Coverage Issues: Pennsylvania Unfair Insurance Practices Act, Unfair Claims Settlement Practices Regulations, Reservation of Rights Letters and Non-Waiver Agreements and Excess Verdict Issues Presented to: PAMIC – APRIL 5, 2006 Krista F. Fiore, Esquire Michael S. Saltzman, Esquire FINEMAN, KREKSTEIN & HARRIS, P.C.

PART 1: UNFAIR CLAIMS SETTLEMENT PRACTICES (REGULATIONS)  Section Scope Of The Act  Section Definitions  Section File And Record Documentation  Section Misrepresentation Of Policy Provision

TIME LIMITATIONS UNDER THE REGULATIONS Section Failure To Acknowledge Pertinent Communications - Time Limits Ten working days - notification of claim Ten working days - notification of claim Fifteen working days - insurance department inquiry Fifteen working days - insurance department inquiry Ten working days - reply period Ten working days - reply period Ten working days - reply period for first-party claims Ten working days - reply period for first-party claims

TIME LIMITATIONS UNDER THE REGULATIONS Section Standards For Prompt Investigation Of Claims - Time Limits Investigation complete within 30 days, or if not complete, report to insured every 45 days thereafter

TIME LIMITATIONS UNDER THE REGULATIONS Section Standards For Prompt, Fair And Equitable Settlements Applicable To Insurers Acceptance or denial of claim - first-party claims Acceptance or denial of claim - first-party claims Fifteen working daysFifteen working days Fraud exception - reasonable timeFraud exception - reasonable time The forty-five day cycle - first-party claims The forty-five day cycle - first-party claims Unrepresented claimants - Statute of Limitations Unrepresented claimants - Statute of Limitations

OTHER CONSIDERATIONS  Section Standards For Prompt, Fair And Equitable Settlements Applicable To Automobile Insurance  Section Comparative Negligence

PART 2: Unfair Insurance Practices Act 40 P.S. § (2005) Regulation of insurance business and definitions of unfair methods of competition and unfair or deceptive acts

UNFAIR METHOD OF COMPETITION OR UNFAIR OR DECEPTIVE ACTS OR PRACTICES Connection with Unfair Insurance Practices Act Regulations Connection with Unfair Insurance Practices Act Regulations  Investigation  Determination of coverage  Settlements  Failure to settle  Inducement to settle

PROCEDURES Investigation by commissioner Investigation by commissioner Administrative hearing Administrative hearing Administrative penalty Administrative penalty Injunction Injunction Civil penalties Civil penalties

PART 3: Examples Of How The Unfair Insurance Practices Act And Unfair Claims Settlement Practices Regulations Have Been Used In Bad Faith Litigation

BAD FAITH ISSUES No private cause of action under the UIPA or UCSP No private cause of action under the UIPA or UCSP Insurance Commissioner, exclusive jurisdiction Insurance Commissioner, exclusive jurisdiction Allegations of violations do not amount to bad faith Allegations of violations do not amount to bad faith Violations will be considered in determining bad faith, and breaches of covenant of good and fair dealing Violations will be considered in determining bad faith, and breaches of covenant of good and fair dealing

BAD FAITH ISSUES  An insurer can be liable for bad faith if it fails to conduct a good faith investigation and/or neglects to communicate promptly with the insured  Cases have held that technical violations do not constitute bad faith  Better to be safe than sorry

THE IMPACT OF UIPA AND UCSP ON DISCOVERY  Plaintiffs can ascertain procedures for implementing standards of UIPA and UCSP  Can an expert testify to standards?

IMPACT OF UIPA AND UCSP ON DAMAGES CLOSING THOUGHTS

PART 4: Non-waiver Agreements And Reservation Of Rights Letters Notifying the insured of coverage issues

REQUIREMENTS Communicated to the insured Communicated to the insured Fairly inform the insured of the insurer's position Fairly inform the insured of the insurer's position Timeliness Timeliness

COMMUNICATED TO THE INSURED  Send to individual insured or president of corporation  Trustee in bankruptcy also effective

FAIRLY INFORM THE INSURED OF THE INSURER'S POSITION Identify the potential coverage disputes Identify the potential coverage disputes Inform the insured that there is the potential that it could incur liability for any non-covered claim Inform the insured that there is the potential that it could incur liability for any non-covered claim Acknowledge that the company is investigating and/or defending the claim without surrendering its right to disclaim coverage for any non-covered claim Acknowledge that the company is investigating and/or defending the claim without surrendering its right to disclaim coverage for any non-covered claim

TIMELINESS  Insurers should issue letter promptly  Insured must establish prejudice by failing to timely issue letter  Test of timeliness is reasonableness

CONCLUSION  Reservation of rights and non-waiver agreements are useful tools  Permits insurer to investigate while underlying case proceeds  Courts will enforce them

PART 5: EXCESS VERDICT ISSUES

AVOIDING BAD FAITH  Risk of liability  Range of adverse verdict  Strengths and weaknesses of evidence  History of cases in geographic area  Appearances of all parties

RELATIONSHIP BETWEEN EXCESS INSURER AND PRIMARY INSURER No direct contract with each other No direct contract with each other Doctrine of equitable subrogation Doctrine of equitable subrogation

DUTIES OF PRIMARY CARRIER IN EXCESS CASES Notify insured Notify insured Notify excess carrier Notify excess carrier Notify both insured and excess carrier of underlying case Notify both insured and excess carrier of underlying case