Fdcc transportation section

Why Can’t We All Get Along: The Perils of In-Fighting in the Defense of a Catastrophic Case FDCC Winter Meeting The Hotel Del Coronado San Diego, CA February 28 - March 3 Presented by: SEAN W. MARTIN Carr Allison Chattanooga, TN JENNIFER EUBANKS Canal Insurance Company Greenville, SC KURT ROZELSKY Smith, Moore Leatherwood, LLP Greenville, SC Paper by: SEAN W. MARTIN Carr Allison Chattanooga, TN

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Sean W. Martin is a shareholder in the Chattanooga, Tennessee office of Carr Allison. An accomplished attorney in diverse areas of law, Mr. Martin has served as counsel to clients in Tennessee and Georgia in the construction, insurance, retail and hospitality, and transportation industries. Specifically, he has successfully handled cases regarding product liability, professional liability, commercial litigation, and workers' compensation. Mr. Martin has been awarded an AV rating by his peers through nationwide ranking system, Martindale-Hubbell. Mr. Martin received his Business Degree from Warren Wilson College in Asheville, North Carolina.

He then earned his M.B.A. from the University of Memphis and his J.D. from the University of Memphis School of Law. Jennifer D. Eubanks is a Senior Staff Attorney at Canal Insurance Company, in Greenville, South Carolina. She handles responses to coverage issues and assists in the management of litigated claims. She also manages appeals and coverage litigation involving Canal Insurance Company, including extra-contractual litigation. Prior to joining Canal, she was in private practice for 20 years, handling exclusively coverage matters, including extra-contractual litigation. Ms. Eubanks is frequent speaker on transportation and coverage issues.

Kurt Rozelsky is a partner with Smith Moore Leatherwood, LLP, in Greenville, South Carolina and Atlanta, Georgia where he defends transportation and other technical and expert driven litigation. He has tried over 75 cases to verdict. Kurt is the Chair of the FDCC Trucking Committee, Past Chair of the DRI Trucking Law Committee, and past Vice Chair of the ABA Commercial Trucking Law Committee. He is an active member of the Trucking Industry Defense Association (TIDA) and the Transportation Lawyers Association (TLA). Kurt frequently speaks on topics relevant to the trucking industry and trial practice. Kurt has been inducted into the American Board of Trial Advocates (ABOTA) for his trial experience and has been selected annually since 2009 for inclusion in the South Carolina Super Lawyers Transportation. He has been named to The Best Lawyers in AmericaŽ 2011-15 and was a 2012 South Carolina Lawyers’ Weekly Leaders in the Law recipient.

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I.

INTRODUCTION

Catastrophic loss claims often involve a defense team that is made up of a number of different groups who may share the common goal of resolving the case for a reasonable sum but disagree on how to achieve the desired result. These competing groups include the insured, the primary carrier, excess carriers, insured’s personal counsel, primary defense counsel, excessoversight counsel, and the broker. Infighting within the defense team detracts the focus from the underlying claim and if the infighting is allowed to fester, it will likely spawn ancillary litigation, which merely adds to the costs and increases exposure for all concerned.

By identifying the pressure points within these catastrophic cases, utilizing transparency, open communication and trust within the defense team, common ground can be achieved and the best result reached. Through an illustrated fact pattern, these issues will be identified and solutions will be offered.

II.

FACTUAL SCENARIO

It is half-past midnight on a clear night on a somewhat remote stretch of the interstate in north Georgia. Mr. and Mrs. Schmidt are returning to their home in Chattanooga from a Barry Manilow concert in Atlanta. Mr. Schmidt proposed to Mrs. Schmidt at a Barry Manilow concert 20 years earlier. Mrs. Schmidt was driving while her husband was asleep. Once outside of metro Atlanta, Mrs. Schmidt decided to open up the throttle on her 2016 Audi R8 in hopes of shortening the length of their trip. Mr. and Mrs. Schmidt are German nationals who recently moved to Chattanooga to help Volkswagen find a solution to navigate the emissions fraud scandal that threatens to bankrupt the company. Mr. Schmidt was anxious to get home to get a few hours of rest before he had to attend a very important meeting at 5:00 a.m. with engineers in Chattanooga and from the corporate headquarters in Germany. Somewhere between Cartersville and Calhoun, Georgia, Mrs. Schmidt blew past a Georgia Highway Patrol officer going 110 m.p.h.

Mrs. Schmidt, unfamiliar with protocol involving traffic stops on the interstate, became very scared and confused by the blue lights and sirens. She was unsure what to do. Mrs. Schmidt could also hear the officer shouting something over the loudspeaker, but she did not understand what he was saying. Mrs. Schmidt brought her vehicle to a complete stop in the left-hand lane of the interstate. The trooper stopped immediately behind her and began frantically screaming over the loudspeaker and gesturing for Mrs. Schmidt to pull off the road. Mr. Schmidt, now awake, was equally confused and scared. Along with his wife, they did nothing but remained stopped in the left-hand lane. Unsuccessful in getting Mrs. Schmidt to pull over from behind, the trooper decided to pull up next to the Schmidts in the right-hand lane. He continued to frantically scream and gesture for the Schmidts to pull over, and at one time got out of his patrol car and banged on their windows with his flashlight in an effort to encourage them to pull off of the road. Failing to convey the message, the trooper returned to his patrol car and called for back-up. He never pulled off to the right side of the road.

At this time, a large truck, carrying a full load of mulch, pulled up behind the trooper and stopped his vehicle. A mile back is Mr. Thomas. He is driving an 18-wheel tractor trailer.

Witnesses will report that they saw Mr. Thomas drifting as if he was falling asleep for several miles and coming close to running off the road. Mr. Thomas does not stop and runs right into the back of the mulch truck with great force, causing an explosion, which kills both him and the 3

driver of the mulch truck, Mr. Baker, on impact. The trooper sustains minor injuries. Mr. and Mrs. Schmidt, who fear for their lives, jump from their vehicle into the median.

Mr. Baker was 26-years-old and left behind a 28-year-old wife and two kids, ages 3 and 1. Mrs. Baker brought a wrongful death suit against Mr. Thomas and his trucking company for $20 million. The state trooper and Mr. and Mrs. Schmidt brought these separate claims in a single lawsuit for their personal injuries. Mr. and Schmidt seek emotional distress damages only, while the state trooper seeks to recover for an aggravation of a pre-existing back injury. He has $7,000 in medical bills and only missed a week of work. Mr. and Mrs. Schmidt collectively have under $1,000 of psychological treatment and did not miss any work. A psychologist opines that they both suffer mild to moderate post-traumatic stress disorder.

Mr. Thomas’ trucking company has a primary liability policy with $2 million in limits and an excess policy with limits of $10 million, and another excess policy with limits of $20 million.

Immediately after suit is filed, the excess carriers are notified and begin to monitor the case. From day one of the accident, there is never any doubt between the defense team that the combined value of these claims would exceed the primary limits of $2 million, but there developed serious debate about the value of the case from the perspective of the excess carrier.

After discovery, the parties agreed to a combined mediation in hopes of achieving a global settlement. A month before mediation, the first excess carrier hired independent counsel to conduct an independent evaluation of the case for purposes of the mediation. Prior to the mediation, the primary carrier soft tenders its limits to the excess carrier to be used to resolve the case at mediation. However, during the mediation session, the excess carrier never makes an offer of the primary limits and, instead, undertakes a rather bizarre mediation strategy, contrary to the parties’ understanding going in, which results in no meaningful efforts made and creates a schism within the defense team. The decision to “blow up” the mediation was due in large part to the finding of the “independent review” that identified areas that needed to be explored before a mediation could be conducted. Following the mediation, the excess carrier demands that the primary carrier undertake a number of questionably necessary tasks geared towards attempting to drive the value of the cases to within the primary limits. This strategy leads to infighting and the threat of ancillary litigation.

III.

DUTY TO CONTROL DEFENSE vs. RIGHT TO CONTROL DEFENSE

Primary policies usually provide that the duty to defend terminates when the policy limits are exhausted by judgment or settlement. Excess policies usually provide that the duty to defend does not trigger until the underlying limits have been exhausted by settlement or judgment, but oftentimes provide the excess carrier with the choice to assume the defense of the case or to hire independent counsel to cooperate in the defense of the case when its limits appear more than likely to be implicated. Excess carriers rarely assume the defense until primary limits are tendered but frequently hire defense counsel to monitor and report. This is when the majority of issues begin. Often the excess counsel/monitoring counsel does not establish a clear understanding of his/her role.

When the primary carrier has a duty to defend, it has the complete right to control the litigation under the terms of its policy and applicable law, even if its decisions are contrary sometimes to that of the insured or that of the excess carrier. This ordinarily includes important decisions related to trial strategy and/or settlement. The level of control the insurer is able to 4

extend may be constrained by the lawyer’s ethical obligation to the actual client. In a single representation state, the attorney retained by the insurer represents the insured only. The attorney’s ethical obligations are to vigorously represent the insured and do what is in the best interest of the insured. In exchange, the insured has the right to control the litigation, including important trial strategies, which may sometimes be contrary to the will of the insurer. When the insured takes a position contrary to the insurer, coverage is put at risk. In single representation states, counsel for the insured needs to understand the relationship between the insured and the insurer and utilize some diplomacy to ensure the desired result is achieved in the case. However, if unresolved issues between carrier, insured and its counsel arise during representation, counsel may be left with no choice but to withdraw.

In a dual representation state, the attorney represents both the insured and the insurance carrier and must exercise more diplomacy than is required in a single-representation state in resolving issues of trial strategy that arise between the insured and its carrier. Issues in resolving trial strategy, especially in a catastrophic loss case, become exponentially greater when an excess carrier and its counsel are involved.

In a single representation case, counsel hired by the excess carrier are hired to represent the insured and must act accordingly, even though there will be more pressure on the attorney hired by the excess carrier to take a position consistent with the desires of the excess carrier. In a dual representation state, the attorney hired by the excess carrier would, in fact, represent both the excess carrier and the insured, which then places the insured in a rather unique position to implicitly have two allegiances: a desire to support the excess carrier’s goal to keep the claim within the primary limits, but at the same time, encourage the primary carrier to work towards a resolution of the case that prevents there being an excess judgment.

It becomes more difficult when the excess carrier does not assume the defense, because its opinions are little more than that, and the decisions that are ultimately made by the primary insurer in carrying out its defense obligation have the greatest impact on the potential exposure of the excess carrier.

It is advisable in this scenario, where the consensus of all concerned is that the settlement exposure is certain to encroach on excess coverage and there exists a real possibility that a verdict could be returned in excess of all insurance, that the excess carrier assume the defense obligations as early in the case as possible. This places the person with the most to lose in the position to control the defense of the case and retain the counsel that it feels most comfortable with in order to achieve the desired result. If a formal tender and acceptance of tender of the underlying limits is appropriate in a given circumstance, separate agreements between primary carrier, excess carrier and the insured can be crafted in order to allow the counsel of the controlling insurer to enter the case while protecting everyone’s interest going forward.

This, however, needs to be done as early in the case as possible so that the attorney that is going to be tasked with trying the case is allowed to prepare the case for trial. All too often, the attorney who prepares the case is jettisoned from the defense team before trial and replaced by the excess carrier’s handpicked counsel who has had, until then, only a 30,000 foot view of the case. When this happens, it shrouds the entire case with a level of distrust between primary carrier’s counsel, the insured and excess carrier counsel, making it difficult for all concerned to proceed towards the best outcome possible.

IV.

SETTLEMENT ISSUES 5

Can the primary carrier settle directly with the plaintiff in order to shift the duty to defend to the excess carrier? Under certain scenarios where the excess carrier refuses to assume the defense, even though its policy limits are implicated, but attempts through its hired counsel or demands on primary counsel to obligate the primary carrier to unending defense costs when its limits are essentially tendered, can the primary settle with the plaintiff in order to shift these costs to the excess carrier. This is generally permissible, however, how it is achieved will depend on applicable state law and the language of the policies at issue. A detailed analysis of the status of the law in this area is beyond the scope of this paper or presentation. Generally speaking, the primary carrier can settle directly with the plaintiff in a number of jurisdiction, provided that the primary carrier obtains a release that partially releases the defendant from damages in excess of the primary limits, fully releases the primary insurer and releases the defendant from any excess judgment above any excess insurance. Lloyd v. Bunderson, 320 N.W.2d 175 (Wis. 1982). Under the settlement, the excess carrier should also be permitted to take a credit on the amount paid by the primary insurance. In reality, such agreements can be difficult to achieve because plaintiff counsels do not want to give up the potential for an excess verdict, as this is what they use to leverage the excess carrier into a settlement. However, such settlements should be explored in appropriate situations, especially in catastrophic loss cases, as it may be a way to end infighting that exists between the primary carrier, the insured, and the excess carrier and their counsel regarding defense strategy and who is responsible for defense costs. Often, it is in the best interests of the insured to shift the burden of the defense cost to the party that has the most to lose in the case. It is not surprising how quick the defense strategy of the excess carrier changes once defense costs are shifted to the excess carrier. Moreover, defense costs and cost of litigation are a real factor in evaluating the case, so when an insurer is not obligated to pay defense costs, it may have a tendency to undervalue a claim.

V.

BAD FAITH

These types of catastrophic losses often place the insured in the middle of the infighting with no real power to resolve the issues. When the potential for an excess judgment exists against the insured, the insured’s primary goal is to get the case resolved within available insurance. Primary and excess carriers usually have the right to hire counsel and have the right to control the litigation, especially whether or not to settle within their limits. The insured has exposure from an excess judgment and uses this to advocate for a settlement. If the insurers lose sight of the insured’s stake in the claim, then bad faith becomes an issue which serves only to further divide the parties. However, even where it technically has no right under the policy to settle, it is important to remember that the defendant in the case is the insured. It will be affected by a verdict, even if that verdict is within available insurance. Thus, a judgment, even a reasonable judgment by verdict, can still have negative implications on the insured and its business going forward.

VI.

CONCLUSION

Most of the issues discussed herein with these catastrophic loss cases can be avoided if the primary carrier and excess carrier work together early in the case to ensure a single defense strategy is undertaken and defense and litigation costs are shifted proportionately to the case based on the relative exposure, not on the technical definitions within the policy. If an agreement cannot be reached or if the primary carrier and excess carrier cannot come to common ground with respect to the defense of the case, then it is important that steps be taken and creative 6

methods explored in order to force the appropriate shifting of the litigation costs, expenses and potential exposure on the parties that bear the most risk.

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