Tag Archives: insurance company

Jurors and Questions on Insurance Coverage

For most potential jurors, questions of insurance coverage do not usually arise in common conversation. Seldom cut and dried, usually subject to numerous definitions and intricacies, coverage issues can be boring and puzzling for even an experienced adjuster. Asking a lay person to try to classify an “occurrence” as defined by a policy, or whether a third party is covered as an additional insured, may prompt, at best, glazed-over eyes or, even worse, a negative commentary about insurance companies. While it may be best in some situations for a judge to determine the issue of insurance coverage, this is not always possible. Sometimes, coverage questions arise in litigation, and those interpreting policy language and determining the outcome are jurors. If jurors are deciding the issues, certain challenges then arise, such as how to clarify policy language, present a clear and concise argument and overcome negative preconceptions about the insurance industry.

Can the Judge Decide Coverage Issues?

In Louisiana, general rules regarding issues that are triable by a jury are set forth in Louisiana Code of Civil Procedure articles 1731 – 1736. These establish the general rule that a demand for a trial by jury will result in a trial by jury of all issues. However, exceptions to the general rule exist when: (a) the parties stipulate that the jury trial shall be as to certain issues only; (b) a party in his demand specifies the issues to be tried by a jury; or (c) the right to trial by jury as to certain issues does not exist. Where a jury trial has been demanded by one or both parties, the case must be tried by a jury unless both parties consent to trial without a jury or the trial court finds that a right to a trial by jury does not exist.

More particularly, La. C.C. P. art. 1562(D) specifically codified the general principle found in La. C.C. P. art. 1736 requiring a stipulation between or the consent of the parties before the trial judge can order that insurance coverage issues be tried separately, with the “court alone” deciding the issue of insurance coverage.

La. C.C.P. art. 1562(D) states:

“If it would simplify the proceedings or would permit a more orderly disposition of the case or otherwise would be in the interest of justice, at any time prior to trial on the merits, the court may order, with the consent of all parties, a separate trial on the issue of insurance coverage, unless a factual dispute that is material to the insurance coverage issue duplicates an issue relative to liability or damages. The issue of insurance coverage shall be decided by the court alone, whether or not there is to be a jury trial on the issue of liability or damages.”

The leading case on the subject is Citgo Petroleum Corp. v. Yeargin, Inc., 95-1574 (La. App. 3 Cir. 7/3/96), 678 So.2d 936, writ granted, remanded, 96-2000 (La. 11/15/96), 682 So.2d 746 and 96-2007 (La. 11/15/96), 682 So.2d 747. There, the court stated that La. C.C.P. art 1562(D) provided that, if principals of judicial efficiency or justice would be served then the court may order a separate trial on the issue of insurance coverage. However, the trial judge’s discretion is not unfettered. The judge’s ability to take the issue away from the jury is severely restricted because, under the article, all of the following conditions must exist: (1) it would simplify the proceedings, permit a more orderly disposition of the case, or be in the interest of justice; (2) the consent of all parties; (3) the non-existence of a factual dispute material to the coverage issue that duplicates an issue relative to liability or damages; and (4) the order must be rendered before trial on the merits.

Therefore, the requirements set forth in the article effectively leave the judge with no discretion, as it requires the consent of all parties. The court further noted that, while the issue of insurance coverage under an insurance policy is a narrow issue of the law between the alleged insured and the insurer, a jury is not prohibited, by statute or otherwise, from deciding this issue. Further, there is no exception to the right to trial by jury for issues that the trial judge may think are too technical or too complex for the jury to understand. Even if the trial judge believes that he is more capable than the jury of deciding the issue of coverage, he cannot take this issue away from the jury once the issue is included within the scope of issues for which a jury trial was requested, unless the conditions of La. C.C.P. art. 1562(D) are met.

As such, if a trial by jury has been requested, but an insurer is presenting technical questions of coverage and believes that a judge would be best suited to decide the coverage issue, a stipulation or the consent of all parties would be necessary before the judge could take the coverage issue away from the jury. Unfortunately, often the consent of all parties to separately try the coverage issue cannot be obtained, and the insurer is left with a jury to decide intricate and potentially costly coverage issues.

Selecting the Best Jury for Your Coverage Case

If coverage issues must be decided by a jury, the persons who make up that jury can make a difference in the outcome of the case. Questioning prospective jurors in voir dire about their current insurance policies and other contracts can provide some insight into how they view insurance companies and the potential for coverage. People often believe that they are “fully covered” under their insurance policies, and that insurers are large, prosperous companies that should be able to “help out” individuals. However, further questioning can reveal that potential jurors do understand that there are limitations as to what is covered under certain policies and what has been negotiated.

Questioning a potential juror about a policy he may currently have in place, whether that policy has a limit and if he understands that the insurance company would not be required to pay more than that limit, can show that the potential juror does understand some limitations to coverage. Additional questions may involve who the current policies provide coverage to and the limitations on that coverage. Even simple, and almost obvious, questions can help illustrate a potential juror’s understanding of coverage limitations. For example, discussing how an automobile policy might provide coverage for certain damage to an owned vehicle but would not cover general maintenance, oil changes or a monthly car payment can help provide insight into whether an individual may be able to understand the issues and be a constructive juror.

Additionally, general questions regarding the potential jurors’ opinion of insurance companies in general, personal claims experiences or inferences regarding insurers that the potential juror has taken from the media can provide insight into whether the potential juror might be favorable or undesirable from the insurer’s standpoint.

Presentation at Trial – Concise and Comprehensible

After a jury has been selected, helping jurors understand and follow the language and logic of the coverage argument is vital. The following tips may help simplify the coverage case and overcome obstacles when faced with presenting coverage issues to a jury.

1. Walk Jurors Through the Basics

Although often complex, insurance policies are simply contracts. They define a relationship between parties and outline who will do what, when and under what circumstances. Presenting the insurance policy as a simple contract, by identifying the promise between the parties and what each may receive in exchange for their promise, may help jurors be less apprehensive when approaching coverage issues.

A good place to start is with the basics of the policy and how it is structured. Discussing the declarations, insuring agreement, exclusions, definitions, conditions and endorsements allows jurors to get comfortable with the policy. After the policy and its purpose are explained, the specific provisions at issue can be addressed. An effective way to do this is by using demonstrative evidence, such as blowups of certain pages or Power Point presentations illustrating specific language and what it means. Presenting the policy through large exhibits helps break down the technicality for jurors and show that it is a logical and consistent contract.

Further, preparing an exhibit naming and listing the experience of all of the individuals who are involved in creating the policy, the claim investigation, adjustment and the coverage decision shows that time and thought of real individuals went into creating a well-organized document and making a well-thought-out coverage decision.

2. Humanize the Issues

Jurors often bring their own experiences to the courtroom and, sometimes, a bad impression of insurance companies. Further, oftentimes coverage disputes are coupled with bad faith claims, exacerbating the notion that insurance companies are malicious. To overcome these perceived notions and prejudices, it is key to humanize the insurer’s operations and show the jurors that real people have drafted the policies and handled the claims. Showing that the insurer is not just a large, faceless corporation, but individuals making decisions and doing their jobs, will help negate the insured’s presented image of an uncaring, profit-seeking business entity. While testimony from a vice president may be impressive, the agent who issued the policy or the adjuster who handled the claim may help put a more relatable face to the company.

Additionally, many insurers have adopted vision statements outlining a code of ethics or a commitment to the community. Using this at trial, and showing how the company is committed to its values or involved in the community, helps dispel negative ideas of an uncaring corporation.

Lastly, insurers should be careful about attacking the insured’s credibility or positions. While it may be necessary, the way this is presented to the jury can have a big impact and can erroneously further the negative ideas about the insurance company.

3. Show All Negotiations

Jurors will generally understand the concept of “you get what you pay for.” They know that if they contracted with their cable company and pay for only the basic channels, they do not get premium channels, such as HBO. It follows that jurors should understand that if underwriting documents or other evidence show what was discussed and understood between the parties, and this is reflected in the contract, this should be what governs. If evidence of negotiations is available, this should be presented to the jury. This concept may be particularly helpful in litigating commercial policies, where there is usually more negotiation, and in showing the application of policy exclusions.

4. Keep It Simple

As a general rule, the simpler the better. It is important to keep the insurance policy language from sounding too technical. Avoid overuse of legal terms and phrases, as this will only confuse jurors and may cause them to fall back on the generally accepted legal principle that “any ambiguity must be construed against the insurer.” A straightforward presentation, relying on only one or two strong coverage arguments, should be used. Presenting every argument possible is not always the best strategy, as this could bog down the jury and cause them to lose focus. When one or two key arguments are made, the case is tight and allows jurors to concentrate on the big picture, rather than trying to follow several moving parts.

Another tactic that may help bring the issues to a comfortable level is to compare the policy to other contracts jurors may have entered into. Outlining the limits and duties imposed by contracts that jurors may be more familiar with, such as a purchase agreement for a car, or a lease agreement for an apartment, may also help jurors realize that there are also limitations and duties imposed by insurance contracts, just like the contracts with which they are more familiar.

Additionally, working backward from the result being sought provides a road map for a streamlined argument and helps create a unifying theme throughout the litigation. Starting from the verdict form or jury instructions helps to keep concentration on the elements that need to be established or explained.

5. Apply Basic Jury Concepts

Basic concepts of persuasion, which apply to all jury litigation, can also be used effectively in a coverage case. Fairness must be stressed and run as a theme throughout the presentation of the coverage case. Jurors want to be fair and will try their best to do so. Additionally, any obvious weaknesses in the case should be addressed. Holes in the case, if not admitted to or explained, will create doubt.

Presenting a coverage case to a jury is sometimes unavoidable, but need not be too difficult or incomprehensible for jurors. Carefully questioning and selecting potential jurors, along with presenting a simple yet logical argument, while humanizing the insurance company, can help achieve a successful presentation of the case in the courtroom and, with that, a successful result.

Leveraging the Power of Data Insights

The vast majority of insurance companies lack the infrastructure to mobilize around a true prescriptive analytics capability, and small- and medium-sized insurers are especially at risk, in terms of leveraging data insights into a competitive advantage. Small- and medium-sized insurers are constrained by the following key resource categories:

    • Access and ability to manage experienced data scientists
    • Ability to acquire or develop data visualization, machine learning and artificial intelligence capability
    • Experience and staff to manage extensive and complex data partnerships
    • Access to modern core insurance systems and data and analytics technology to leverage product innovation insights and new customer interactions

Changing customer behaviors, non-traditional competition and internal operational constraints are putting many traditional insurance companies—especially the smaller ones—at risk from a retention and growth perspective. The marketplace drivers create several pain points or constraints for small and medium size insurers, such as can be seen in the following graphic:

Screen Shot 2016-02-15 at 2.53.12 PM
This is excerpted from a research report from Majesco. To read the full report, click here.

cyber

Cyber Threats and the Impact to M&A

As investment bankers and their lawyers pore over the details of a potential corporate merger, a new and troubling issue has emerged that could affect the terms of the deal, or even derail it. Cyber risk is now a top agenda item, not only for deal makers but for shareholders, regulators and insurance companies.

While assumption of risk is nothing new when acquiring a company, assuming cyber risk raises a whole new set of concerns that must be addressed early in the M&A process. Specific industries, such as healthcare, financial services and retail might require detailed attention to data risk as it applies to HIPAA (Health Insurance Portability and Accountability Act) standards, financial regulation and PCI (payment card industry) compliance. A thorough analysis of the target company’s network systems needs to be part of the due diligence process and may require the services of a network assessment vendor. Insufficient cyber security and the need for significant remediation of these networks could lead to unforeseen expense and may be a consideration in final negotiations of the target price.

Understanding the evolving face of hackers should also be a consideration. Hackers have traditionally been motivated solely by financial gain. However, as evidenced by recent cyber attacks against Sony, Ashley Madison and the Office of Personnel Management, hackers may be driven by political agendas or moral outrage or may be part of state-sponsored cyber espionage. If the acquired company comes with intellectual property or produces controversial products or services, it could be at higher risk of attack.

Regulatory Issues Affecting M&A

Increased regulatory risk for the acquiring company should also be of concern. Regulators in the U.S. and around the world have had a laser focus on privacy matters and have made their authority known in two recent court decisions.

  • On Aug. 24, 2015, a decision was made that will have profound impact on how the CIO, compliance officers, cyber security officials and others view what is an acceptable level of cyber security. In Federal Trade Commission v. Wyndham Worldwide Corp. et al. No. 14-3514, slip op. at 47 (3rd Cir. Aug. 24, 2015), the FTC alleged Wyndham failed to secure customers’ sensitive data in three separate incidents. As a result, 619,000 customer records were exposed, leading to $10.6 million in fraudulent charges. The Third Circuit Appeals Court affirmed the FTC’s authority to regulate cyber security standards under the “unfair practices” of the Federal Trade Commission Act. Therefore, key stakeholders in the acquiring and target companies need to come to terms regarding acceptable levels of cyber security before the deal is closed.
  • On Oct. 5, 2015, the European Union’s Court of Justice declared the U.S. and E.U. Safe Harbor framework invalid. The ruling abolishes an agreement that once allowed U.S. companies to move E.U. residents’ digital data from the E.U. to the U.S., and it will affect approximately 4,000 companies. For some companies, the ruling could drastically alter their business models. Therefore, an acquisition of any of these companies will require careful consideration as to how the company collects and uses the online information of the residents in the 28 countries that make up the E.U. An acquiring company could face regulatory scrutiny and costly litigation for noncompliance of their newly acquired entity.

Transferring Your Cyber Risk

One method to provide protection for the acquiring company would be to enter into a cyber security indemnity agreement with the targeted company. The agreement can exist for a period after closing, but there should be an expectation that—after a specified length of time long enough to remediate and integrate the target company’s IT networks—the agreement will expire. The liability protections should be as broad as possible and should include all directors and officers, who are often named in derivative lawsuits in the aftermath of a data breach. The agreement should address the many different actions that might be required after an unauthorized network intrusion of the target company. Costs related to defense attorneys, IT forensics firms, credit monitoring vendors, call centers, public relations companies and settlements should be anticipated. The firms to be hired, the rates they will charge and the terms of reimbursement to the acquiring company should be outlined in the agreement.

Many businesses have also turned to cyber insurance as a means to transfer cyber risk. In fact, the cyber insurance industry has grown to $2 billion in written premiums, with some expecting it to double by 2020. Cyber policies typically cover a named insured and any subsidiaries at the time of policy inception. Parties in a merger should be aware that M&A activity will likely have an impact on existing cyber insurance policies and often require engagement with insurance companies. When an insured makes an acquisition during the policy term, the insurance carrier often requires notification of the transaction pursuant to policy terms specifically outlined in the policy. Because cyber insurance policies are written on manuscript forms, there is no one standard notification requirement, and compliance terms will vary from insurance company to insurance company. If the target company has revenue or assets over a certain threshold, the named insured may be required to:

  • ƒProvide written notice to the insurance carrier before closing;
  • Include detailed information of the newly acquired entity;
  • Obtain the insurer’s written consent for coverage under the policy;
  • Agree to pay additional premium;
  • Be subject to additional policy terms.

Cyber risk can have a huge impact on any M&A activity. Legal liability and the means to transfer it should be a top priority during the transaction. There likely will be a big impact on existing insurance coverage. All parties need to focus on their rights and responsibilities and must engage the right experts to maximize protections in the process.

Why Healthcare Costs Soar (Part 2)

This is the second of a two-part series, by David Toomey and me, on why healthcare cost growth has historically been much higher that general inflation. 

In the last blog post, we outlined the complexity of the network negotiation process and the challenging dynamics among the insurance companies, the providers and the employers. The majority of employers have not seen financial data or interacted with providers enough to understand the quality and cost variation within a network. The big question looming is what to do around contract negotiations tied to network access, patient disruption and costs.

David invited a half-dozen large, self-insured employers in a market to delve deeper into the clinical care and cost variation analysis. The intent was to share performance data with the employers, so they could understand the positive financial impact that could come from channeling members to higher-value providers.

Reports showed that, within physician groups, there was wide variation in physician performance. But this took time for the employers to grasp because their businesses were focused on a consistent consumer experience—each cup of coffee made the same way with the same ingredients.

After a basic grounding in the data, the next step was to have the employers meet with the largest systems and physician groups, so the companies could get a sense of these suppliers’ value propositions beyond just claims-based performance reports. The employers felt they were ready for the first meetings with a major health system that we will call “the provider,” which outlined its capabilities and introduced its mission statement as well as its commitment to patients.

After the overview, the first employer question was, “Who is your customer?” The provider’s response: “The patient, of course.” Second employer question: “Who pays the bill?” The pr

Eating the Big Data Elephant

How do you eat an elephant? One bite at a time.

What an old joke with a great premise. No matter how big the task, taking things one bite at a time makes any daunting task seem easier to swallow.

Take the big data challenge. By and large, insurance companies and traditional businesses are used to relying on paper files, mailrooms, fax machines and call centers as incoming data streams. Designed to handle internal data collected from limited sources, the systems showed their first hint of trouble with an inability to incorporate emails and SMS text messages into policyholder and claim files. Inefficiently integrated best-of-breed IT environments further complicated the issue by putting data in silos and restricting access to users.

Today, integration of systems has improved, and the move toward suites has enabled additional collaboration and data sharing benefits. However, big data, marked by its volume, velocity and variety, still has insurers stymied. And the move toward omni-channel distribution, the Internet of Things (IoT) and the connected world has amplified the need for insurers to incorporate even more data streams (both internal and external) into the risk assessment process. Cue the analytics software and reporting solutions, neither of which alone will make a legacy system more able to digest information from new data sources for rating and underwriting purposes.

Meanwhile, the big data behemoth is growing into the proverbial elephant in the room. The problem is no longer just Incorporating this data; analyzing it and acting on it are equally incomprehensible.

Buying data from traditional data sources –including motor vehicle reports (MVRs), historical flood data and credit reports on the property and casualty (P&C) side or health and medical records or test results on the life and health side is expensive. Furthermore, traditional data sources don’t allow insurers to pick and choose what may be most useful based on line of business, let alone product or policy type, geographic area or purchasing preferences.

Alternative data sources such as social data exist, but the unstructured nature of the information makes it especially difficult for insurers to internalize. Consider that today’s consumers, who are both existing and potential new policyholders, are creating mountains of data that could contribute to better risk decision making, but right now that data doesn’t make it to the underwriter’s desk. Social data is a silver bullet that can provide a predictive enhancement layer for traditional data sources, leading to more accurate underwriting and making insurers better able to select the best risks.

By breaking the traditional data collection and utilization mold as it relates to risk assessment, insurers can integrate social data with core administration systems, making unstructured social data both accessible and actionable across all industry segments and lines of business. By capitalizing on the explosion of social data as a resource for better insurance risk assessment, insurers can improve underwriting, streamline the claims investigation process, decrease loss costs and potentially make insurance relevant to a whole new generation of insurance consumer.

The scope of the big data problem is just dawning on insurers. In an effort to not bite off more than can be chewed at one time, insurers can start to consume and absorb big data by incorporating social data into rating and underwriting. But keep in mind that social data is just the first bite of a very important meal.