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By Dennis Cusack
We recently litigated and successfully settled an insurance coverage case that offers a model for managing a case thoughtfully. Too often, parties reflexively dive into litigation with its procedural hurdles and delays, unbounded discovery, and often unnecessary motion practice, without considering whether a more efficient but fair alternative exists. Our group regularly seeks to fashion a sensible case-specific dispute resolution process at the outset. These models also allow us to offer creative fee arrangements that build incentives to optimize the costs and recoveries for the client.
Our client company and its officers were named in an intellectual property lawsuit. The same insurer provided CGL and D&O policies. It denied coverage under the CGL. It initially agreed to defend under the D&O policy but later withdrew its defense over our objections.
At that time, we proposed to the insurer that we present the two duty to defend issues to an arbitrator. Little or no discovery would be necessary. We would both have a say in the decision-maker and we could obtain a ruling more quickly than in a court. The insurer declined without explanation. We were forced to file suit.
Fortunately, with a breach of contract and bad faith complaint in hand, counsel for the insurer agreed to exchange key documents and file cross-motions for summary judgment on the duty to defend issues. We also agreed to limit ourselves to two briefs each. At the same time, we scheduled a mediation for a date between the end of briefing and the hearing on the motions. We therefore agreed to a case management scheme that was virtually identical to the arbitration process we had proposed. The case settled at the mediation.
In hindsight, the insurer may have balked at our arbitration proposal assuming that it would mean giving up its right to an appeal. But any dispute resolution process can be crafted to include an appeal, public or private. Most importantly, the great majority of insurance coverage disputes lend themselves to a scalable process for defining specific claims and defenses, teeing up policy interpretation issues for rulings, and conducting the discovery that’s necessary to evaluate the case for settlement purposes, while leaving open the possibility of a hearing and decision. Both insurers and insureds benefit from a process that offers more predictable timelines and budgets. Neither party risks getting “due processed to death” in unfettered litigation. The model can work in either a private arbitration setting, or in court through a crafted case management order. Our case presented a simple example. It only lasted 13 months from beginning to end, but it could have been completed in half that time and less expense if the insurer had agreed to our proposal at the outset.
Our client recovered a substantial sum. The predictable budget and timeline for the case (once we filed suit) also allowed our firm to share the risks and rewards with the client. We handled the matter under a fee arrangement in which the client paid one-half of our hourly rates and an additional contingent fee of one-sixth of the recovery, what we call a “half-and-half”. This arrangement aligned the firm’s and the client’s interests closely and created a rewarding working relationship between us.
By Dennis Cusack, Partner, Farella Braun + Martel LLP
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