Planning Ahead:Thoughts on Successful Strategies

in Co-Insurer Disputes

Greg TaylorSkip ScottAndy Ryan

Diamond McCarthy LLP25 April 2008

Planning Ahead:Thoughts on Successful Strategies

in Co-Insurer Disputes

Greg TaylorSkip ScottAndy Ryan

Diamond McCarthy LLP25 April 2008

Who We Are

Commercial Litigation Boutique Offices

Dallas, Houston, & Austin New York Litigate throughout North America, Europe, and

Asia

Analyze insurance issues routinely Coverage issues in fiduciary litigation Subrogation Bad faith

Creation of an Adversarial Landscape

Systemic Problems in Co-Insurance Coverage issues are theoretically straightforward But convoluted in practice U.S. legal system compounds matters

Expense Hostile forum Damage issues

Result: Increasing Number of Co-Insurer Disputes “Deny first, pay later” Hold-out carriers take advantage Freeloading

Recent Case Example

Lloyd’s v. NUFICOur initial role: D&O defense counselPressed for subrogation lawsuit against

hold-out carrierRecouped nearly all of market’s lossLessons learned: why we’re here

Surveying the Adversarial Landscape Co-insurer’s “deny first” policy places you in

a precarious position To pay or not to pay? Potential bad faith exposure

Denying Coverage is Deciding to Litigate Will it be your decision or theirs?

Possible Options

Option #1: Resolution through coverage counselDifferent FocusToo entrenched in coverage positionBe mindful of the litigation picture

Must be acutely aware of pitfalls and future strategy

Possible Options

Option #2: Cover and File SuitRemember: it’s either your litigation

decision or theirs Must protect your claim

Reservation of rights against hold-out carrierConsistent coverage approachAllocation issues

Covered v. Uncovered ClaimsCovered v. Uncovered InsuredsOffensive v. Defensive ClaimsFees and LossProve Up: Need for Internal Documents

Texas-Sized Pitfalls to Option #2

Three Main Pitfalls under U.S. Law: Bad Faith Claims: Can a co-

insurer bring them? Statutes of Limitation: How long

can you wait to sue? An Insured Made Whole: Do you

have a subrogation or contribution claim?

Pitfall #1: Can You Own Your Insured’s Bad Faith Claim?

Bad faith claim provides tremendous leverageBad PublicityNot re-insured

Policy’s Subrogation Clause“All Claims” Language Includes Bad FaithClaim should belong to insurer…

Pitfall #1: Can You Own Your Insured’s Bad Faith Claim?

But, some U.S. courts strike down assignment

See, e.g., GreatAmerican Insurance Co. Holding: because bad faith claims are personal,

they cannot be assigned Result: Claim reverts back to insured Pitfall: Paying insurer needs to maintain

good relations with its insured

Pitfall #2: When to Sue

How long do you have to sue?Bad faith– usually 1 or 2 yearsBreach of contract– usually 4 or 6 years

What if you wait until the entire loss is paid?When does the clock start ticking?

Pitfall #2: When to Sue

Does the claim accrue at denial?Minority view

Or, does the claim accrue once the underlying lawsuit terminates?Majority view: New York, Maryland, Washington, Alaska,

California, Ninth Circuit (Federal)Rationale: Ongoing Duty to Defend

Texas: On the FenceMurray v. San Jacinto Agency, Inc.Compare with All-Tex Roofing, Inc. v. Greenwood Ins.

Group (Indemnity Only)

Pitfall #3: An Insured Made Whole

Option #2 requires a paying co-insurer to cover all of the insured’s loss

Result: Paying insurer should have a subrogation or contribution claim against non-paying insurer

Pitfall: New decisions limiting these claims when an insured suffers no damages of its own

Pitfall #3: An Insured Made Whole

Firemen’s Fund (California):“Where there are several policies of insurance on the same risk

and the insured has recovered the full amount of its loss from one or more, but not all, of the insurance carriers, the insured has no further rights against the insurers who have not contributed to its recovery. Similarly, the liability of the remaining insurers to the insured ceases, even if they have done nothing to indemnify or defend the insured.”

Liberty Mutual (Texas): Supreme Court opinion adopts this language

Pitfall #3: An Insured Made Whole

Avoiding this pitfallFocus on FactsFind Equitable Causes of Action

SubrogationEquitable contribution (California)

Recommendation: Cover and Sue

Take the battle to the American insurersMore control of the litigationDenying coverage is inherently defensive: tie favors the

insured Investigate and exhaust all recovery options Change perception through repetition Exploit the Market’s institutional advantages

Less bureaucracy & more autonomy Say you’ll go to trial– and mean itBuild an intelligence network

Conclusion

Questions?Feel free to contact us

Greg Taylor gtaylor@diamondmccarthy.comSkip Scott sscott@diamondmccarthy.comAndy Ryan aryan@diamondmccarthy.com

www.diamondmccarthy.com