Using Strategic Demands When Coverage is Sufficient

Under most circumstances, the existence of primary and excess is a welcome indication an injured party as significant funds available to satisfy any judgment. However, the primary/excess relationship can become a curse when a primary carrier flatly refuses to tender its limits. This refusal relieves significant pressure (and potentially any duty) on the excess carrier to make reasonable settlement offers.
 
Fortunately, courts have acknowledged the impediment to settlement that primary carriers often create and have recognized and extended legal theories to hold primary carriers accountable for claims decisions even in the absence of an excess judgment. This includes accountability to both the insured and to excess carriers occupying higher tiers of coverage.
 
The 5^th Circuit recently discussed a primary carrier’s duties and liabilities to an excess carrier after the primary failed to resolve a case within its coverage layer when given an opportunity to do so.

Am. Guar. & Liability Ins. Co. v. Ace Am. Ins. Co., 2020 WL 7487067 (5^th Cir. Dec. 21, 2020)
           
Background
American Guarantee arose from the wrongful death of Mark Braswell. Mr. Braswell was killed after his bike collided with a stopped truck that was owned by Brickman Group, Ltd. At the time of the collision, Brickman had a primary policy issued by ACE providing $2 Million in coverage. Brickman was also insured under an excess policy issued by American Guarantee and providing a layer of coverage over and above the ACE policy.
 
Braswell’s wife and children (“Survivors”) sued Brickman and alleged that the truck was parked in an inherently dangerous place and/or that the Brickman truck had stopped suddenly in front of Braswell. The evidence showed that Brickman’s driver had not set out cones and acknowledged that it was dangerous, though legal, to park where he did. In addition, Braswell’s wife claimed an employee of Brickman told her the driver had stopped suddenly. However, a crack down the middle of Braswell’s helmeted supported the allegation that he was not looking in the direction he was traveling at impact.
 
Pre-Trial Evaluations
After evaluating the above evidence, Brickman’s counsel provided a settlement estimate that the value of the case was in the $1.25-$2 Million range. ACE also conducted juror research that indicated it was crucial to show the truck did not stop suddenly and that the truck was parked legally. After reviewing these findings, an American Guarantee representative placed a $500,000 value on the claim. At this point the carriers and defense team agreed that a verdict over $2 Million was unlikely.
 
Settlement Offers and Trial
Just before trial, Survivors offered to settle their claims for $2 Million. ACE countered with an offer of $500,000 which was quickly rejected.
 
Soon after, the case turned against Brickman. The trial judge issued evidentiary rulings including:

Further, Braswell’s wife was described as an exceptional witness and American Guarantee noted in its file that a verdict in excess of $2 Million was now possible given the evidentiary rulings.
 
After the case was submitted to the jury, Survivors again offered to settle for $2 Million. That offer was to remain open until the jury announced it had reached a verdict. ACE rejected the offer.
 
The jury returned a verdict of $40 Million and after deductions for comparative fault, the Court entered judgment for $28 Million. To avoid the risk of appeal, the Braswell’s settled for $10 Million. ACE paid the first $2 Million and American Guarantee the remaining $8 Million.
 
American Guarantee’s Equitable Subrogation Suit and 5^th Circuit Appeal
 
Following the settlement of the liability case, American Guarantee sued ACE alleging that it failed to use ordinary care in rejecting the Braswell’s final settlement offer during trial for the limits of the ACE policy. These failures resulted in American Guarantee paying $8 Million to settle the liability case.
 
In response, ACE set out some novel arguments that are worth a read and also alleged that its rejection of the offers was not unreasonable. ACE’s primary argument in support of acting reasonably in rejecting the last demand was that it believed Brickman/ACE might prevail on appeal based on the evidentiary rulings.
 
In addition to ACE making this argument for the first time on appeal, the 5^th Circuit rejected ACE’s arguments. Even if an appellate victory was a possibility, the risk to the insured was too great to reject a demand for the primary limits after everything had gone south at the trial. They viewed this as unreasonable and required ACE to repay American Guarantee the entirety of its $8 Million contribution to the settlement.
 
Application of American Guarantee
American Guarantee is further support that a carrier’s obligation to handle claims in good faith and without negligence continues throughout the pendency of the case. Much like Quershi and Cockerham decisions from Missouri Courts, the carrier’s good faith duties don’t end at the filing of the lawsuit. Rather, they continue until the minute the judgment is satisfied and the underlying claim fully resolved.
 
The Equitable Subrogation Doctrine used in American Guarantee is not new in the primary/excess world. Numerous states recognize this “insurer v. insurer bad faith” including Missouri, pursuant to the Supreme Court’s opinion in Scottsdale Ins. Co. v. Addison Ins. Co.
 
Counsel should keep this doctrine in mind when crafting demands in primary/excess cases where the injury may not quite exceed the total coverages available. While the insured may not face an uninsured judgment, bad faith principles can still work to counsel’s advantage. Making a demand within a lowered tier of coverage can incentivize excess carriers to join the claimants’ team in pressuring those with the primary indemnity obligation to settle.