A lawyer’s take on mistakes insurers make with complex claims

One issue that can emerge during complex-claim litigation is a consent judgment against the insurer, Richter says. Many states allow such settlements.

“The plaintiff will then seek to enforce that stipulated judgment, which is often for an inflated amount, against the insurer,” Richter said during a recent interview. “The cases that are good candidates for these types of agreements are high damages cases that have something wrong with the underlying case. Either the insured is uncollectable, or the liability case is weak, complicated and/or expensive to litigate. In those situations, the plaintiff’s attorney is more likely to try to convert a case with an uncollectible insured into a tenable coverage case against an insurer that is collectible.”

Another key mistake that insurers make in complex claims in failing to immediately flag a high damage case or one with especially egregious facts for additional oversight. Richter has seen this happen when the coverage issue first appears clear-cut (but isn’t).

“You have to assume that plaintiff’s counsel will try as hard as possible to recover even if that involves creative coverage arguments,” Richter said. “For instance, knowing whether the jurisdiction follows the reasonable expectations doctrine would be very relevant since the doctrine is often used to argue for coverage even when the terms of the policy preclude coverage.”

Insurance litigator advice

There are key steps insurers can take when handling complex claims to avoid mistakes.

“Insurers should train claims representatives to identify complex claims, look for red flags, and then dedicate appropriate resources early on,” Ahlstrand said. This involves assembling the right team to handle the claim, ensuring that institutional knowledge is preserved and communicated effectively to outside counsel, and that outside counsel is hired early and armed with a complete tool kit to defend.

Ahlstrand added that it can be helpful to develop a proactive strategy early on as this will often lead to an earlier resolution as opposed to prolonged litigation.

Insurers involved in complex claims should consider involving outside counsel as soon as a case raises red flags, Ahlstrand said. This allows outside counsel to work with the insurer to understand the issues fully and to transfer any institutional knowledge that may be relevant. It is also helpful to have outside counsel involved in responding to tricky issues such as policy limit demands or demands by multiple claimants or threats of a consent judgment or exhaustion issues.

“There is a benefit to retaining testifying experts early who can assist in developing overall strategy,” Ahlstrand said. “Our defenses often get more limited as time goes on. Further, early involvement allows us to prepare fully and be ready to hit the ground running and execute a proactive strategy if litigation is initiated.”

Key takeaways

Ahlstrand offered these tips for insurance organizations that are navigating complex claims litigation:

1. Flag high damages/bad fact cases immediately;
2. Ensure those cases get extra oversight;
3. Evaluate the players and any volatile personalities early on;
4. Assemble the right team including insurer representatives, outside counsel, and any experts;
5. Execute on a proactive strategy; and
6. Be ready to adapt and pivot if needed.

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