Ethical Considerations for Claims Adjusters - Helms _ Greene

							Ethical Considerations for Claims Adjustors
           Stowers Doctrine

Stowers Furniture v. American Indemnity
   Does the company owe a duty to limit
    insured‟s exposure to third part claim
 Damages alleged $20,000
 Limits $5,000
 Plaintiff demands $4,000
 Company offered $2,500
 Judgment $12,000 plus cost
          Stowers Doctrine

Right of control regarding
all aspects (settlement included)
When company dictates the
 course actions must be reasonable
Courts create duty to act as a “ordinarily
prudent person” would in management of
own business

     Ranger County Mutual Case
                Question

Would an ordinarily prudent
 person settle this case
 prior to trial?




                       Judgment - Judgment
                      There is no requirement
                      for perfection.
Ranger County Mutual Ins. v. Guin „87
   The court expanded the Stowers doctrine
    to all phases of litigation
     • Courts imposed duty of…
          –   Good Faith
          –   Fair Dealing



  With respect to:
          CLAIMS
          INVESTIGATION
          TRIAL PREPARATION
          TRIAL
State Farm v. Travers
                   Back to Normal

       Tort Reform
       Election of new Supreme Court
       Expansion of doctrine stopped!

     Court recognized mistake
     Said insurance company not responsible for;
       Failure to attend key depositions
       Inadequate defense at trial
       Right to control the details
American Physicians Exchange v. Garcia

              Stowers Test

   Claim against insured covered
   Within Policy Limits
   Ordinary person would accept
C OO L
            Stowers & Bad Faith
                Multiple Claimants
  Car #1 Family of four – killed wife of 30 years (all
   hurt)
  Car #2 Drunk driver with guest passenger (guest
   killed)
  Company of car #2 tenders limits of $20,000 to car #1
  Car #1 refused to see what drunk has
  Car #2 Guest settles for $5000
  Car #1 wants full $20,000
  Company offers remaining $15,000
  Judgment $172,000 plus interest
Trinity University v. Bleeker

         Stowers & Bad Faith

  Bad accident hurting numerous
  people
  Plaintiff had five clients
  Plaintiff made policy limits demand
  of $40,000
  Judgment $11,500,000

Does the company pay?           NO
Rocor International v. Nat‟l Union Fire
   Policy covers claim
   Insured‟s liability is “reasonable clear”
   Claimant had made proper settlement demand
   Prudent insured would accept




     • No Proper demand
      Formal Demand
             +
     Written form
           +
  Release of all Claims
           +
30 Days or more to Respond
             =
        Trouble
   Counselor‟s Relationship

       Stowers Doctrine
Plaintiffs lawyers would make a
Stowers demand just to add
pressure
(Whether good or not justified)
         Counselors Relationship

            Insurance Company
    $$                                       $$
    $                                        $


Lawyer                                     Insured
             Unqualified Duty of Loyalty
       Counselors Relationship

     Who is the Client?
Reservation of Rights!!
  Pleadings
  Proof
  Evidence
  Issues
     Counselors Relationship

      Reservation Letter Should
Identify insurer
Inform of conflict
Advise that company will provide defense
May secure independent
 counsel
Tilley Case
              Counselors Relationship

                  Conflict Develops
     Attorney Must advise insured of the
     conflict
     Cannot serve as coverage counsel to
     company
       Comments on date of loss
       Theories covered / not
     Counselors Relationship

California Case San Diego Credit
    Counsel must explain to both implications
    No consent – must pay independent
    Company cannot compel insured to give
    up litigation control
      Counselors Relationship

       Company Liability for Counsel
YES                     NO
 Unreasonable failure    Negligent
 to settle a matter
                         Investigation
                         Defense
                         Trial Decisions
             Scenario #1
An employee of your insured, shot and
killed a shopper at the Kroger grocery
store (which you insure) and the person
killed was the starting quarterback for
the Dallas Cowboys. Your investigation is
complete and it shows liability against
Kroger is clear and the claim is covered.
Plaintiffs‟ attorney has been demanding
your $1million limit for 2 years. Your
adjustor hasn‟t offered anything.      The
president of Kroger calls and demands
that you settle the case or he is going to
bring a bad faith lawsuit against you.
   What do you tell your adjustor?
1. You have to have written
   documentation on the lost wage
   claim before he can offer anything;
2. The Cowboys are good because of
   Coach Parcells and not the
   quarterback. Offer the plaintiffs
   $250,000 to settle.
3. To tell the president of Kroger
   that he can‟t sue for bad faith
   because this is a third party claim.
4. Please settle ASAP and go read
   Rocor, 77 S.W. 3d 253(Tex.2002) to
   avoid a bad faith lawsuit.
              Scenario #2

Your insured was in an auto accident and
liability is not clear.       Your defense
attorney takes the depositions of two
witnesses who say your insured was not at
fault. Plaintiffs‟ attorney, How Dewey
Cheatham, calls and demands your policy
limits. You refuse his offer. The Plaintiffs‟
attorney then says he is going to get you
for these unfair settlement practices and
he is going to amend his pleadings to allege
Breach of the Duty of Good Faith and Fair
dealing against the insurance company.
 What do you tell your adjustor?

1) You can now have the policy
   limits, we   only   respond to
   threats.
2) You need to go read Allstate v.
   Watson, 876 S.W. 145 (Tex. 1994)
3) Please don‟t do that, I might get
   fired!
4) Didn‟t you work for the Texas
   Hammerhead formerly known as
   the Smart Tough Lawyer?
            Scenario #3

A Plaintiffs‟ attorney known as the
Texas   Hammerhead      calls   your
adjustor     and  asks   about   all
insurance     coverage    which    is
applicable to a death claim from a
trucking accident which caused a
death. You know that your company
has a $50,000.00 trucking policy and
a $500,000.00 excess policy. What do
you tell your adjustor to say to the
Plaintiffs‟ attorney?
     The Adjustor‟s Response

1. You    must   have   the    wrong
   insurance company we don‟t have
   any coverage.
2. Hey, Mr. Hammerhead, you‟re in
   luck, we got a $50,000.00 policy.
3. Tell him you got both policies, but
   that you hired Kirk Willis, so he
   will never see a penny.
4. Ask him, Hey – what‟s your yearly
   advertising budget?
             Scenario #4

One of your adjustors is handling a claim
by Mr. Procrastinator, an 82 year old who
was rear ended by your insured. The date
of   loss   is  June   26,  2002.     Mr.
Procrastinator is not represented by
counsel. You have the file reserved at
$10,000.00.    Your adjustor has been
negotiating with the claimant for about 4
months. Your adjustor tells you that Mr.
Procrastinator called this morning and
offered to settle his claim for $4,500.00.
Your adjustor‟s last offer was $4,000.00.
What do you tell your adjustor to do?
   What do you tell your adjustor?
1. Tell your adjustor to call Mr.
   Procrastinator on Monday (June 28,
   2004) and tell him that the gig is up and
   he gets NOTHING!
2. Tell your adjustor to call Mr.
   Procrastinator today and tell him that,
   after    careful    consideration,    her
   revised (and final) offer is $2,500.00.
3. Tell your adjustor to call Mr.
   Procrastinator and tell him that he
   needs to get an attorney because the
   statute runs tomorrow.
4. Tell your adjustor to call Mr.
   Procrastinator       and     offer    him
   $4,250.00 as a best and final offer.
               Scenario #5
Your insured ran a red light and hit a car in
which the mother was driving and her 6 year
old son was the passenger. Thankfully, the
mother was not hurt. The child, however,
was transported from the scene due to loss
of consciousness. At the hospital, the child
was thoroughly checked out and the tests
came back normal. The final diagnosis was a
mild concussion. It has been one year since
the accident and the child has had not
further problems. The total medical bills
are $1,600.00     The Plaintiff‟s attorney
accepts your settlement offer of $2,500.00;
however, he does not want to have the case
resolved with a friendly suit.
    What do you tell your adjustor?
1. Cut the check for $2,500.00 and get the
   mom to sign a standard Release.
2. Tell the Plaintiff‟s attorney that unless
   there is a friendly suit – and a minor
   prove up – there is no deal.
3. Cut the check for $2,500.00 and get the
   mom to sign a Release where she
   acknowledges that she is settling her
   son‟s claim regarding the accident.
4. Call the Plaintiff‟s attorney and see if
   $3,000.00 will convince him of the need to
   conclude the case via a friendly suit.
            Scenario #6


Your       insured       has          a
$50,000/$100,000 auto policy. Your
insured is speeding, runs off the
road, and all five passengers in the
car are injured.       One of the
passengers (a 17 year old girl) is in a
coma and is diagnosed with a severe
brain injury. Within 28 days of the
accident, an attorney for the girl‟s
family   makes    a    demand      for
$50,000.00.
   What do you tell your adjustor?

1. Tell the adjustor that until you get a
   report from a neuropsychologist of your
   choosing, there will be no settlement
   offers made.
2. Tell the adjustor that you can‟t pay
   $50,000.00 because that will leave only
   $50,000.00 for the remaining four
   passengers.
3. Tell the adjustor to get it done
   yesterday.
4. Tell the adjustor to wait six or more
   months and then agree to pay $50,000.00
   on girl‟s claim (see Calich vs. Allstate)
           Scenario #7

Same coverage and liability facts as
before except that the two most
seriously injured passengers happen
to be twin sisters.      Both have
suffered brain damage.         Their
attorney makes a demand within 14
days    of    the    accident   for
$100,000.00.
  What do you tell your adjustor?

1. Tell the adjustor to get an examination
   under oath of your insured.
2. Tell the adjustor to get it done, to get
   it done yesterday.
3. Tell the adjustor to tell the twins‟
   attorney that you can‟t settle the case
   for $100,000.00 because that will
   exhaust your limits.
4. Tell the adjustor to call the insured
   and tell that they may want to chip in a
   little money on this deal, too. (Thank
   you very much)
When faced with a settlement
demand arising out of multiple
claims and inadequate proceeds, an
insurer may enter into a reasonable
settlement with one of the several
claimants     even   though    such
settlement exhausts or diminishes
the proceeds available to satisfy
other claims.
Texas Farmers Ins. Co. v. Soriano,
881 S.W.2d 312,315 (Tex. 1994)
              Scenario #8

The firm of Dewey, Cheatum & How does
quite a bit of defense work with your
company. They are defending one of your
insureds on a rear end collision case with
minimal property damage and treatment at
K-Clinic. Bill High, one of the young stars
at DC&H, tells you that in his professional
opinion, there is a witness that needs to be
deposed that would all but guarantee his
client‟s (your insured‟s) victory at trial.
The witness is in the Army Reserves and is
getting shipped out in 30 days. Bill wants
approval to depose the witness.
     What do you tell your adjustor?

1.    Tell the adjustor to call Bill and remind him of
      page 43, paragraph 5(a)(iii) of the company
      litigation guidelines that says on cases where
      property damage is less than $1,000.00, the
      ONLY deposition that shall be taken is that of
      the plaintiff.
2.    Tell the adjustor to tell Bill to go out and get
      a statement from the witness that you can use
      at mediation.
3.    Tell the adjustor to give Bill the authority to
      take the deposition of the witness.
4.    Tell the adjustor to tell Bill to wait on the
      deposition as the case won‟t be reached for
      trial for 3 years in Dallas courts.
              Scenario #9

One of your adjustors is approached by Fee
Slashers, Inc., a company that promises to
save you up to 80% on your legal fees in the
next year. They would review the legal
bills   submitted   by    various   outside
attorneys and recommend reductions, if
necessary. Fee Slashers‟ compensation is
tied to the amount of money they
“recommend” be deducted from the
attorneys‟ bills. The adjustor wants to
know if she can begin using Fee Slasher on
her files.
    What do you tell your adjustor?

1. Tell the adjustor that if Slashers can get
   the percentage up to 35%, they have a deal.
2. Tell the adjustor to see if her friend at Fee
   Slashers can get tickets to the Mavericks
   game against San Antonio and then you‟ll
   think about it.
3. Tell your adjustor that without the
   consent of your insureds, you cannot
   submit defense counsels‟ bills to third
   party auditing companies.
4. Tell your adjustor that your defense
   lawyers would NEVER inflate bills and
   that you‟re offended by that insinuation.
           Scenario #10

Your insured is involved in a wreck
with an uninsured motorist, who is
totally at fault.    You hire your
subrogation lawyer to file suit
against the uninsured motorist for
only the $8000 in property damage.
Your subrogation lawyer gets a
judgment against the uninsured
motorist for $33,000. Your insured
hears about the judgment and says
please pay me $25,000 in um benefits
even though he only has $500 in
medical bills.
  What do you tell your adjustor?

1. Tell your adjustor to call your subro
   lawyer and tell him to put his E&O
   carrier on notice.
2. Tell your adjustor to deny the insureds
   request because that judgment wasn‟t
   based on true facts.
3. Tell your adjustor to offer your
   insured the true value of the claim,
   $1,500.
4. Tell your adjustor to pay the insured
   because your lawyer established the
   value of the claim in the judgment.
               Scenario #11
Your insured gets sued from an accident that
happened 18 months ago. The insured claims
that the lawsuit was the first notice he had of
the accident. You hire Bill – at D,C&H – to
defend the insured in the personal injury case.
For the next 18 months your adjustor (without
your knowledge) directed Bill, without
informing the insured, (1) to take 5 separate
statements to help establish that the insured‟s
coverage is waived because of late notification
and (2) to write a brief outlining your defense
of late notice coverage. Based upon Bill‟s
work, your adjustor then directs that a
Declaratory Judgment be filed seeking to deny
coverage.
  What do you tell your adjustor?

1. “Good job, you are saving the company
   money.”
2. “Good job! Bill always does good work
   for us and we didn‟t even have to hire
   another attorney. Say, isn‟t it time for
   you to consider moving into the
   management training program?”
3. “Have you ever heard of the „The Tilley
   Doctrine‟?”
4. Make sure Bill sends two bills, one for
   the coverage case and one for the
   liability claim.
[The attorney hired by the insurance
company] becomes the attorney of
record and the legal representative
of the insured, and as such he owes
the insured the same type of
unqualified loyalty as if he had
originally been employed by the
insured. If a conflict arises between
the interests of the insurer and the
insured, the attorney owes a duty to
the insured to immediately advise him
of the conflict .
Employers Cas. Co. v. Tilley, 496 S.W.
2d 552,558 (Tex. 1973)
                  Thank You!




Kirk Willis
Member
469-893-1870
kwillis@helmsgreene.com