October 19th, 2011

Insurer Slammed For Bad Faith as Judge Cites “A Few Good Men”

Can you handle the truth? Just to make sure, Brooklyn Supreme Court Justice Arthur Schack opened his opinion yesterday — wherein he castigates a New York insurer for bad faith in settlement negotiations — by citing to the famous courtroom showdown in A Few Good Men in Taveras v. American Transit Ins. Co.

Col. Jessup: You want answers?
Lt. Kaffee: I think I’m entitled to them.
Col. Jessup: You want answers?
Lt. Kaffee: I want the truth!
Col. Jessup: You can’t handle the truth!

And the truth, as seen through the eyes of Justice Schack, is that American Transit, which insures many of New York’s taxis, is now on the hook for $2,250,000 after refusing to settle for the $200,000 limits of the insurance policy.  That is 2.25M plus interest from 2006, at 9% per annum, which should add about another million. According to Justice Schack, American Transit, “refuses not only to acknowledge, but to handle the truth!”

American Transit refers to itself this way on its website:

The Company has established itself as the leader and principal market for this type of business and its resultant premium volume has established the Company as the leading commercial automobile underwriter in New York State for the past several years.

So let’s see what this insurance carrier did to deserve their comeuppance from Justice Schack:

It all started with a car accident in which Taveras was a back-seat passenger in Amir’s taxi, insured by American Transit. Amir rear-end another car, and was then rear-ended itself.  All three drivers were sued by Taveras, who suffered serious injuries to his neck, back and knee, requiring surgeries to his back and knee.

With multiple cars involved, a liability trial followed, and the jury found the American Transit taxi 70% liable with 30% liability on the car that plowed into them (the second hit). That other liable car, the one with the 30% liability, also happened to be insured by American Transit. Each taxi had $100,000 in coverage.

With liability established,  and such significant injuries, the combined $200,000 insurance policy would have been clearly inadequate. The claims included, in addition to the pain and suffering, future medical needs of $636,000 and lost earnings of about $924,000

But the plaintiff recognized, as so many plaintiffs do, that going after personal assets beyond the insurance policy was likely to be a losing proposition, as you can’t get blood from a stone. Or a taxi driver.

So the plaintiff said, both before the liability trial and again afterwards, that he would take the 200K policy and be done with it. American Transit responded to the demand at one point, according to plaintiff’s counsel, by saying it would pay the 200K “over our dead bodies.”

Not only did they refuse to negotiate in good faith, but they also failed to tell their insured that his personal assets would be put at risk when American Transit refused to settle for the policy. Oops.

Perhaps AT figured that, with a badly injured plaintiff, they could simply wait him out and settle for even less, regardless of whether this constituted good faith negotiations or no?. Perhaps they figured they had the upper hand, as many insurers do? Perhaps, they were simply arrogant? Perhaps they were too busy going to insurance conference conferences to bother looking at the case?

Maybe they just wanted to make the plaintiff spend his money? Because after the plaintiffs’s experts testified — a neurosurgeon, an orthopedist, a neurologist and an economist — American Transit offered up the two policies. Plaintiff told the defendant to go shit in a hat (as we say in legalese) and went on to take a verdict.

After American Transit refuses offers to settle, a whopper of a verdict comes in for $9,263,376. This was then reduced to $2,500,000, as we don’t let verdicts stand that deviate materially from what would be reasonable compensation. (See: How New York Caps Personal Injury Damages.)  Since the front car in the accident had settled for 250K, that left $2.25M

Amir, who was now on the hook for millions, assigned his rights to the plaintiff to proceed against his insurance company. And it ended this week with the court saying that:

“it is clear, as a matter of law, defendant AT engaged in a pattern of knowing and reckless disregard for the interests of its insured AMIR. Despite its protestations to the contrary, AT refuses to acknowledge its bad faith and now attempts to disclaim and throw AMIR “under the cab.”

As we say in legalese, ouch.

The standard for bad faith by an insurer in New York is:

in order to establish a prima facie case of bad faith, the plaintiff must establish that the insurer’s conduct constituted a “gross disregard” of the insured’s interests that is, a deliberate or reckless failure to place on equal footing the interests of its insured with its own interests when considering a settlement offer.

And this seemed to fit American Transit to a T.

The most striking part of the decision, however, is this: The issue was decided on summary judgment after a series of depositions of AT employees. That is, American Transit’s bad faith was so bad that the judge found it as a matter of law, as there was no factual issue for a jury to decide. Justice Schack did this while acknowledging the standard for such actions:

Courts, in bad faith actions, are hesitant to grant summary judgment against defendant insurers because typically there are issues of fact with respect to whether the conduct of the defendant insurer constituted “gross disregard” of the insured’s interests. However, courts are rarely presented, as in the instant action, with party admissions acknowledging that defendant AT’s conduct was “reckless,” demonstrating a pattern of behavior evincing a conscious or knowing indifference to its insured, AMIR. AT’s employees admitted to AT’s “reckless” conduct and one even deemed it “suicide” to go forward on damages, based upon the limited information maintained by AT and the lack of any colorable defense to plaintiff’s damages.

That is some pretty strong stuff.

The decision is long and detailed, and goes into the multiple failings of the American Transit to evaluate the case prior to trial and its attempts to shift blame to its attorney. But Justice Schack was not interested in blame-shifting to trial counsel when it was clear the powers-that-be, those with actual authority to settle the case, hadn’t even looked at it. Justice Schack wrote:

Before the liability portion of the trial began: Claims Supervisor Phyllis Toppin did not evaluate the merits of the case; Bodily Injury Manager Jay Ellenberg was not aware that the case existed; and, Vice President Richard Carroll only learned of the case one month before trial and never reviewed the file himself.  This is surprising, because only Ms. Toppin, Mr. Ellenberg and Mr. Carroll had the authority to settle a case for more than $50,000. Also, Mr. Ellenberg and Mr. Carroll were the only AT personnel with the authority to set the reserve on a case at $100,000…

A couple other points worth noting: American Transit, after years of asserting they were the insurer, tried to disclaim after they lost. The judge tossed the claim as equitably estopped. He did not appear to be amused by such tactics.

Another tidbit, the defendant driver, Amir, has a law degree from Pakistan and a degree in the US and was permitted to sit for the bar at the time of the accident. After he got blind-sided by his insurer — having never been told he might be on the hook for any excess —  they told him to file for bankruptcy and hold of sitting for the bar.

This decision sits as a textbook lesson of everything they should never do.

Elsewhere:

Insurer Acted in Bad Faith by Refusing to Settle Suit, Judge Says (NYLJ)

Insurer can’t ‘handle the truth’ in bad-faith case: judge (ThomsonReuters)