Understanding The Available Insurance Is The Key To Settling A Liability Dispute

Getting to “Yes” requires dealing with the coverage issues that stand in the way

“What’s the problem here?”, the CEO demands to know. “They were wrong. They are liable. We should be paid for our damages. What is holding this up?”

The answer often is, “their insurance”.

More accurately, the answer would be: “They have insurance, but there is a dispute between them and their insurer as to how much of this is covered and who has to step up and settle the claim, and with whose money.” In other words, your valid claim is hung up in “insurance gridlock”—often honest internal debate—on the other side. Your CEO’s frustration is justified. But there are solutions.

Step One: Be Sure Your Recovery Expectations and Your Strategy Are Realistic and Aligned to the Insurance that May be Available—“Follow the Money” and “Be Careful What you Ask For”

Hopefully, your claim is against a well-financed company that can satisfy a judgment or pay a settlement whether it has enough insurance to do so or not. But if your claim is large and that other company is not, you may well face a situation where—realistically—you are settling with their insurer and not with them. The insurance is where the money must come from, because there isn’t enough money in the liable company itself to get you to settlement.

We are surprised at how often very able legal counsel for the plaintiff in a commercial case pays scant attention to this “fact of life”. Litigation strategies are often built around nailing down the liability of the defendant in as many ways as possible, but little thought is directed to “who is going to pay for the liability we prove?” A litigation approach that does not put a primary focus on understanding the insurance available to the defendant is, in our view, inefficient and maybe even counterproductive to full recovery.

First, the litigation expense that is run up in pursuing every alley of legal liability quickly erodes the net recovery obtained at the end of the day. But—even worse—your own work in establishing valid legal liability of the defendant may be just the demonstration the defendant’s insurer needs to validly deny coverage and shut off the funding needed for a realistic settlement. This is because you may develop facts, by asking for them or proving them in discovery, that walk straight into explicit exclusions in the insurance policies of the defendant—such as by showing that some conduct was intentionally wrongful, or may have occurred slightly before or after the stated periods of effective insurance, or a myriad of other possible exclusions, depending on the kind of insurance involved.

An independent insurance content expert can help you and your legal team to understand the fine print of the available insurance so that your litigation strategy is aligned with it.

Step Two: Deal Directly With the Defendant’s Insurer and its Coverage Advisor

We often find that the most valuable thing we can do for a company is speak directly—in a non-confrontational way—with the persons within the insurance company dealing with the available insurance question, and with the outside legal counsel on coverage that has usually been engaged by the insurer. These are not the same people that are working against you in the underlying liability case, and they will normally never personally encounter your own litigation team. But they are the individuals who will make what we call “the wallet calls”, and, most importantly, “how much money is in it”.

A settlement facilitator, such as Bauer Advising (or others!) can deal directly as non-combatants with these decision makers and influencers to discuss the nuances of coverage and move you towards a much prompter resolution.

Settlement facilitation is not the same as so-called mediation. It is a very different process in which the facilitator acts as an envoy moving between the parties and making proposals for settlement in an iterative process over—normally—60 days or so. The facilitator can be retained by all of the parties, some of them, or only one of them.

For a more complete description of how this process differs from mediation, see the article on this site dated January 6, 2015.