Deposing a Claims Handler in Insurance Coverage Litigation

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1 ABA Section of Litigation 2012 Insurance Coverage Litigation Committee CLE Seminar, March 1-3, 2012: ICLC IDOL 2012: THE DEPOSITION Deposing a Claims Handler in Insurance Coverage Litigation By Sherilyn Pastor, Esq. 1 McCarter English, LLP A claims handler s deposition is an important event in any insurance coverage dispute, particularly where there are allegations of bad faith. A policyholder s attorney may not win their case at the claims handler s deposition, but can go a long way towards doing so if the attorney is properly prepared. This is especially true when the claims handler is both a fact witness and an insurer s corporate representative, offering admissions and otherwise binding testimony against the insurer. Preparation is Critical Claims handlers can offer important insight into how a claim was investigated and handled, and by whom. The claims handler will know, for example, the insurer s view as to the scope of coverage and allegedly relevant exclusions. The claims handler can offer the basis and rationale for any reservation of 1 Sherilyn Pastor is a partner at McCarter & English, LLP, where she is Practice Group Leader of the firm s Insurance Coverage & General Litigation Group. Ms. Pastor counsels policyholders and has recovered millions of dollars, by settlement or judgment, on behalf of policyholder clients. This publication is not intended to provide legal advice. Issues relating to insurance coverage are fact specific, and their resolution will depend on the precise policy terms involved and the law governing the disputes, which varies from state to state. The views expressed in this publication are not necessarily those of McCarter & English, LLP or its clients. DC: ME v.2 1

2 rights, and the scope of the insurer s understanding of its defense and indemnity obligations. Moreover and more importantly, the claims handler can offer views regarding his or her understanding of key policy provisions and whether they are subject to more than one interpretation or are otherwise ambiguous. Preparation is critical. Before the claims handler s deposition, the policyholder s attorney should be intimately familiar with the case s pleadings and discovery, and also have collected and reviewed, among other things: The insurance policy; All correspondence (including s and other electronic communications) to and from the insurance company (including the notice letter and any claim denial or reservation of rights); All correspondence to and from any broker; The claims files; The claims manuals; The claims guidelines; The claims training manuals; All communications within the insurance company regarding the policyholder, its loss experience, and its claims; All claim diaries and logs; The underwriting files; The underwriting manuals; The underwriting guidelines; The underwriting training materials; The insurer s web page; The insurer s marketing materials, advertisements and sales brochures; The insurer s Codes of Ethics, ethical guidelines, and training materials; Any relevant drafting and regulatory history; and Any pleadings, briefs, or reported cases from or involving the insurer on similar claims and related subjects. In the appropriate case (for example, when there are bad faith or extra-contractual allegations), policyholder s counsel also should review (among other things): 2

3 The insurer s relevant financials and filings as certified by the state insurance department; The insurer s annual reports filed with the SEC on form 10-K; and The insurer s annual report to shareholders. Deposition Basics; the Claims File The questioner will, of course, be guided by the specifics of the case. That said, the claims file is an important exhibit at the claim handler s deposition. By reviewing the claims file with the claims handler, policyholder s counsel can get a better understanding of the timeframe and basis for the insurer s coverage decisions. Indeed, counsel should mark the claims file as an exhibit. Counsel will also want to establish whether the claims file contains a copy of every document, note and communication regarding the claim. The examiner should identify any missing materials, and determine what, why, when and by whom they were removed from the file. The examiner also should confirm that, from the claims handler s perspective, the claims file contains a written record of every significant event involving the claim, its investigation, and its adjustment. Several people may have had access to and input into the documents which comprise the file. Have the claims handler identify every person mentioned in the file, his or her role, and where that person is now. As to those no longer with the company, determine the timing and circumstances surrounding their departures. Have the claims handler provide his/her and other s authority levels. The claims handler also should identify his or her supervisors and subordinates, and provide a clear picture of the chain of reporting and settlement authority. Have the claims handler read any illegible handwritten notes and provide his or her understanding of codes, abbreviations, etc., in the claims file. Claims handlers often maintain electronic logs or diary notes, which should be explored and authenticated by the witness. If it is unclear who made the notes, why they were made, or what they say, ask the claims handler. A claims file may well have been produced in bits and pieces and out of order. Putting the pieces together can be essential to understanding how a claim was handled and what puzzle pieces, if any, are missing from the documents produced. The Claims Investigation & Handling The claims handler should identify the following people and provide the substance of all communications and conversations had with them regarding the claim: underwriters; underwriting supervisors; other claims handlers; claims supervisors; brokers and agents; and other insurance company executives and management. The claims handler also should identify all policyholder representatives with whom they have had contact regarding the claim, and provide detail on the substance of all such communications. The claims handler should be able to provide valuable information on whether, when and how the claims investigation was conducted. Counsel should go through the claims file and ask for all documents showing that and how the insurance company evaluated coverage. What information was requested or provided, and when and how was it considered? Was any factual information rejected, not considered or disregarded as contradictory? What policy defenses were raised, considered or rejected? In short, the claims handler should be required to provide the basis or rationale allegedly supporting the insurer s coverage and non-coverage decisions. After the claims handler fully explains the investigation and its results, always ask if the claims handler had to do it over again, would he or she have done anything differently. 3

4 Manuals and Procedures Counsel should explore what standards the insurer has to insure a prompt investigation of claims under its policies. Some insurers have no claims handling manuals, or rely on those of other companies. In such circumstances, the claims handler may testify that they, in their discretion, handle each claim on its own unique facts. When that is the case, it is fair for counsel to argue later that the insurer has failed to adopt and implement even the most basic standards for promptly and appropriately investigating claims. Many insurers have claims handling manuals and procedures. Test the claims handler s familiarity with relevant policies and procedures. A claims handler unfamiliar with the governing guideline may well offer testimony inconsistent with the insurer s stated policies and procedures. That the claims handler, and therefore the insurer, did not follow their own policies, can be devastating to the insurer s noncoverage position and particularly useful in a bad faith context. The claims handler also should be asked to identify the manuals and procedures, and point out those provisions or sections allegedly relevant to the claim at issue. Policyholder s counsel should establish when and how often the insurer updates these materials, and whether and how often the claims handler consults them. Did the insurer follow the relevant provisions? Even if the claims handler testifies that he or she did, establish that the claims handling manual serves only as a guide and that the handling of any individual claim varies depending upon facts specific to it. Surf the Web Most insurers have websites on which they market their products and tout their expertise and reliability. Some insurers boast that the policyholder is in good hands and will come first, and that the insurer takes away the risk and you can do anything. Counsel should have the claims handler confirm his/her awareness of these pronouncements and explain what claims handling procedures have been implemented to make good on these promises. Did the claims handler approach the relevant claim consistent with the arguably enhanced obligations of the insurer? Court decisions, pleadings and briefs are available on the internet, and through paid electronic databases such as LexisNexis, PACER and WestPublishing. Consider whether and when to confront the claims handler with inconsistent positions. It can be fatal to an insurer s defense when the claims handler s stated view is entirely irreconcilably with a position the insurer has already espoused elsewhere. While this type of impeachment may be better saved for trial, inconsistent coverage positions can undermine the claims handler s and the insurer s credibility. Depending on the applicable law, they also can be used to estop an insurer from now taking a contrary position. Other Considerations Counsel should establish with the claims handler the insurance group s structure, management, ownership and/or ownership changes, and lay the foundation for any changes in claims paying philosophy. Consider having the claims handler offer his/her understanding of the concept of good faith. Consider asking the claims handler identify all trade associations to which he/she or the company belong, and get details on those trade associations which may be regarded as anti-policyholder. Policyholder s counsel should confront the claims handler with alternative understandings of the policy and its terms. Where, for example, the court or even another insurer has interpreted a relevant provision in a particular way, ask the claims handler if that alternative understanding is reasonable. Does the claims handler understand that the policy is to be read in favor of coverage when it can reasonably read in more than one way? 4

5 Counsel should consider whether to confront the claims handler with positions offered by the insurer in pleadings and discovery. When the claims handler is unfamiliar with the factual basis for an insurer s alleged defenses, or their testimony is entirely inconsistent with another witness s understanding of material events, this can be used to demonstrate the insurer s error. It also may be powerful evidence that the insurer has no proper guidelines, policies and procedures for handling claims, and in the appropriate case, that insurer has committed bad faith. Counsel should consider applicable insurance codes, regulations and standards, and whether to explore with the claims handler the laws and regulations that he/she understands govern his/her claims handling responsibilities. Can the claims handler identify and explain them? If not, such testimony may demonstrate a lack of competence. Most claims handlers, however, will understand basic insurance principles and readily agree that an insurer must give its policyholder s interests equal weight with its own and that insurers are obligated to conduct prompt, thorough, fair and objective claims investigations. Before the deposition, counsel should analyze whether reserve or reinsurance information is discoverable under applicable law. Although insurers typically object to producing such material, some states permit discovery of it. If such information is discoverable, the claims handler should be asked about these topics. The claims handler can, for example, explain when and in what amount reserves were established or modified. The claims handler can also identify and describe the substance of communications with reinsurers. The claims handler should be asked to identify and describe complaints made against him or her, particularly those alleging bad faith. If such complaints exist, counsel should seek copies of the complaints and all related materials and determine how the complaints were resolved. If the claims handler denies that written records of complaints against the insurer are maintained by the company, this, in and of itself, may constitute a regulatory violation or may otherwise be evidence of an unfair claims practice. Let s Go To The Video Counsel should always consider videotaping the claims handler s deposition. Fact finders pay better attention to videos than when listening to long read-ins. In fact, some courts when conducting bench trials require that deposition designations be submitted in writing, rather than read into the record. They will, however, allow video to be played. Moreover, the fact finder can observe the attitude and demeanor of the claims handler and make credibility judgments. Is the claims handler hostile and sarcastic when answering questions? Is he or she evasive when hard questions are posed? Does she act or appear unprofessional? Is his attorney offering answers or otherwise being obnoxious? In the right circumstance, it is not much of a stretch for a fact finder to find that a stammering or rude claims handler made an error or failed to handle a claim consistent with their duty of good faith and fair dealing. Conclusion A claims handler s deposition, when properly taken, can offer a treasure trove on motions and at trial. There is no magic to deposing a claims handler. All that is needed is thoughtful preparation and a full understanding of the legal and factual circumstances surrounding the disputed claim. 5