I’ve been representing policyholders in insurance coverage litigation for 35 years, and I’m convinced that I’ll never understand the logic of insurance company claim departments. They settle cases that I think they might want to fight, and they fight cases tooth-and-nail that I think they really should settle. (Maybe it’s me.)

The carrier’s claim file often doesn’t contain the type of rational, detailed analysis I would expect. (I’ve reviewed many in discovery.) Not long ago, I reviewed a claim file in which the carrier’s Vice-President and General Counsel informed the claim department (staffed solely by lawyers who were the GC’s subordinates) that he felt coverage was “doubtful” for an advertising injury claim. He hadn’t even reviewed the policies. Taking the cue from his strong suggestion, the claims lawyers composed a denial letter that included a thicket of insurance policy language not remotely relevant to the facts. And, once the coverage case got to Court, it didn’t end well for the carrier, which ended up having to pay the claim and my firm’s fees.

Here’s a tip for anyone involved in litigation: An excellent, basic way to analyze any liability claim can be found in the seminal New Jersey “bad faith failure to settle” case of Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474 (1974). In Rova, the Court wrote: “While the view of the carrier or its attorney as to liability is one important factor, a good faith evaluation requires more. It includes consideration of the anticipated range of a verdict, should it be adverse; the strengths and weaknesses of all of the evidence to be presented on either side so far as known; the history of the particular geographic area in cases of similar nature; and the relative appearance, persuasiveness, and likely appeal of the claimant, the insured, and the witnesses at trial.” Id. at 489.  I rarely see this kind of thoughtful review in the carrier’s records.

Along these lines, as I write this, the Fifth Circuit has just issued an opinion about what happens when carriers fail to make decisions based on a fair and thorough analysis. The case is Am. Guarantee & Liab. Ins. Co. v. ACE Am. Ins. Co., No. 19-20779 (5th Cir. Dec. 21, 2020), which you can read here.

This was a rough case. A 43-year-old Houston firefighter, Mark Braswell, was killed when his bike crashed into a landscaping company’s trailer that was stopped on a four-lane highway. He left behind a widow and two children. No witnesses saw the collision, but some trial testimony suggested that the landscaping truck had stopped abruptly. And, instead of turning onto a less heavily-trafficked side street, the crew decided to unload equipment in the middle of the road. (Terrible idea.) During the week-long trial, a supervisor for the landscaping company admitted that stopping in traffic was dangerous. Compounding the problem, the workers failed to put out cones, flags, or lookouts to redirect traffic.

The landscaping company (Brickman) was insured by ACE (with a primary limit of $2 million), with excess coverage by AGLIC ($10 million excess of $2 million). ACE controlled Brickman’s settlement negotiations.

Before trial, ACE’s appointed defense counsel estimated the settlement value of the case to be $1.25 to $2 million. The excess carrier valued the claim at $500,000. To prepare for trial, ACE conducted juror research from which the ACE claim handlers drew two conclusions.  First, it was important to prove at trial that the truck did not stop short. Second, it was important to prove that the truck was legally parked. (In the middle of a busy highway. Brilliant.)  ACE also fixated on the fact that Braswell’s helmet had cracked down the middle, which the claims handlers believed would prove that Braswell had his head down and was not looking where he was going. No one on the defense side thought a verdict over $2 million was likely.

The Braswells’ lawyer demanded $2 million. ACE countered at $500,000. The Braswells rejected the offer, and the case went to trial. Things quickly went sideways for Brickman. The judge excluded evidence that Brickman’s truck was legally parked; allowed Braswell’s widow, Michelle, to testify that a Brickman employee had said that the truck stopped short; and allowed Michelle to testify about her daughter Mary’s psychological trauma, self-harm, suicide attempts, and hospitalization, all caused by her father’s death. After the plaintiffs’ closing statement, AGLIC’s case manager communicated that a verdict in excess of $2 million was possible “[g]iven the adverse evidentiary . . . rulings.” (Ya think?)

At this point, in my opinion, ACE needed to forget about all its great trial strategy and awesome appeal points, get out the checkbook, and pay the $2 million. Things were not going to end well. But, in an amazing display of tone-deafness, ACE instead decided to play General Custer. First, the Braswells’ lawyer offered a high/low of “$1.9MM to $2.0MM with costs.” (This meant that the Braswells would be guaranteed $1.9 million regardless of the verdict, but would recover $2 million plus costs if the jury rendered a plaintiff’s verdict.)   ACE said no. Then the Braswells’ lawyer demanded the policy limit of $2 million. ACE again said no, because, as everyone knows, jurors tend to side with giant insurance monoliths over widows and fatherless children. (I know, I know, the insurance company wasn’t the defendant. But come on, jurors aren’t stupid.)

The jury came back with a verdict of nearly $40 million. After deducting 32% for Mark’s comparative negligence, the total award to the Braswells was $28 million, which, of course, far exceeded ACE’s primary limit.  The Braswells eventually agreed to settle for $10 million to avoid a drawn-out appeal. ACE paid its $2 million limit, and AGLIC, the excess carrier, contributed $8 million.

This made the excess carrier unhappy. AGLIC contended that, because ACE decided to roll the dice at trial it should be responsible for the excess verdict. (I love it when these guys fight.) The Court agreed, writing:

“The evidence is clearly sufficient to support the bench trial verdict [in the coverage case between ACE and AGLIC] that ‘[a] reasonable insurer would have reevaluated the settlement value of the case [and accepted the Braswells’ third offer].’ After all, by the time that offer was made, the trial had taken a demonstrable turn against Brickman. Two of the adverse rulings (disallowing evidence that the truck was legally parked and allowing the stop-short statement attributed to a Brickman employee) aggravated Brickman’s greatest known weaknesses in this case. Considering all of the trial circumstances, an ‘ordinarily prudent insurer’ in ACE’s position would have realized that the ‘likelihood and degree’ of Brickman’s ‘potential exposure to an excess judgment’ had materially worsened since the trial’s inception. When presented with the Braswells’ third offer, an ordinary, prudent insurer would have accepted it. The evidence placed before the district court is sufficient to support that ACE violated its [duty of good faith] by failing to reevaluate the settlement value of the case and accept the Braswells’ reasonable offer.”

We can draw a lot of lessons from this decision, but perhaps the main one is: Never fall in love with your own story. Hubris kills.