It’s interesting. I have been at DRI’s 2024 Insurance Coverage and Practice Symposium all day, and much of the discussion is either directly about or tangentially related to the impact of artificial intelligence on insurance. To me, the consistent theme that underlies all of the discussion is the ability of AI tools to improve the industry’s ability to understand, interpret, manipulate and manage massive amounts of data (and also the risks of bad faith claims from doing so).

I was thinking about this because of this article, coincidentally also today, in the Guardian which shows that homeowners premium increases in various parts of the United States align consistently with the extent of that particular part of the country’s increased risk of loss from climate related events. Now I am not saying that this is due to AI or its use by the insurance industry – but the relationship between the two almost certainly is not an accident and by definition must be the result of ever more focused and skilled underwriting that is allowing homeowners insurers to link premiums to the specific risks of specific regions of the country, rather than simply spreading risks and premium increases randomly across large swaths of the United States. And those specific regional risks, it goes almost without saying although the article does so, are climate driven.

AI driven or not, this type of sophisticated underwriting is about having and applying a high level understanding of the data – something that AI tools should, eventually, only improve.

This is a great, and I think pretty even handed, article by Bloomberg on litigating LTD claims under ERISA. Although the headline and the central thrust of the article are about obtaining LTD benefits for claims of long Covid, the article really does a nice job of explaining the entire LTD claim process and the inherent litigation issues for any type of claim for LTD benefits.

What I particularly liked was its discussion of the importance of the appeal process during the administrative claim proceeding, prior to an insurer issuing a decision on the claim and before any litigation could be filed over a denial of the benefit. As a matter of law, the entire administrative process in front of the insurer, seeking an award by the insurer of the LTD benefits, must conclude before the claimant can sue to recover the LTD benefits. There are some, very narrow, exceptions to this rule, but they seldom come into play or actually apply (no matter how many times lawyers for claimants argue that the exceptions apply). Furthermore, again as a matter of law and subject to certain limited exceptions, once that claim process in front of the insurer has concluded and the claimant is thus able to file suit seeking an award of benefits, the claimant and the insurer are generally restricted in the court case to the evidence that was submitted to the insurer during the claim process.

As a result, the single most important stage of a claim for LTD benefits isn’t actually the court proceeding, but is instead the administrative claim process before the insurer and the submission at that time of relevant medical evidence, either supporting or negating the claim of disability. The article does a nice job of highlighting that the key to a successful LTD claim is how well the claim is evidenced and documented in front of the insurer during the claim process and before any suit is filed – because by the time the suit is filed, it is too late, in many cases, for any more of that evidence to be put into the record.

There’s an old New Yorker cartoon that shows a grandfatherly man talking to a younger man in a library, and he says to him that “Those who don’t study history are doomed to repeat it [while] those who do study history are doomed to stand by helplessly while everyone else repeats it.” Am I the only one who remembers when “W” wanted to turn our future social security benefits into, essentially, personal defined contribution accounts for Wall Street to manage? Whether you remember it or not, the idea has come back again, like a vampire that hasn’t had the stake fully driven through its heart, only this time in the idea of giving private equity access to managing funds in 401(k) plans. Note that I said 401(k) plans, not pension plans – if pension plan sponsors want to turn their plan assets over to alternative asset managers to invest, knowing that they will have to make up the shortfall if the investment goes south or is so costly that it may as well have gone south, bully for them, as they are both calling the tune and paying the piper for the song.

But there is a whole host of reasons why that isn’t the same story with 401(k) plans, and I will just briefly catalogue them here, off the top of my head and superficially – with the hope that either others will discuss each one in more depth elsewhere or that I may later have the time to return to one or more for an in-depth discussion.

First, 401(k) accounts long ago stopped being some form of supplemental retirement savings account for employees, instead becoming the sole opportunity for retirement income for most (and at best a second rate replacement for pensions, from the point of view of most employees). It is a fiction to pretend that any but the smallest portion of those investors is sophisticated enough not to be an easy mark for speculative investments or even good investments that happen to either pose high risk or impose high fees. The proposal risks a continued downward slide for employee retirement income, from pensions to defined contribution plans to speculative and risky investing for retirement. That is not something that retirement security across the society, which is mediocre at best, needs.

Second, private equity isn’t exactly known for the transparency of its fees, costs and expenses. Recent studies suggest that, even with regard to mutual funds held in 401(k) plans and even after regulatory investment in targeting the problem, vast numbers of 401(k) participants do not know or understand the fees in their plans or the long term impact on their retirement readiness of those fees. This latest idea won’t exactly go far towards alleviating this problem.

And third, the plaintiffs’ bar just went to bed dreaming of holiday treats. They have had to move on from the relatively easy pickings of suing plan sponsors and fiduciaries for excessive fees in their plans to more difficult theories, like plan forfeitures and health plan costs, as fees on mutual fund based plans have come down (often in response to years of class action suits over them). Just wait till the fees and expenses of private equity investments start showing up in defined contribution accounts – plaintiffs’ class action lawyers must be licking their chops at this prospect.

In the first of my two posts in this series discussing lessons I have learned over the past thirty years of practice as to how to avoid incurring Chapter 93A liability as a result of claims handling or settlement decisions, I discussed the centrality of the factual record of the claims handling and the necessity of a narrow focus in defending against a Chapter 93A claim. In my third post in this series, I am addressing the significance of the insurer’s investigation of a claim in potentially exposing it to Chapter 93A liability for failing to timely settle a claim or failing to offer the right amount in trying to settle a claim.

Historically, almost all cases imposing Chapter 93A liability on insurers in Massachusetts have centered on the insurer’s statutory obligation to settle once liability has become reasonably clear. Long buried in the background of such cases, however, has been the insurer’s simultaneous statutory obligation to reasonably investigate claims before making settlement decisions. While for years, a bad faith case against an insurer who failed to settle a tort action against its insured would proceed forward with plaintiff’s counsel focused on developing evidence to prove that liability had become reasonably clear but the insurer had still not settled the tort case against the insured, plaintiff’s counsel would often at the same time ignore – or simply not be cognizant of – the additional argument open to the plaintiff that this had occurred because the insurer had not properly investigated the claim against the insured. In other words, plaintiff’s counsel could have, but typically did not, argue that the insurer had failed to properly investigate the claim, that this had caused the insurer to undervalue the claim or overstate its defensibility, and had led to a failure to settle. This thesis has always been open to plaintiffs’ counsel in such cases, but plaintiffs typically did not pursue it – at least as a primary, front and center aspect of their Chapter 93A cases against insurers – and courts, probably for exactly that reason, did not focus on it or extensively develop doctrines governing such claims.

In recent years, though, this has begun to change, in a way that poses significant risks for insurers unless they start to pay very close attention to areas of claims handling that, historically and for many but not all companies, have been left to the discretion of defense counsel assigned to defend an insured. In the two cases I began discussing at the outset of this series of posts, you see two distinct approaches to the relationship between the insurer and the insured’s defense counsel: in one, you see the insurer and defense counsel cooperating to ensure that any areas of concern about liability or damages issues in the tort suit are addressed, even if the insurer has to invest in experts, and in the other, you see the insurer and defense counsel deciding to forego that activity and corresponding investment. Without even reading the cases, I am sure you know which one of these two scenarios led to the court finding a violation of Chapter 93A and imposing multiple damages on the insurer (hint for the people in the back of the room: it was the second one). These aspects of investigation relate to the manner in which defense counsel and the insurer invest in understanding the loss and, in response to that understanding, thereafter make settlement decisions. At this point in time, developments in the case law make clear that an insurer must work with defense counsel to invest in that undertaking, and will be at a severe disadvantage in defending against a Chapter 93A suit if the record shows that the insurer should have, but did not, do so.

We are, however, in my opinion, in the relatively early stages of courts focusing closely on the investigation done by the insurer and defense counsel in evaluating the propriety of an insurer’s settlement decisions. The question for me at this point is exactly what is the scope of investigation that is required. One can always investigate a claim further, but eventually one reaches a point of diminishing returns in terms of the extent of any increased enlightenment from the investment in doing so. Personally, I don’t believe the case law yet tells an insurer at what point in that continuum it is safe, without possibly violating Chapter 93A, to cease further investigation.

Instead, at this point, my advice to insurers is that decisions as to the scope of the investigation require a reasonableness analysis: does it appear that further investigation is likely to affect settlement decisions sufficiently to warrant the cost? If it does, then the safest path in terms of being prepared to defend against a future Chapter 93A claim is to engage in that investigation, and if it does not, then it is fair to believe that, in a future Chapter 93A claim, the reasonableness of the investigation is unlikely to be faulted by the court.

If this sounds a bit amorphous, that is intentional, as it is a perfect lead in to my next and final post in this series on avoiding Chapter 93A liability, which is the importance of playing the silence between the notes or, in other words, why advising an insurer on claims handling and settlement issues is a bit like jazz.

In my last post on the lessons that I have learned in 30 years of representing insurers in Chapter 93A cases, I discussed the crucial – almost outcome determinative – role in such a case against an insurer of the actual facts of the underlying claim and the manner in which the claim was handled. It seems obvious to say that the facts of a case drive the outcome in litigation, but in this context, what I mean is that the real time handling of a claim by an insurer and the real time handling of the covered tort suit by the insurer’s appointed defense counsel represent the most important part of any eventual Chapter 93A failure to settle action against the insurer concerning that underlying claim. The record left by those interactions and decisions during the course of the underlying claim against the insured constrain or instead free the insurer’s defense strategy in any later Chapter 93A action against it for failing to settle that claim. As I pointed out in my initial post in this series, an insurer should therefore have counsel advising it on claims handling decisions during the course of any significant underlying claim – independent of and separate from defense counsel for the insured in that action –for the exact purpose of keeping the insurer out of decisions or actions that could come back to haunt it in a later Chapter 93A action arising from those decisions.

In my last post, I mentioned that in my next post in this series – in other words, this one – I would address “the risks posed when an insurer paints with too broad a brush.” By this, I mean that an insurer defending a Chapter 93A action for failure to settle a claim should identify a specific aspect of the underlying case that justified its defense and settlement decisions – and more importantly the failure to execute a settlement short of a verdict against the insured – and build its case around it, rather than point at general aspects of the case that led it to not settle the underlying action. The two cases I discussed in my first post in this series demonstrate that a defense against a Chapter 93A action based on the former tactic can get the insurer a win in a Chapter 93A action alleging that the insurer failed to timely settle the underlying action, while a defense premised on arguing the latter will almost inevitably result in the insurer incurring additional bad faith liability in the Chapter 93A action above and beyond what it had to pay on the underlying tort suit against its insured.

I could give you multiple examples of Chapter 93A cases where I built the insurer’s defense around specific circumstances and events in the underlying tort action that justified its challenged settlement decisions during the underlying tort suit, leading to a good result for the insurer in the Chapter 93A action. For instance, in a case alleging that the insurer violated Chapter 93A because it did not make a legitimate settlement offer until very late in trial, I focused the defense of the Chapter 93A action – and the court’s attention – on the moment in the trial of the underlying claim where the defense case fell apart, with the argument being that until that moment, liability remained sufficiently in dispute that failing to settle before then could not have been a violation of Chapter 93A.

What I mean when I caution against an insurer “painting with too broad a brush” in defending a Chapter 93A action is the insurer failing to closely link its defense in the Chapter 93A case in that way to factual bases that the court will believe justified the insurer’s settlement decisions in the underlying action. I believe doing so is absolutely crucial to an insurer winning a Chapter 93A case alleging that the insurer unreasonably failed to settle the underlying claim against the insured. The alternative, on which I have seen insurers regularly lose, is to defend the Chapter 93A case by making broad arguments untethered from specific and narrowly defined aspects of the underlying case against the insured, such as arguing that the insurer’s settlement decisions were justified by general aspects of the nature of the case, or because the believability of certain witnesses was at issue which supposedly could not be determined except by the jury at trial, or in light of defense counsel’s ability, or (as has often been the case in Chapter 93A cases that have gone south for the insurer) based on assertions that comparative negligence was in play and required a jury determination in the underlying case before the liability of the insured could be clear and an obligation to settle arise. This type of approach to defending a Chapter 93A action is what I mean by “painting with too broad a brush,” and some form of it can be found at the heart of every significant Chapter 93A ruling in Massachusetts against an insurer for bad faith failure to settle.

I love these stories on big firms, who are used to billing by the hour, using contingency fee cases to boost the bottom line. When I say that, I am not taking pot shots or being sarcastic – instead, I appreciate the fact that, on a large scale, they are doing what smaller predominately billable hour shops have been doing for years, which is boosting, every now and then, revenue by hitting on a large recovery that goes on top of the traditional, billed time collections for that given year. Personally, I do the same thing in the ERISA context for certain types of claims, typically by means of hybrid agreements where the success kicker comes into play at the end of the case from a win. Either way, it’s the same model, just on a different scale. Sometimes, lawyers who solely bill by the hour, and moreover who have been conditioned since being first year lawyers at firms to think of that as the “right” way to bill, don’t see that approach as viable. Maybe news that some of the biggest law firms in the world do the same, only on a vastly different scale, will finally make them see the light.

Or maybe I hope it does not have that effect – do I really want to surrender to competitors the competitive advantage of offering such a billing option sometimes? I say this a little tongue in cheek, because the competitive advantage, as the article hints at, isn’t really in the offering of contingency, hybrid or other similar alternative fees that require winning to get paid, but instead in the ability of a given firm to pick winners to bet on in this regard – if I really have a competitive advantage in my own practice from sometimes offering such fee agreements, it’s from my well-honed (and documented) ability to pick winners, not from the simple fact that I offer the option.

I have counseled insurers and represented them in litigation on bad faith claims handling and Chapter 93A cases for pretty much the entire modern era of insurer bad faith law in Massachusetts. My very first trial as a first chair was a Chapter 93A bad faith failure to settle claim against a major insurer (I lost on liability, but whittled damages down to a pittance) and, several years later, I defended the primary carrier in the first lawsuit in Massachusetts asserting the now common theory of post-verdict bad faith, under which a claimant who has obtained a jury verdict then claims the insurer violated Chapter 93A by pursuing an appeal or seeking to negotiate the verdict amount downward rather than simply paying the verdict.

Over the years, I have developed a number of principles, standards and rules for evaluating bad faith claims, counseling insurers on avoiding them in the first place, and litigating them if it comes to that. Someday, I would like to compile them in an article, or a white paper for a client, or a presentation at an insurance conference or DRI conference, but I haven’t found the time or the opportunity yet. However, two very recent decisions from two different federal judges in Massachusetts offer me the opportunity to discuss a couple of those principles. I am going to try to address two or three of them in succession in a series of weekly posts, starting today.

The two cases are both very interesting and very different, not the least of which because in one, the insurer lost and suffered an award of multiple damages and in the other, the insurer prevailed. The contrast between the two offers an excellent teaching moment for discussing how an insurer avoids liability in these types of scenarios and the circumstances in which that is simply not going to be possible. One of the biggest things the two cases, taken together and in light of their different outcomes, demonstrate is the sheer overwhelming importance of the facts. In one, the insurer, by the time the claim process was concluded, simply did not have a good record left to defend against claims of bad faith in investigating and failing to settle the underlying claim, while in the other, the course of conduct between the claimant’s counsel and the insurer during the pendency of the underlying action left the insurer with a solid record for defending such a claim. Therein lies the first and most important point for insurers confronted with Chapter 93A claims related to allegedly bad faith claims handling and settlement decisions, and that is that, in the famous words of that great trial lawyer (and secondarily for these purposes, a United States president), John Adams, facts are stubborn things.

This seems like a simple point, but in the two decisions you see the extent to which the differing fact patterns drove the result – in one, a significant multiple damages award against the insurer and in the other, summary judgment in favor of the insurer. Moreover, there is a subtle point in the handling of bad faith cases buried in this lesson, which is that, while in hindsight it is easy to see the nature of the facts and the risk of bad faith liability they present when written out by the Court in findings of fact after trial or in a summary judgment ruling, that is not always going to be the case during the handling of the underlying claim, which is when the decisions are being made about settlement or claims handling that will either give rise to or alternatively avoid triggering a subsequent Chapter 93A or bad faith lawsuit. It is when those decisions are being made in real time that the rubber hits the road in terms of the eventual outcome of a bad faith claim and in terms of the insurer’s ability to avoid heading down a path that may eventually result in an adverse bad faith verdict. It is crucial at that early stage for an insurer to have counsel, whether inhouse or outside counsel, who not only understands the facts of the case but has sufficient experience with bad faith litigation to be able to see around the proverbial corner, allowing him or her to provide the kind of sound advice during the handling of the underlying claim that will avoid a bad faith suit in the first place, or allow it to be adequately defended if it cannot be avoided and one is eventually instituted. The absence of this expertise and level of guidance is what causes insurers to walk into the type of claims handling and settlement decisions that eventually result in multiple damages awards for bad faith claims handling and settlement decisions.

The decisions are Appleton and Urban. In my next post on this subject and these two decisions, I will discuss the lessons they teach about the risks posed when an insurer paints with too broad a brush.

When I was in college in D.C. lo these many years ago, a friend of mine’s uncle took us out to dinner at the Watergate complex (still the only time I have ever been inside it). He had been a tech guy at HBO in its early days, when he quit on the spot over compensation issues; a week later, they hired him as a consultant and the next thing he knew, he had a thriving tech consulting company in the cable and communications industry. I have never forgotten what he said to me when explaining, decades after the event, why he left HBO – he said “sales gets all the money – and don’t forget it.”

When it comes to selling legal services, I tend to prefer to let the outcomes of my cases and the quality of the work product speak for me, so it is always good when I can rely on someone else to blow my horn, which Super Lawyers is doing today in the release of their 2024 Massachusetts Super Lawyers issue. You can find me in it right here and more on me in it here. Thanks to Super Lawyers for the recognition.

Many of you know that I have been writing about the intersection of the insurance industry and climate change for almost long as this blog has existed. I have long been interested in the economic relationship between the two, as the industry responds to climate losses and, in so doing, forces homeowners and other insureds to proactively and constructively respond to climate change and its inherent property risks. Thanks to the beauty of the LinkedIn algorithm, this excellent, detailed study of the topic came to my attention yesterday. The article – “Rise of the Insurance Apocalypse” in The Lever – points out that the economic interrelationship of climate change and insurance is even more extensive than we often think, pointing out how it affects not just homeowners in risk prone areas but the very question of whether certain types of energy projects can, will or should even be built.

But it also points out something more troubling, which is seldom covered by the articles in most media about the subject, which typically simply discuss insurers retreating from a particular state so as to reduce their losses; namely, the extent to which climate related losses and exposures are threatening the very fabric of the reinsurance system on which much of the modern western economic world rests. Beyond that, it does a terrific job of sketching the history of the industry’s engagement with the problem, tracing it farther back than I have understood it to go, pointing out that “in 1973, Munich Re, one of the world’s major reinsurance firms, noticed a spike in the number of flood damage claims” and noted in a report “’the rising temperature of the Earth’s atmosphere’, due to the ‘rise of the CO2 content of the air, causing a change in the absorption of solar energy.’”

None of this is going away, and this history is worth understanding for anyone interested in the legal, regulatory and political environment that is growing up around the changes in the insurance and reinsurance industries as a result of climate losses.

The relationship between climate change and the insurance industry has been a favorite hobbyhorse of mine for over a decade, since I learned that Lloyd’s was closely studying the potential impact of climate change on insurance rates, profits, underwriting and the like. Good for the industry, I said then in my blog, for taking a proactive approach to a major threat to its business model. Beyond that, as I have written often, as goes insurance losses, insurance prices and the other economic disruptions caused by climate change, so too will go our collective economic, political and social willingness to respond to the crisis.

I wanted to briefly comment on this most recent article on the subject, from the Washington Post, concerning approval in California of increased homeowners’ premiums in exchange for continued or increased underwriting of risks in areas exposed to wildfire and other climate-based risks. It is interesting for at least two reasons that are worth noting. First, for some time now, the story – not just in California, but in other states, particularly Florida, as well – has been about insurers ceasing to write risks in a given state, given the losses due to climate related disasters. Now we are seeing the next and, for the market, hopeful step, which is the realigning of the financial models, including pricing, to allow for private insurance to step back into covering the risks. This is important because otherwise, only two realistic options exist, neither of them good: uninsured homes or state provided coverage.

Second, the story shows a state regulator and an insurer working together to align the increased costs of the exposure with the particular homeowners owning the at risk properties, rather than either the insurer abandoning the entire marketplace as a whole or transferring all of the costs of the risks to other insureds uniformly. While not entirely clear from the article, it appears that the rate increases are tied to the exposure of particular homes or areas, and a different article notes that the “rate hike also includes discounts for homeowners who take steps to reduce wildfire risks on their properties.” We know from the history of rebuilding in flood zones because of the availability of federal flood insurance that an absence of market discipline creates a moral hazard problem and reduces the incentive to act proactively to avoid future climate related losses. Allowing homeowners’ carriers to impose at least some market discipline with regard to the economic costs of climate change can only help drive sensible responses to climate change and sensible efforts to mitigate the harm from it, both economic and otherwise.

Now, that is not the end of the story, but it is close to it with regard to how much should be discussed in a single blog post. Allow me, though, to note that I am aware that allowing targeted premium increases directed to specific homeowners or small areas where property is particularly at risk is in tension with the underlying principle of insurance, which is to broadly share risks to reduce costs for all. I am also aware that it can result in large premium increases being imposed on some homeowners who cannot afford to carry it, because not all properties at increased risk of destruction from climate change are the beach houses of the rich. These are problems, however, with solutions or possible solutions, best discussed another day.

Enjoy Labor Day by the way!