The facts of the following actual case history are pretty simple. The homeowner of a weekend house has a fire going in his fireplace. Before leaving the house on a Sunday night he takes out the burning logs and puts them into a plastic container on his wood patio, which contains more wood. That night, a fire erupts and the house burns to the ground. The homeowner collects $2 million and rebuilds the house. The fire alarm in the house did not signal the fire department. The homeowner’s insurance company sues the alarm company.
The alarm company turns the case over to its insurance carrier, which assigns counsel. The case takes more than four years to reach trial. By the time of trial the insurance company informs the alarm company that because of interest the claim now exceeds in excess of $3 million and coverage is limited to $2 million. The alarm company panics and calls me. When you face a claim that exceeds your insurance coverage your carrier should let you know and advise that you can retain your own counsel, at your expense.
There are basically two reasons to retain your own counsel. The first is to assist the assigned defense counsel, assuming that counsel is receptive to assistance. The other is to monitor the case, determine if there is likelihood the alarm company is going to lose and try to reach a settlement between the plaintiff/claimant and the alarm company’s insurance company. If the plaintiff is willing to accept a settlement within policy limits and the insurance company is unwilling to settle, a determination needs to be made if the insurance company is acting in bad faith. If in bad faith, then the insurance company should be required to assume the risk for the entire loss, even if exceeding the insurance policy limits.
In the case in point, the defense counsel believed the trial was not going to go well and the alarm company was likely to face an award exceeding $3 million. The defense was not, in my opinion, well prepared. There was an alarm contract, but it was not signed. A wholesale central station monitoring contract did extend some protection to the alarm company, but the defense did not tell the judge until the eve of trial and so it was disregarded. The judge also ruled against any blame being placed on the homeowner for starting the fire. The jury was to decide only if the alarm company was negligent, and if so award the claimed amount.
My role was to let the alarm company’s insurance company know that it was in bad faith; that the alarm company would sue it for full indemnity not limited to the policy limits. The plaintiff’s counsel agreed to accept less than policy limits. The insurance carrier offered well below what the plaintiff was willing to take.
Naturally, the alarm company owners were fit to be tied. The amount they were incurring with me probably exceeded their annual premium for the insurance, and they were faced with a judgment for $1 million over their insurance coverage and a costly lawsuit against their insurance carrier for bad faith. After the jury was picked and the trial began, the judge encouraged a settlement and my client’s nightmare ended.
You have a right to insist your insurance carrier engage knowledgeable defense counsel. You have the right to demand your defense counsel keep you fully informed of the case, particularly your chances at trial. You are going to be required to spend time defending the case for preparation, investigation, discovery and trial. Your insurance rating may be affected and you may be dropped by your carrier or face a significant increase in premium. If you have any doubt your defense is not being properly handled, engage your own counsel sooner rather than later.
Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. (kirschenbaumesq.com). His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.
The opinions expressed in this column are not necessarily those of SSI, and not intended as legal advice.