Many defense attorneys are eventually pulled into the love triangle of underinsured litigation. Like any good drama, underinsured cases are multifaceted and involve a bizarre set of twists and relationships.
Suppose you represent the provider of an underinsured motorist policy. The plaintiff is in a somewhat adversarial position but is also your client’s valued customer (although sometimes a former customer). The co-defendant is the tortfeasor whose negligence got you into this mess, but your interests are also aligned in many ways. Most notably, if the co-defendant puts on a less-than-inspired case, your client could be responsible for much of the resulting verdict.
Further complexities arise when the UIM carrier has some form of contractual repayment right against the plaintiff’s recovery, typically the result of making medical payments. In these cases, the insurer wants the plaintiff to recover enough to fairly compensate him for his injury but also seeks satisfaction of his repayment obligation. The amount of the repayment may also become a sticking point in settlement talks, with the plaintiffs sometimes seeking a reduction or waiver in exchange for the insurer’s dismissal.
Each UIM case is unique, and each presents different considerations for attorneys. This article explores some recent and recurring issues in navigating UIM litigation.
Remember to check all policy limits
Even if the underlying lawsuit is in tort, the UIM carrier’s involvement is always contractual. Before spending too much time on any underinsured file, make sure the insurance contract actually applies.
It seems that more and more underinsured carriers are joined to a lawsuit before the tortfeasor’s underlying limits are known. If the co-defendant has plenty of insurance, then there is no underinsured issue. Accordingly, get a copy of the tortfeasor’s policy as soon as possible and seek dismissal if the limits equal or exceed the plaintiff’s UIM limits.
Deciding whether to advance or allow the tortfeasor’s settlement
Once discovery wraps up and the potential evidence takes shape, the tortfeasor’s insurance provider may decide to offer its limits. If the UIM carrier is notified of a bona fide offer by the tortfeasor to settle for his policy limits, an important decision must be made. Pursuant to Ind. Code § 27-7-5-6, the UIM carrier has 30 days either to allow the tortfeasor to settle and be dismissed or to advance the settlement funds and force the tortfeasor to stay in the litigation.
There are three primary reasons why an insurer might choose to advance funds and remain subrogated to the co-defendant.
The first scenario is the least common: The tortfeasor actually has assets beyond his insurance policy, and the UIM provider intends to pursue those assets following an adverse verdict. Second, there are some arguments that are more effectively made by an individual defendant rather than by the plaintiff’s own insurance company. This is particularly true when challenging liability or alleging comparative fault; a tort defense is best made by a tort defendant.
A third consideration deals with the interjection of insurance into the case. Although the law seeks to control any prejudice created by the presence of insurance, these challenges are harder to mitigate in first-party litigation. This is well illustrated by two recent opinions from the Indiana Court of Appeals which address a creative strategy to conceal the UIM carrier following the tortfeasor’s dismissal.
In Brown-Day v. Allstate Insurance Co., the tortfeasor settled with the plaintiff and was dismissed from the lawsuit with prejudice — and with neither objection nor advancement by the UIM provider, Allstate. 915 N.E.2d 548 (Ind. App. 2009) As the plaintiff and Allstate headed toward trial, the insurer filed a motion to remove Allstate from the caption, substituting the previously dismissed tortfeasor as the sole party to be named before the jury. Allstate’s motion was granted, and an interlocutory appeal was filed.
The Court of Appeals held that Allstate could not substitute the non-party tortfeasor as a fictitious party in order to avoid an overinflated damages award in a contract case, and that such a proposal was in accordance with neither case law nor Ind. Evidence Rule 411.
This same strategy was addressed one year later, with the Court of Appeals following the same reasoning. Howard v. American Family Mutual Ins. Co., 928 N.E.2d 281 (Ind. App. 2010) In reviewing the Brown-Day opinion, Judge Robb succinctly explained Allstate’s predicament. By standing back and allowing the driver’s dismissal instead of advancing payment, Allstate “treated the cause of action to be tried before the jury as a first party claim for contract enforcement.” Id. at 284 (internal citations omitted)
These two cases send a message: If a UIM provider doesn’t want to be left alone on the caption after the tortfeasor’s settlement, advancement may be the only way out.
Tortfeasor participation post-advancement
If the co-defendant offers his limits and has no other assets, how does the UIM carrier know that he will put on a vigorous defense after advancement? With a lame duck co-defendant, the UIM counsel must tread carefully.
The carrier for the tortfeasor is contractually obligated to provide a defense, and this obligation does not vanish upon UIM advancement. Failure to defend by the tortfeasor’s carrier, or the attorney representing the tortfeasor, may expose one or both to post-trial claims for bad faith or malpractice.
Nevertheless, knowing your case and exercising diligence in all stages of litigation following advancement will serve you well. Communication between counsel for the tortfeasor and the UIM carrier is critical to ensure a proper defense is presented at trial.
Defending the UIM carrier at trial
When an underinsured carrier is joined to a case destined for trial, the most important decision is the extent to which the insurer should participate in the defense. This determination is highly fact-sensitive and must be carefully evaluated in each case. Consider the following scenarios.
Johnny Tortfeasor is texting, shaving and eating a sandwich while driving in the rain. He blows a red light, causing a significant collision that sends Nancy Plaintiff to the hospital. Johnny has state-minimum coverage with Big Bob’s Discount Insurance, which is reluctant to pay its policy limits. (Big Bob thinks that Nancy was the primary cause of the accident, since her windshield wipers were set only on the “low” setting.) Nancy has a UIM policy through your client, Free Range Insurance Co.
In a case like this, Free Range can’t expect much help from the co-defendant. Big Bob has taken an unreasonable position, and an unreasonable verdict will probably follow if Big Bob drives the defense. Accordingly, Free Range must be prepared to guide the jury to a reasonable award. If a verdict within the range of UIM exposure is likely, Free Range’s counsel must become more involved in the defense, taking an active approach at every stage of litigation.
Now imagine that Billy Tortfeasor (Johnny’s more responsible brother) bumps into Nancy while backing out of a parking space. Nancy gets checked out at the emergency room, follows up with her primary care physician, and experiences a few days of mild soreness. Billy admits fault, leaving only the issue of “how much?” He has a $50,000 liability policy, and Nancy has incurred $2,000 in medical bills. However, they disagree on the value of her pain and suffering. As a precaution, Nancy’s attorney has joined her underinsured carrier, Free Range, and the case is headed to trial on the issue of damages.
Billy’s case represents a low-risk scenario for the underinsured carrier. Since his participation is unlikely to affect the carrier’s ultimate liability, it would be perfectly acceptable for the UIM attorney to sit back and monitor this trial from the gallery.
Such an arrangement can actually be desirable for all parties. For the co-defendant, it may keep an insurance company off the caption and the discussion of insurance off the table. For the plaintiff, the benefits are even more apparent: one less opening statement, one less attorney questioning witnesses, and one less closing argument. For these reasons, parties will often stipulate to remove the UIM carrier from the caption.
UIM participation from the middle ground
The adventures of Johnny and Billy Tortfeasor illustrate the opposite ends of the spectrum, but the potential for UIM exposure isn’t always so clear. Fortunately, these middle-ground cases are the most exciting to defend: You get to be the voice of moderation in the courtroom, forming a closer bond with the jury than in most other cases.
Suppose you represent an insurer facing a mild or moderate risk of UIM exposure. During voir dire or opening statements, explain to the jury that your client had nothing to do with the accident but has a contract with the plaintiff that may be affected by this lawsuit. Virtually all participation beyond this point is optional.
These trials allow the UIM counsel to carefully select the issues that warrant emphasis. Know the file better than anybody else and simply participate when necessary. If the co-defendant fails to ask a question that you think is important, step in to help his case. If he starts to get overly aggressive with the plaintiff, step in and hurt his case. Remember, your goal is not to minimize the verdict, but rather to keep it within a fair and reasonable range (and above your client’s medical payments interest, if applicable). UIM counsel should strive to walk the middle ground and serve as the voice of reason.
While you may reduce your involvement during the evidentiary part of trial, UIM counsel should seldom pass up the chance to give a closing argument. You are in a unique position to establish a bond with the jury. After watching the plaintiff and tortfeasor aggressively battle throughout trial, jurors will be hungry to hear the thoughts of a lawyer who seems reasonable and detached from the accident at the center of the lawsuit.
Tell the jury what you think. Thank the jury for their time. Then ask the jury to enter a verdict that is fair and reasonable.
Insurance providers are in a precarious position in any UIM litigation; the defense will almost always be driven by the tortfeasor, but the UIM insurer can be left holding the bag for unreasonable verdicts. No matter what the perceived UIM exposure, know your case intimately and be prepared to pick up any of the other parties’ fumbles in discovery or at trial.
Always be mindful of the different relationships between your client and the other parties. While the co-defendant can sometimes be a partner in your defense, there may also be a need to provide assistance to ensure all aspects of the case are properly considered. Keep a level head, ask for what is reasonable, and your client will be better for it.•
Keith Mundrick is incoming co-chair of the DTCI Insurance Section and an attorney with State Farm Litigation Counsel. He advises and represents State Farm and its policyholders in a variety of litigation across Indiana. The opinions expressed in this article are those of the author.