Wisinski and ‘Lowball’ Settlement Offers

By Charles E. Haddick Jr.
Special to the Legal

In this post, we continue our analysis of a recent bad faith ruling in Wisinski vs. American Commerce Group Inc. and American Commerce Insurance Company. Here, we will discuss the court’s finding that settlement negotiations included  “lowball” settlement offers by the insurer, and constituted bad faith.

Specifically, the court found, in light of seeing American Commerce ultimately settle for policy limits ($100,000), that two earlier offers, each less than $15,000, were “lowball” in nature and constituted bad faith on the part of the insurer. 

According to the opinion, American Commerce doubted causation in the UIM claim in dispute. It was aware that prior to the accident injuring the plaintiff’s knees, the plaintiff had previously filed a Social Security income disability claim. In addition, Wisinski’s own counsel provided a physician’s report from a doctor indicating she had an injury to her right knee prior to the December 2001 car accident.  The same doctor found the 2001 accident caused an “exacerbation of underlying arthritis.” 

Before examining whether Pennsylvania law allows for such a retrospective, results-backward analysis of settlement offers, we might first examine an assumption underlying the court’s opinion: that American Commerce had any duty to participate in settlement negotiations at all, in light of the limits demand.

Under Pennsylvania law, an insurance company does not have an obligation to participate in settlement talks where the insured has demonstrated no interest in resolution of the claim. Under Zappile vs. Amex Insurance (2007), the Superior Court held that where a plaintiff insured maintains a policy limits demand, such a position is not indicative of willingness to compromise, and thus the insurer has no obligation to enter into settlement discussions. Zappile, then, invites the conclusion that a policy limits demand by an insured signifies no more interest in compromise than a zero-dollar offer from the insurer: both represent 100 percent victories for the respective proponents.

Here, despite the plaintiff’s adherence to a policy limits demand throughout the course of the claim, American Commerce did make settlement offers, where arguably under Zappile it had no obligation to do so. And if an insurer has no obligation to make any settlement offers, how is it possible to consider those offers “lowball” or made in bad faith?

Beyond that question, we turn our attention to whether there was a reasonable basis for the initial offers the insurer made. American Commerce questioned causation in the case and viewed the claim as, if anything, a potential exacerbation of a pre-existing condition. The insurer also obtained an independent medical report that indicated the automobile accident did nothing to change the preordained course of the plaintiff’s degenerative knee arthritis.

The court nonetheless felt that because late in the claim the insurer came to the realization that the plaintiff was likely to win policy limits of $100,000, this made earlier offers of less than $15,000 “lowball”and bad faith in nature. This is a dangerous way to look at settlement offers.

The court’s analysis of the nature of the original offers can be questioned on at least two grounds. First, the quality of the offers should be objectively measured as of the time they are made and not retroactively against other offers when the case has materially developed and changed, as seen in the Middle District of Pennsylvania’s 2007 decision in Oehlmann v. Met Life Ins. Co.

Secondly, the court took great pains to analyze the initial lower offers in terms of what the insurer subjectively knew. Under Pennsylvania law, bad faith is not to be judged on a subject of standard, but rather, an objective one; any justification for an insurer’s position on a claim, whether the insurer was aware of the justification or not, is a valid defense to a Section 8371 claim, as seen in the Eastern District’s 2007 decision in Wedemeyer v. The United States Life Insurance Company In The City Of New York, et al.

Even if the subjective of standard were the correct one, the court claimed the insurer made the early low offers in bad faith because they were made at a time when it did not have the benefit of the insurer’s IME findings attacking causation. While true, the court apparently overlooked the fact that the insurer did have information at the time of the offers from the insured’s own attorney indicating prior degenerative joint disease in the plaintiff’s knees. Under either standard, therefore, it is respectfully suggested that analysis of the prior offers as “lowball” is suspect. 

Medical causation, when in question, can be an all-or-nothing proposition when decided by a panel of arbitrators. It is not necessarily unreasonable, therefore, that settlement discussions might approximate this model as well. We will continue our look at Wisinski in our next post.

Charles E. Haddick Jr. is a partner with Dickie McCamey & Chilcote. I welcome feedback from readers, along with any suggestions for topics you would like to see discussed in this space. Please e-mail me at [email protected].

Comments

[Sean Carter]

really is not a good thing to hear, accidents can really put a strain on many aspects of life and a rightful settlement is key into setting everything straight. For me getting cash for structured settlement payments really helped me get the cash I needed right away. I can only hope it worked out well for these people