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Barry Zalma, Inc.


Consultation Regarding


How to Avoid Charges of Bad Faith

Almost every lawsuit filed against an insurance company, especially when a claim is denied for fraud, alleges that the insurer acted in bad faith. In the first party context, bad faith claims typically allege that the insurer did not have a reasonable basis to deny coverage, and that the insurer engaged in unfair or deceptive conduct in the process of handling the claim and reaching its conclusions regarding coverage. In the third party context, there is typically an allegation that the insurer failed to timely settle a claim in which liability had become reasonably clear. Insurers, with unfounded courage, deny claims based on the recommendations of a claims handler whose experience may be, and usually is, limited.

The Use of an Expert

A expert qualified to testify concerning the custom and practice of insurers:

and who is able to credibly explain to a trier of fact in easy to understand language is essential to the defense of an insurer. An qualified insurance claims handling expert can explain why the insurer reasonably, prudently and in good faith should, reject an insured's claim. The testimony of the expert can defuse, if not eliminate, the plaintiff insured's allegations of bad faith. Many legal decisions definitively hold that an insurer's reliance on an expert in making a coverage determination or deciding a third party claim, will defeat a bad faith claim. Insurers who take advantage of the “genuine dispute” doctrine or “fairly debatable” doctrine to protect itself from charges of bad faith will save countless indemnity and defense dollars.

An insurer can successfully oppose bad faith claims by demonstrating it relied upon the expert(s) it retained during the course of the claim investigation to deny coverage." ["Experts in Bad Faith Litigation" by Anthony R. Zelle and John W. Steinmetz, "For The Defense" May 2003.]

When an insurer is faced with a complex, difficult or fraudulent claim that it believes should be denied, the insurer should provide a complete copy of the file materials, to a ZIC claims handling expert that support what that the insurer believes is a defense as well  and those that support the claim of the insured. If retained before the claim is denied the expert should be asked for his or her advice on how to resolve the claim. The expert should not be told the insurer’s position. The insurer should advise the expert only that the insurer desires his or her expert opinion with regard to the resolution of the claim.

Case law makes it clear that obtaining the advice of an independent expert and consultant will make it possible to defeat a bad faith claim. Every insurer should understand that expert witnesses and consultants can significantly strengthen an insurer's defenses against claims of bad faith.

The Genuine Dispute Doctrine

If the insurer's personnel did their work properly before denying a claim the insurer should never be held liable for breach of the covenant of good faith and fair dealing. Tort and punitive damages should be eliminated as a matter of law. The Genuine Dispute Doctrine, sometimes called the “fairly debatable” test, establishes the defense.

It is now settled law in California that an insurer denying or delaying the payment of policy benefits, due to the existence of a genuine dispute with its insured, as to the existence of coverage liability or the amount of the insured's coverage claim is not liable in bad faith even though it might be liable for breach of contract. (Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282, 1292.)

The California Court of Appeals, in Chateau Chambrey Homeowners Association v. Associated International Insurance Company, 90 Cal.App.4th 335, 108 Cal.Rptr.2d 776  (2001) extended the “genuine dispute doctrine” to a factual claims dispute. Fraud, by definition, is a factual dispute. The insured claims that he had a covered loss, while the insurer from investigation believed they established that the claim presented by the insured was false and fraudulent.

It is the duty of a claims person who decides that a loss or defense must be denied to collect sufficient evidence tol establish that the denial of the claim was “fairly debatable.” The evidence must be clear and unambiguous so that a trier of fact (a judge or jury) would conclude that a reasonable and prudent insurer would have made the same decision. If the claims person consults with an independent expert who reaches the same conclusion, a finding of “genuine dispute” or “fairly debatable” will be almost certain.

Establishing the Genuine Dispute

Insurers must recognize that trial courts review the actions of an insurer with 20/20 hindsight when deciding a bad faith suit. This makes the evidence available to the insurer to call into play the “fairly debatable” measure of good faith or the “genuine dispute doctrine” overwhelming. Use of a claims handling expert is the key to the presentation of overwhelming evidence that the decision of the insurer was made in good faith and that there was a genuine dispute between the insurer and the insured.

An insurer’s Special Fraud Investigation Unit (SIU) and an insurer's claims department must be trained to thoroughly, fairly, and intelligently investigate every potentially fraudulent claim. The SIU’s investigation must be well documented and the decision to deny must be made in good faith with the advice and counsel of an experienced coverage lawyer. If the investigation is thorough, in good faith, and survives the analysis of an experienced ZIC claims consultant the genuine dispute doctrine should defeat any suit for bad faith.

Every file where a claim is denied should, to establish that the “genuine dispute” or “fairly debatable” standard was complied with by the insurer, include the following:

1.         The loss notice.

2.         The wording of the policy.

3.         A detailed recorded statement of:

a.        The insured.

b.       If a third party claim, the claimant(s).

c.        Every independent witness to the events.

d.       The insurance agent or broker who placed the insurance.

e.        If a coverage issue is involved, the underwriter who made the decision to insure or not insure.

4.         All available documentary evidence including, as needed, accounting documents, tax returns, medical reports, police reports, fire reports, deeds, trust deeds, bankruptcy filings, and any other relevant document.

5.         Detailed photographs of the scene.

6.         The advice and counsel of independent experts whose expertise relates to the facts of the loss.

7.         The advice and counsel of an independent claims handling expert.

8.         The advice and counsel of an experienced insurance coverage lawyer or a ZIC consultant experienced in the issues raised by the claim.

Even if the decision made by the insurer is wrong, with a thorough and complete investigation, the advice and counsel of ZIC expert consultants and/or lawyers familiar with the subject matter, the insured should be unable to establish a bad faith cause of action. The “fairly debatable” or “genuine dispute” standard is merely a means of objectively establishing that the insurer treated the insured fairly and in good faith. The insurer with a well trained, intelligent, and thorough claims department or SIU, will avoid charges of bad faith, and even when charged, will defeat the charges by proving beyond a preponderance of the available evidence the claim denial was based upon a well reasoned decision where the insurer is allowed to dispute and debate a genuine dispute between it and the insured as to the applicability of coverage. Indispensable Advice

As a claims person and claims attorney for more than 35 years, Barry Zalma has represented insurers, advised insurers on claims handling, interpreted coverages, and testified as an insurance coverage, insurance fraud, insurance bad faith and insurance claims handling expert. Zalma  has written insurance policies for insurers and is the author of books used daily by working claims professionals.

Mr. Zalma has joined with other insurance experts across the United States as Zalma Insurance Consultants. With ZIC as your consultant you get the expert advice and counsel many insurers have found indispensable. Consultation from Zalma Insurance Consultants can save you and your counsel or client hundreds of hours of investigative and legal work.

Take advantage of Mr. Zalma's more than 35 years of claims experience and the hundreds of collective years of experience that Zalma Insurance Consultants' possess. Allow ZIC's experience  to find a resolution to your insurance dispute that is fair, intelligent, and beneficial to your client. Consultation from Mr. Zalma can save you or your client thousands of dollars in the prosecution or defense of an insurance dispute.


Instant Response

Counsel and clients, in a shortsighted effort to save expenses, often wait until the last moment to retain an expert or consultant. Expert consultants like Zalma Insurance Consultants can save an insurer, insured, or the defense or plaintiff's attorney considerable time and expense if retained early. If you elect to retain your consultant or expert at the designation deadline ZIC and Mr. Zalma can be a solution. Because Mr. Zalma declines all litigation assignments and keeps his caseload low, he can completely control his calendar and can respond to your request for advice and counsel promptly. Usually within no more than five working days, regardless of the total volume of the file materials, he will be ready to consult with you or testify on your client's behalf. If he cannot personally deal with your claim, Mr. Zalma will refer you to one of his experienced Zalma Insurance Consultants colleagues.

Mr. Zalma recommends that counsel retain the services of Zalma Insurance Consultants early and avoid wasting time and money pursuing a suit or defense that can be circumvented with his assistance. Zalma Insurance Consultants will promptly review file materials and advise you about the viability of your defense. He can also help you narrow the scope of discovery. No other insurance consultant or expert witness can offer such prompt, credible, and authoritative advice on insurance, insurance coverage, insurance fraud or insurance claims handling questions.

For details and a complete copy of his C.V. direct your browser to http://www.zalma.com or  E-Mail Mr. Zalma at zalma@zalma.com or call Mr. Zalma at 310-390-4455.


Services

Mr. Zalma, or one of ZIC's other insurance consultants will do any one, or more, of the following for its clients:

  1. Defenses available to the insurer

  2. Errors or omissions made by the claims department.

  3. Errors or omissions made by the insurance agent or broker.

  4. Errors or omissions made by the underwriter.

  5. Scope of discovery including depositions, interrogatories, and document requests needed.

  6. Investigation needed.

  7. Experts needed.

  8. Preparation and testimony as an expert on behalf of the client.


Contact
Barry Zalma
4441 Sepulveda Boulevard
CULVER CITY CA 90230-4847
310-390-4455 * Fax: 310-391-5614
http://www.zalma.com  or zalma@zalma.com

 

Last Updated June 2, 2008

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