s wrongful failure to settle within policy limits, and the damages being
sought are the excess above the insurance limits. The factors evaluated by the
trier of fact to decide if there has been bad faith may include the following.
- The severity of the plaintiff’s injuries giving rise to the likelihood
of a verdict greatly in excess of the policy limits.
- Lack of proper and adequate investigation.
- Failure to keep the insured advised of settlement negotiations.
- Actions that demonstrate a greater concern for the insurer’s monetary
interests than the financial risk attendant to the insured’s predicament.
Plaintiff’s counsel is looking for evidence of unreasonable behavior by the
insurer in its handling of the underlying claim. The insurer’s claim professionals
handled that claim, and they are the source of the documentation of what happened.
In their standard requests for production of documents, plaintiffs will ask
for complete claims files, complete underwriting files on the policy at issue,
all claims manuals, and other correspondence and memoranda on claim handling,
all promotional material of like policies, and all reinsurance files relating
to reinsurance of the risk insured under the policy. They will also request
all claim files relating to other claims under similar policies. Their request
will seek electronic documentation as well as paper documents. Their access
is not limited to materials admissible into evidence at trial but extends to
relevant documentation that appears reasonably calculated to the discovery of
admissible evidence.
Modern Technology and Discovery
Look no further than the Enron collapse to find examples of incriminating
e-mail that could not be taken back! Information in the insurers’ computers
is accessible, legally and technically.
What each claim professional enters onto the computer each day is a written
record subject to discovery in a bad faith lawsuit. This is true for log notes.
This is true for e-mails. This is true for letters. This is true for everything
that is entered onto the computer and may include deleted entries.
Those written records provide the plaintiff’s attorney the evidence of how
the claim was handled. The attorney’s responsibility is to be an advocate for
the client. The attorney’s job is to use the claim file to persuade the jury
that the insurer treated the client badly. The client has paid premiums over
time to the insurer in exchange for a promise to protect the insured. The jury
can easily identify with the client. The insurer may be a “Goliath” to the jury
before any evidence is heard so some of the persuading may already be done.
From an excellent starting point, plaintiff’s counsel will choose those selections
in the claim file and claim manual that create the perception of bad faith.
Particularly valued entries will be enlarged on a screen or board and referred
to through the trial.
A few examples are helpful. When John Grisham had one of his characters (an
adjuster) in The Rainmaker write to an insured, “You must be stupid, stupid,
stupid,” he was not that far from giving an actual example of the prejudicial,
careless, and politically incorrect comments that have appeared in documents
which have come to light in bad faith suits. The following are some examples.
Taking Sides. An adjuster writes, “We have
a favorable interview from a neighbor that our insured’s driver was not supposed
to use the car,” or, “Fortunately, there’s a neighbor who says that John was
not permitted to drive the car.” A proper and adequate investigation is an objective
investigation. Objective investigations do not identify information adverse
to the interests of the insured as good news. They do not reflect an all-for-us
attitude as is reflected in these log notes: “We can only hope that the plaintiff’s
condition continues to deteriorate.” “We think this person will die of cancer,
and we will be off the hook.”
Subjectivity. Other documented subjective comments
that have caused trouble include: “This is ridiculous!” (an adjuster venting
his belief in the claimant committing fraud); “These people ....” (Used as a
slur against an ethnic group the adjuster felt had ties to organized crime);
“Mr. X dabbles in adult entertainment”; and “This place is a dump. Pigs wouldn’t
live here!”
Hanging Out the Dirty Laundry. Claim professionals
on a file have to answer to supervisors and supervisors’ supervisors. There
may be special investigators separately working on the claim. Everyone does
not always play well together in the sandbox. The claim file is not the place
to vent about the behavior of others no matter how outraged you may be by a
coworker’s behavior or a company procedure. In a 2002 bad faith suit, one adjuster’s
log notes had the following sentence: “I am darn near speechless on how this
appeal has been handled by the other area.”
Stupid, Stupid, Stupid. “If the claimant calls,
don’t take the call.” That’s what a supervisor wrote in an e-mail in an attempt
to help an adjuster. It didn’t look helpful when a jury heard it.
Poor Word Choice. Nouns and verbs tell an accurate
story, e.g., “the claimant walked two steps from the wheelchair to the television
set.” Adverbs and adjectives tell a jury that the insurer made up its mind without
further thought, e.g., “the dishonest claimant is perfectly healthy and quickly
jumped from the wheelchair then walked confidently to the television set.”
Prejudice. Not just racism, but ageism, and
much more. Careless and poorly trained writers reveal their feelings in e-mails
with the same abandon they might reveal them at a bar or a friend’s house. There
are instances in which adjusters have written: “This black lady was behind the
desk”; “She was an older woman and didn’t remember me”; “The boy was too fat
to have exited the car in that manner.”
To further illustrate prejudice: slip and fall accidents very often happen
to overweight people. Pretty soon, some adjusters begin to develop an attitude
toward overweight people. As a way of venting frustration, one adjuster labeled
file documents “FLS.” When asked what that meant, he answered “fat lady slips.”
Conclusory Statements. In general, the claim
professional’s opinions work against an insurer. Yes, a reasoned opinion of
how the facts apply to the law on liability or damages may be appropriate or
even needed. Yet, we have seen files that contain statements like, “They are
deadbeats”; “They are procrastinating”; “They don’t have a snowball’s chance
in hell of getting what they are asking for”; and “I just know this claimant
doesn’t want to go back to work.”
Sexism. One supervisor wrote to his adjuster,
“To the ‘chick magnet’ ... this claim has been assigned to you because you have
‘hot hands.’”
To summarize, here are a few Do’s and Don’ts to help assure that your claims
correspondence will not work against you in a bad faith lawsuit.
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DO
- Avoid unnecessary opinions. This includes remarks about race,
religion, weight, sex, and the motives of the insured.
- Demonstrate fair-mindedness. Avoid statements that show a “rooting
interest” against the interest of the insured. The insured has paid
premiums and expects the insurer to root for him, not against him.
Events that may prejudice the insured are not properly characterized
as "favorable” or “fortunate.”
- Stick to the facts. Refer directly to supporting documentation,
such as correspondence directed to, or received from, the insured
or related service providers.
- Keep it simple. Plato’s advice has withstood the test of time
because it is good advice: “Wise men talk because they have something
to say; fools because they have to say something.”
DON’T
- Draw conclusions prematurely.
- Allow differences of opinion with a coworker or supervisor,
anger, over-zealousness, or overly aggressive tactics be reflected
in written notes or e-mail.
- Make promises you cannot fulfill. If you send a “form letter”
promising to be in touch every 30 days to an insured, be prepared
to honor that promise.
- Use humor as a way of showing your feelings about a claim or
claimant.
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So, while many factors may play a role in a bad faith judgment costing a
company hundreds of thousands of dollars in punitive and compensatory damages,
poor writing skills can often be a determining factor in deciding whether an
insurer has shown “vexatious, unreasonable, or outrageous conduct” to quote
one statutory provision.
These nuances convince us that the art of claims writing is quite separate
from the generalized effective business writing skills that many companies offer
their claims professionals. Claims professionals require skills in claims writing
to combat issues of tone, prejudice, and carelessness that continue to threaten
an insurer’s bottom line.
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