Insurers Should Beware of Bad Faith Setups as COVID-19 Pandemic Drives Many to Work Remotely
During the transition to a remote work environment and throughout the COVID-19 pandemic, insurers should expect an increase in volume of time-limited settlement demands
Orders tolling litigation deadlines should not be presumed applicable to extra-judicial time-limited demands
Carriers and claims professionals should exercise care that mail is delivered and carefully reviewed in a timely fashion so that time-limited demands are promptly addressed
Over the course of the past several weeks, state and local governments across the nation have issued orders requiring businesses to partially or entirely vacate their physical premises and have their employees begin working remotely. Countless businesses have implemented mandatory or voluntary work-from-home policies. The purpose of these directives, of course, is to slow the transmission of COVID-19 via interpersonal contact at busy workplaces. But businesses, including insurance companies, must remain cognizant of their ongoing legal duties as they undertake the transition to a remote working environment.
For insurance companies, a critical aspect of this transition is the timely delivery of mail to claims professionals. While many claims are now reported electronically, time-limited settlement demand letters are often sent by postal mail. After all, when attempting to set the carrier up for extra-contractual exposure, the claimant’s goal is for the carrier to fail to timely respond to the demand. In the past, some attorneys representing claimants have timed demands to arrive before long weekends or during the holidays in the hope that the demand will not be promptly acted upon. The current shift to remote working environments presents a similar opportunity for claimants to manufacture bad faith claims.
Legal Precedent and the Current Pandemic
Court opinions have recognized factual scenarios regarding time-limited demands that were missed or delayed due to holidays. For instance, in Hicks v. Dairyland Insurance Company, 441 Fed.Appx. 463 (9th Cir. 2011), the claims professional did not see the two-week time-limited settlement demand until after it had expired due to mailing delays and an intervening holiday. In Whiteside v. Infinity Cas. Ins. Co., 2008 WL 3456508 (M.D. Georgia 2008), the claimant’s attorney sent a six-day time-limited demand letter that was set to expire on a holiday. While not all jurisdictions approve of such abbreviated time periods, at least one court has found a period of 10 days reasonable under the circumstances. Roberts v. Printup, 595 Fed.3d 1181 (10th Cir. 2010).
It is important to remember that court rules extending deadlines through weekends and holidays are not applicable to out-of-court settlement correspondence. Likewise, although some states are tolling court-related deadlines due to the COVID-19 pandemic, these mandates do not generally apply to extra-judicial activities such as settlement demands. For instance, New York Governor Andrew Cuomo’s March 20, 2020 Executive Order 202.8 purports to toll “any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding, as prescribed by the procedural laws of the state” until April 19, 2020. There is no reference in the Executive Order to responses to time-limited settlement demands or any other time limits set by private parties.
Carriers may believe that delays due to the COVID-19 pandemic will be deemed reasonable under the circumstances in the context of a bad faith suit. In very limited instances, that may be the case. However, carriers must recognize that a finding of bad faith is often a highly discretionary determination conducted by a jury. The members of that jury will also have undergone significant hardship during the pandemic, and many will have looked to their insurers for institutional stability. The insured and claimant will testify that now, more than ever, they needed the settlement completed and their interests protected by the insurer. Accordingly, carriers are urged to operate under the assumption that the COVID-19 pandemic will not serve to excuse conduct that would otherwise constitute bad faith.
In short, carriers should be prepared for an uptick in time-limited settlement demands during the COVID-19 pandemic. In response, carriers should ensure that despite any distractions or difficulties caused by the transition to a remote workplace, incoming mail is timely forwarded to the handling claims professional. Claims professionals should promptly review incoming mail and scrutinize the contents for time-limited demand language. In this way, carriers can continue to protect the interests of their insureds and minimize their own exposure to extra-contractual liability.
For more information or further guidance, please contact:
- Michael E. Longo
- David L. Brown
- Jeffrey L. Kingsley
- Or another member of our Global Insurance Services practice or Coronavirus Coverage Team