The Disruptive Lawyer Series: Lack of Insured’s Consent in EPL, D/O, and E/O Claims: The $ Bleed is Significant

EPL, D/O or E/O carriers need to employ this Key Performance Indicator Metric: When does counsel secure consent to settle? Here’s why.

The Disruptive Lawyer got a call from two separate Employment Practices Liability clients in the same week with the same problem. One of the client’s cases was in Illinois and the other’s case was in Ohio. Their stories were this: “We have a likely liability case where we couldn’t get the insured to consent to settle. So, after paying over $200,000 in legal fees, two years of litigation, and losing MSJ, we have a court-mandated mediation. The problem remains that the insured will not give us consent.” In both cases, the plaintiff had originally demanded around $250,000 to settle, but now, after all the litigation, the plaintiff wanted $1,000,000. The clients both said the same exact words, “We need to stop the bleeding but our counsel has not secured consent to settle.”

So, the Disruptive Lawyer went to work. In the Ohio case there was a Reservation of Rights (ROR) on punitive damages. But guess what? Ohio law does not usually allow for punitive damages to be an insurable risk. And so, the Disruptive Lawyer set up a conference call with the insured and outlined the potential punitive damages personal exposure to the insured. This was the first time the insured truly appreciated the potential for a personal exposure. Hence, consent was issued by the end of the call. As for the Illinois case, there was a breach of contract on commissions issue that involved an ROR. Again, the insured had not been effectively advised on the personal risk as it had been under the impression “the case was 100% the insurance company’s money.” Again, with some back and forth, the insured ultimately gave consent to settle.

At both mediations, the cases settled. However, they settled for over $100,000 above the demands made two years earlier (due to increased value in plaintiffs’ attorney’s fee claims) and after more than $200,000 in fees. Because the carrier did not RED FLAG lack of consent as a Key Performance Indicator, in each case, the carrier paid at least an extra $175,000 in legal fees and $150,000 in indemnity to get the cases resolved. In effect, a $325,000 litigation management error. Meanwhile, in both cases, the Disruptive Lawyer billed around $10,000 to secure settlement and got the cases resolved.

For insurance companies doing EPL, E/O, D/O business that requires insured’s consent before settling, the timing of securing consent should be a Key Perfomance Indicator (KPI) for measuring its legal panel. Further, any lack of consent should be RED FLAGGED and sent to a “Lack of Consent Roundtable” just like the carrier’s “Large Loss Roundtable.”

Cruser Mitchell maintains metrics on this KPI and, over 94% of the time, secures consent to settle from the insureds within 45 days of assignment.