Are you a lawyer who encounters insurance issues in mediation from time to time, but not an everyday insurance lawyer? If you aren’t an everyday insurance lawyer, it can be tempting in mediation to just jump right away to talking about bad faith damages only to have the insurance company’s attorney respond with, “Why is this other attorney just talking about all these bad faith damages, but they’re not claiming that we didn’t pay them everything that was owed?” In this episode, host Jean Lawler–commercial + insurance mediator and arbitrator–draws from her deep knowledge of the insurance industry, insurance policies and the various risks they insure against to discuss the three levels of damages in bad faith cases: contractual damages, extra-contractual damages, and punitive damages.
To read the full episode transcript please see the Podcast Website.
About the Host:
Based in Los Angeles, CA, Jean Lawler is an attorney and mediator, focusing on commercial, insurance and civil litigation matters pending at the trial and appellate levels - wherever filed. She regularly mediates a wide variety of insurance, business, and tort matters, as well as federal ADA accessibility lawsuits re architectural barriers and websites. CIPP/US (Certified Information Privacy Professional) certified, Jean also mediates matters involving data breaches, ransomware, and cyber losses. She has mediated hundreds upon hundreds - thousands - of cases over the years with a myriad of issues. For a more detailed sampling of the types of mediations that she has conducted and participated in, both when in practice and as a full-time mediator, please refer to her web page detailing Representative Matters.
Prior to becoming a full-time mediator in 2017, Jean was a Senior Partner in a Los Angeles based litigation firm, representing corporations, professionals, non-profits, individuals, and insurers in a broad range of matters, at trial and on appeal - mediating hundreds upon hundreds of cases over the years. Her legal experience has been diverse and international, and she has a deep knowledge of the insurance industry, insurance policies and the various risks they insure against (primary, excess, reinsurance, program, surplus lines, London Market, and international insurers). She also served as a Managing Partner of her former law firm, at times chairing the firm’s Insurance Law, Cyber & Privacy Law, International Law, and Business & Real Estate Transactions practice groups and, ultimately, served her many clients as counselor and trusted advisor.
As she would tell you if asked: “I absolutely love what I do! I would be honored to serve as your Mediator or Arbitrator.”
Connect with Jean:
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Website: https://www.lawleradr.com/
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[intro music]
JEAN LAWLER:
Well, hi. I’m Jean Lawler, I’m the host of the ROADS TO Resolution ~Closure and ~Certainty podcast. And it's a pleasure to be here with you today. Thank you so much for your time, which I know is very valuable. You may recall that last week I said that I was going to start a little mini-series of a few videos and podcasts on insurance in mediation.
So, today’s the second of these, and what I want to talk about today are–the three levels of damages in bad faith suits. And when I say that I say: Remember the triangle. So what I’m going to hold up here–and for those of you who are listening, you can’t see what I’m holding–but essentially it's a piece of paper on which I have made a triangle, and I call it “the bad faith damage matrix”. The bottom of the triangle is for contractual damages, the middle of the triangle is extra-contractual damages, and at the very tip top of the triangle are punitive damages.
And these are the damages that are available for alleged bad faith cases or for bad faith cases if you’re able to prove it, and the types of damages that would be discussed in a mediation. Some states may have other types of damages, such as statutory damages that would be available, but I’m talking right now basic contractually related damages and those arising out of the insurance contract.
And so that is the triangle to remember. Okay?
The contractual damages are the first level, and those are the damages that can be awarded for policy benefits that were owed but not paid.
Is what it is in a nutshell…
Whether it's a first-party policy–a fire, a flood policy, an underinsured motorist policy–something like that…An uninsured motorist policy where money should have been paid directly to the insured. Those are policy benefits, and those would be the kinds of contractual damages in a first-party case against an insurer.
In a third-party case, the question of contractual damages would come up in the sense of perhaps defense counsel fees against the plaintiff in the underlying lawsuit if the insurer did not pay those fees and they had a duty to defend. Or the payment of a judgment, perhaps, if the insurer did not pay the judgment, denied coverage, or there was a dispute as to coverage. There’s as many of these situations as your imagination can take you to, I suppose. But those are the types of damages that would constitute contractual damages from a third-party–any third-party context.
The next level of damages would be extra-contractual damages, i.e. bad faith damages. And stated another way—the breach of the implied covenant of good faith and fair dealing. Now just because it is found that there’s a breach of contract does not mean that a court, a judge, a jury would find that there was breach of the implied covenant of good faith and fair dealing. So you may not get to this level of damages at the end of the day, but you might. But what these kinds of damages are are a couple of types of things. They are really compensatory damages for the consequences that resulted from whatever the breach of contract was in the first place, that led to the contractual damages. So attorney fees to prove up coverage is a very typical and probably first level type of damages for extra-contractual. In California we refer to them as “Brandt fees”, B as in boy-R-A-N-D-T, “Brandt” fees. So that’s there.
What else?
Emotional distress…
Loss of income…
Lost opportunities…
Just…It depends on what was experienced in any particular given situation. But those would be extra-contractual damages.
And in mediation I’ve so often heard lawyers who are not everyday insurance attorneys–they don’t deal with insurance everyday–just jump right away to the claims involving bad faith or the alleged wrongdoings on the part of the insurance company with respect to a claim.
Like maybe they allegedly didn’t investigate fast enough, they didn’t pay fast enough, they didn’t defend, they didn’t do whatever it is that the plaintiff or the claimant thinks they should have done, fast enough or at all, for that matter, I suppose.
So, don’t just jump to those cases or to those kinds of damages. You have to start at the bottom, at the very beginning and those would be the contractual damages. I have had defense attorneys representing insurers in mediations who said,
“Why is this other attorney just talking about all these bad faith damages, but they’re not claiming that we didn’t pay them everything that was owed?”
The “we” being their client–the insurance company. So please, remember you have to be able to show things that the insurance company should have paid under the policy that they didn’t, to then get to the next level of showing or claiming what you would for extra-contractual damages or even discussing that.
The third level of damages are punitive damages. And those really probably are rarely going to be discussed in a mediation because an insurer would vehemently deny that that level has been met. Punitive damages are where behavior has been malicious, or oppressive, or fraudulent. So it's a very high standard of proof. But you can’t get punitive damages at court or whatever, if you haven't established and already gotten the extra-contractual damages, and you can only get those if you’ve established contractual damages.
So in terms of this triangle, keep it in mind. You’ve got to prove the bottom to get to the next level, to get to the next level. And just because you get through one level doesn’t mean you will go up to another level, but for talking points, keep the triangle in mind. It will not fail you.
Thank you so much for being with me today. It’s always my pleasure to welcome you to ROADS TO Resolution ~Closure and ~Certainty. I would be pleased, so pleased to have you follow me on my YouTube, LinkedIn, to reach out to me if you have any questions, or email me. Thank you so much, and goodbye. Have a good day.
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