The sound of settling

August 24, 2022

Comedian John Oliver aired a segment on his show Last Week Tonight in 2017, about a coal billionaire named Bob Murray.[1] The story portrayed Murray negatively—due to his handling of the 2007 Crandall Canyon Mine Collapse—and included language that is not appropriate to be printed here.[2]

Murray took offense to the segment and he filed a lawsuit against Oliver for libel in West Virginia. After a lengthy litigation process—that faced several delays, including the impeachment of West Virginia’s entire Supreme Court[3]—Oliver won. The victory cost several hundred-thousand dollars and significantly increased the premium for Oliver’s libel insurance.[4] It did not matter that Murray had no valid legal argument; Oliver still faced a hefty price just for angering a litigious billionaire.

While insurance producers probably do not insult billionaires on television too often, they still may face lawsuits on two fronts. First, unsatisfied clients may file a lawsuit alleging the producer violated a duty owed to the client and claiming damages. Clients also may find themselves facing lawsuits in which their insurance policies would cover the legal costs. Regardless of facts and law, such lawsuits may force producers and clients into difficult and costly positions without ever going to trial. As tempting as it may be to prove one did nothing wrong, the best way to limit the damage of such a lawsuit usually is to settle before even heading to court.

Finding a cause to sue

Everyone probably has considered suing someone or pressing charges due to a real or perceived grievance. Most of us promptly forget about it without looking up or contacting a lawyer. For those who do go through with consulting an attorney, the first thing that attorney will need to do is find a valid reason to file a lawsuit against the other party. A dispute between two parties tends to involve the allegation that another party committed an intentional tort and caused damages to the plaintiff.

Tort law gives the injured party seemingly limitless options to file a lawsuit for damages against another person or party. It allows a lawyer to argue that a party had a duty of care toward its client, the party violated said duty, and the client suffered an injury as a result. One of the most infamous examples of such a lawsuit occurred when a woman in New Mexico filed a lawsuit against McDonalds due to the high temperature of the hot coffee and then won millions of dollars in damages.[5]

Tort law has been developed primarily in courts. For insurance producers, the duty of care owed to clients has been developed largely by courts rather than state Legislatures. This has led to states going in different directions when it comes to what duty producers owe their clients. In 1998, the highest court in New York held in Murphy v. Kuhn that, “insurance agents have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so.”[6] Meanwhile, New Jersey’s courts have developed a much higher standard for insurance producers. In Aden v. Fortsh, the highest court in New Jersey held that insurance producers must be held to a fiduciary standard due to the complexity of insurance.[7] Fortunately, most states (including Connecticut, New Hampshire and Vermont) have gone in the direction of New York and held that, absent a special relationship, insurance producers have a duty to obtain the requested coverage for clients without going further.[8]

Forum shopping

As each state has its own legal system, an injured party may have a much higher likelihood of success in a specific state. If distraught clients could choose between filing claims against their insurance brokers in New Hampshire, New Jersey or New York, their attorneys would direct them straight to New Jersey. The higher duty of care in New Jersey greatly increases the likelihood of success for the clients, simply due to the differences in state law.

However, attorneys cannot pull up the laws of all 50 states and pick the best one for their clients. Civil procedure laws dictate whether a party has standing to file a lawsuit in a specific forum. Generally, one party to the lawsuit must have a bona fide presence in the jurisdiction, or the dispute must have occurred there. A client in New Hampshire cannot file a lawsuit against his or her insurance agent—who works in Portsmouth, N.H., for a risk based in New Hampshire—in a New Jersey court simply because the agent has a nonresident license for New Jersey. While the agent could sell a New Jersey policy, that is not sufficient of a connection to move the dispute to New Jersey. However, a New Jersey agent who sells a policy to a client in New Jersey for a risk in New York would likely face a lawsuit in New Jersey.

National and multinational companies pay close attention to this issue before they ever face a legal challenge. Despite being associated with headquarters in a specific state (such as New York), a disproportionate number of publicly traded companies file their corporate bylaws in Delaware due to its pro-corporation legal system (i.e., the legal flexibility available to corporations through the Delaware General Corporation Law, the expertise of the Delaware Court of the Chancery, and the extensive corporate case law setting precedent in the state courts). Companies take similar steps to protect themselves when they enter into agreements with other parties, including customers, they frequently specify the forum for all disputes. If an agent in Connecticut wants to file a lawsuit against a carrier with a corporate headquarters in Boston, he or she may find that the agency agreement requires any legal dispute be filed in an Arizona state court. The company would likely have a presence in Arizona to have standing in the state court, and therefore, have standing to take advantage of laws it perceives as favorable to the company in court.

The costs of a fight

As soon as a party files a lawsuit against you or your client, the costs begin to add up. Fortunately, most insurance producers and their clients have insurance policies to cover these expenses. Producers maintain errors-and-omissions insurance to protect themselves from the costs of an aggrieved client filing a lawsuit for damages against them. Businesses should have an array of policies protecting them beginning with general liability insurance, which would cover complaints from the public. Private individuals have personal liability coverage built into their homeowners insurance policies. All these policies help shield the policyholder from the costs of litigation.

If an insurance policy covers the cost of litigation, then the company likely will assert control over the defense costs and use that control to dictate the defense strategy. The now-defendants may know they have the law on their side and wish to prove so in court. Their insurance carriers may see it differently and push to settle to limit the cost of the dispute. Litigation costs add up fast—regardless of who wins in the end. When Murray sued Oliver, it still cost HBO over $200,000 to dismiss the lawsuit.[9] As far as lawsuits go, it had been relatively simple and straightforward. Oliver even had libel insurance, yet that only covered part of the costs, which meant Oliver and HBO paid to prove they did nothing wrong.

Insurance policies that cover legal expenses, including E&O policies, usually give the company the ability to negotiate a settlement. The defendant, as the client, always has the legal right to turn down a settlement offer. However, policies limit litigation coverage to the amount of the settlement negotiated by the carrier. If the defendant declines the negotiated settlement, then he or she usually must pay for the litigations costs and penalty above that amount. While Oliver had the resources to defend his show beyond what his libel insurer likely covered, most businesses and individuals do not have that option.

Defendants may be convinced they did nothing wrong, but find themselves settling due to the realities of funding litigation. Just remember that settlements do not mean professing guilt—they are merely agreements not to devote the GDP of a small country to defend oneself in the modern judicial system.

To sue or not

Businesses only can do so much to avoid a lawsuit. Once they get served, the actual facts frequently take a backseat to an assessment of one’s resources. Even if parties know they did not violate a law, settling may be the best way to minimize the expenses of litigation without having a trial. That is without considering the time and stress of ongoing legal disputes.

This article originally appeared in the April 2020 issue of PIA Magazine.

[1] Stedman, Alex. “‘Last Week Tonight’: ‘At No Point’ Was Donald Trump Invited to Appear.” Variety. Nov. 1, 2015

[2] “June 18, 2017: Coal Mining.” Last Week Tonight with John Oliver. HBO. June 18, 2017

[3] Criss, Doug. “The West Virginia House has impeached the entire state Supreme Court.” CNN. Aug. 14, 2018

[4] “Nov. 10, 2019: SLAPP Suits.” Last Week Tonight with John Oliver. HBO. Nov. 10, 2019

[5] Liebeck v. McDonald’s Restaurants. 1994 Extra LEXIS 23 (Bernalillo County, N.M. Dist. Ct. 1994)

[6] Murphy v. Kuhn. 90 N.Y.2d 266 (1997)

[7] Aden v. Fortsh, 169 N.J. 64, 78 (2001)

[8] The only states with a fiduciary standard for insurance producers are Alabama, Arizona, Pennsylvania and New Jersey.

[9] “Nov. 10, 2019: SLAPP Suits.” Last Week Tonight with John Oliver. HBO. Nov. 10, 2019

Related stories…

Share This