The recent California decision Barickman v. Mercury Casualty Company, 2016 WL 3975279, (Calif. App. – July 25, 2016), previously reported in Cozen’s bad faith blog on July 28, 2016, is worth revisiting on a bigger picture issue. Low policy limit demands are often more dangerous than high policy demands. This is because often times less experienced adjusters are assigned to lower policy limit cases and may not have recognized some of the red flags presented in Barickman and more importantly may not have recognized the need for legal advice. In Barickman, those red flags were as follows: (1) serious injuries; (2) clear liability; (3) low policy limits; (4) policy limits demand made with short time fuse to respond; (5) numerous extensions of time for adjuster to make decision granted by plaintiff’s counsel; and (6) a quirky legal question not frequently seen by adjusters. The more red flags on a claim, the more urgency there should be for an adjuster to promptly seek legal advice on quirky legal issues.
In response to notification of the claim, and after determining that the claimants had been seriously injured and that there was a policy limits settlement demand from a low limit policy, the adjuster rightly recognized the need to offer those limits of $30,000 and in fact did so quite promptly. In response to the policy limits offer the plaintiffs’ lawyer added the following language to the standard release: “This does not include court-order restitution.” At that point in time, the settlement negotiations went awry.
The adjuster’s concern was whether his insured would receive credit against the order of restitution and the plaintiffs’ lawyer wanted to make certain that the settlement did not extinguish the restitution award. The adjuster received several letters from the plaintiffs’ lawyer explaining the reasons for the request for the additional language but for whatever reason the adjuster was concerned that the insured would not receive credit for the insurer’s payment. Rather than seeking legal advice from an experienced insurance coverage attorney, the adjuster contacted the insured’s mother and her daughter’s criminal lawyer seeking an answer to his question. Additionally, the adjuster sought legal advice from plaintiffs’ counsel on whether payment of the policy limits would go to reducing the restitution order. Shortly thereafter the insured, through her mother, demanded that the policy limits be paid. Unfortunately, the final deadline for payment had come and gone, being replaced by a personal injury lawsuit and an agreed judgment for $3 million with the subsequent assignment of that claim and the insured’s bad faith claim. Despite Mercury’s best arguments the agreed judgment was upheld.
The obvious learning from this decision is that if an adjuster is dealing with a policy limits demand and a quirky legal issue of first impression to him/her, then he/she should seriously consider seeking legal advice from an experienced insurance coverage attorney, not the plaintiffs’ lawyer or the insured’s criminal lawyer. As a practical matter, had the adjuster sought legal advice on this quirky issue from an experienced coverage lawyer, he could have short-circuited the months of uncertainty regarding this issue and there would most probably have been a more successful outcome for the insurer.