By John J. Pappas
This is one of a series of articles under the by line “Butler Pappas on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 20, #12, p. 34 (October 17, 2006).
[Editor's Note: John J. Pappas is a partner with the law firm of Butler Pappas Weihmuller Katz Craig LLP with offices in Miami, Mobile, Tallahassee, and Tampa. He is an experienced trial and appellate lawyer in the firm's Coverage and Extra-contractual Departments. This commentary, other than the quoted material, are the author's opinion; not his law firm's, and not Mealey's Publications'. Copyright © 2006 by the author. Responses are welcome.]
In twenty-four years of litigation, mostly representing insurance companies, I've had my share of anecdotal insights into our American civil justice system. I thought I would share a few with you.[1]
I. “Candor” Before The Court
“Your Honor, the defendant insurance company has acted willfully, wantonly, and in “bad-faith” in the denial of my client's insurance claim. My client paid premiums for this insurance policy for many years, now that it has storm damage, it makes a significant claim of $4.5 million for property damage and loss of income, this insurance company that has collected premiums from my client for many years, not only has denied my client's claim, but is intentionally misinterpreting its own coverage terms and conditions. It has also accused my client, in public, in this litigation, of insurance fraud, stating that my client has intentionally inflated its insurance claim by millions and millions of dollars. This insurance company, and its attorneys, have aggressively used “Rambo-like” tactics to fight us every step of the way in this claim and litigation. They have deposed my client and its experts for many, many hours under video-tape to intimidate us into settling this claim for very little money. Discovery has now closed, and we are simply awaiting trial, please, if justice is to be done, you must grant our motion for leave to amend for punitive damages. Otherwise this bad insurance company will continue to hire attorneys to wrongfully deny valid claims.”
“I'll take it under advisement.” Counsel enter the hallway.
“Hey, John, what's the most your client will pay to settle this case?”
“As we stated two years ago, my client will pay $250,000 to make this frivolous and fraudulent claim disappear.”
“Okay. We'll take it.”
II. Penny “Wise,” Pound Foolish
During a mediation, the following occurred.
“John, while we wait for a counteroffer I would like to talk to you about a billing statement that you have submitted.”
“Okay.”
“This point four for conference call with opposing counsel. Did it really last 25 minutes?”
“Yes.”
“Well, I think –.”
The Mediator interrupts entering the room, saying, “They've counter-offered your $500,000 with a $550,000 demand.”
“Okay, thanks.” The Mediator leaves the room. “I think if we hold strong, the case will settle for $500,000,” I opined.
“I know, John, you are probably right. But that would take a couple of hours. Obviously we can get it done for $525,000 so lets do it. That way I can beat rush hour.”
III. The Case Evaluation
“John, you there?”
“Yes, I am.”
“Great. We have everyone on conference call – John, what's your recommendation?”
“I recommend that you try the case.”
“Why?”
“Well. First, there is no coverage. We all agree there is no coverage. Second, the plaintiff has submitted an intentionally inflated insurance claim by at least $2 million. Third, the plaintiff will not present well at trial. Fourth, the facts and law are so strong in your behalf, hopefully, the Court will grant our motion for directed verdict at the end of their case-in-chief. If not, the jury should return a verdict in your favor. If not, the judge should grant directed verdict notwithstanding the verdict. If not, you should win on appeal. Obviously, there are no guarantees, but the chance of prevailing are excellent – in my opinion better than 75%.”
“Thanks, John. What's the worst case scenario?”
“Excuse me.”
“Well, what's the worst case scenario? If everything goes wrong what is our ultimate exposure?”
“Well. If everything goes wrong. Let me see. If everything goes wrong you try the case for two weeks and lose. A verdict is returned for the full amount that they are claiming, approximately $3 million. Our post-trial motions are denied. You lose the appeal. Pre-judgment and post-judgment interest by then would exceed $1 million. The court then awards them all the fees and costs they claim – which may be as much as $850,000. Then, subsequently, you are sued for “bad-faith” and two years later lose that trial and lose the subsequent appeal resulting in an affirmed judgment of punitive damages of maybe as much as $45 million. Plus, added to that judgment will be an additional award of attorney fees they incur in prosecuting the “bad-faith” claim of maybe as much as $600,000. So, if everything goes wrong, your worst case scenario is a judgment of more than $50 million – not counting your own litigation expenses incurred throughout such litigation.”
“Oh – thanks John. How much can we settle this case for today?”
“Well, I think they realize that they will probably lose. Thus, although I don't know, my guess is that they would be willing to settle their $3 million plus claim for $1 million – maybe less.”
“Thanks, John.” The conference call goes mute at the other end for a minute or two.
“John, you still there?”
“Yes.”
“You have authority to settle up to $1 million – if you need more let us know.”
“Yep. Sure. No problem. Have a nice day.”
“You too.”
IV. The Wrong Foot
My phone rang. I answered, “Yes, this is John Pappas.”
“Mr. Pappas,” the deep voice sternly stated.
“Yes.”
“I cannot believe that you refuse to agree to our motion for protective order,” the voice yelled. “In all my years in the practice of law, I have never heard of such unprofessionalism and uncivil behavior. I have been practicing law for more than 20 years and I have never, ever, had an attorney refuse to agree to postpone a deposition. My associate tells me that when she called you to discuss this matter that you were rude, and uncivil, and I can't believe that people behave this way, especially attorneys. It hurts our legal profession.” The voice is now yelling louder and almost beginning to stammer with hostility. “Such behavior is absolutely uncalled for and I resent it and object to it and your behavior toward my associate requires an apology and I cannot believe that you and your law firm would practice law in such a heavy-handed manner. It is an embarrassment to our community and to the practice of law for you to act in such an offensive way and I am offended and shocked by your behavior. I've had enough of this c____. Again, in twenty years of practice of law I have never, ever run across such uncivil, unprofessional and bad behavior on the part of any attorney I have ever dealt with in my entire life.” Although he is still yelling, the words and clauses begin to have pauses between them, as if inviting an interruption, which he does not receive. “I know some lawyers may behave this way and maybe in other parts of the country but certainly not here and I cannot believe an attorney of your long standing reputation and your law firm's reputation will continue to behave in such an inappropriate and horrible manner. It is simply unacceptable – Mr. Pappas? – Mr. Pappas?”
“Yes.”
“Oh. I thought you said something.”
“No. Are you done?”
“Well – ah – yes.”
“Then please have a very nice day,” as I gently hung up the phone.
About twenty minutes passed and my phone happened to ring again. I answered it, “Yes.”
“Mr. Pappas?” I recognized the voice, although it seemed much more composed.
“Yes.”
“I think maybe we began on the wrong foot. Maybe if you don't mind, you can tell me your side of the story?”
“Surely.” I then proceeded to have a very pleasant conversation with the gentleman in which he acknowledged being ignorant of certain material facts and, although he never apologized, I never heard from him again.
V. What Is Fraud?
At an Examination Under Oath of the President of a condominium association investigating a windstorm claim for $3.8 million for the replacement of all of the roofs of all the condominium buildings, the following was the President's testimony in behalf of the condominium association.
| Q: |
You signed a Sworn Statement in Proof of Loss claiming my client owes you more than $3.8 million for the cost to replace all the roofs as a result of the hurricane, correct? |
| A: |
Yes. |
| Q: |
Now you signed this Sworn Statement in Proof of Loss on January 26, 2006, correct? |
| A: |
Yes. |
| Q: |
So as of January 26, 2006, you were representing to my client, the insurance company, that under the terms and conditions of the subject insurance policy, the cost to replace all those roofs, as a result of the hurricane, was more than $3.8 million, correct? |
| A: |
Correct. |
| Q: |
Now, let us mark as the next exhibit, this contract between the condominium association and your roofing contractor. Is this the contract between the condominium association and your roofing contractor to replace the subject roofs? |
| A: |
Yes. |
| Q: |
Did you sign that contractor on behalf of the condominium association? |
| A: |
Yes. |
| Q: |
What is the date you entered into that contract with the roofer? |
| A: |
October 31, 2005. |
| Q: |
And the contract is for that roofer to replace all the roofs, correct? |
| A: |
Yes. |
| Q: |
And what is the contract price of that contract? |
| A: |
$1.8 million |
| Q: |
Did that roofer actually commence replacement of the roofs? |
| A: |
Yes. |
| Q: |
And what is the status of the replacement of the roofs? |
| A: |
It is almost complete as we speak. |
| Q: |
And have you had to pay the roofer any additional monies other than the $1.8 million? |
| A: |
No. |
| Q: |
Has the roofer asked for any additional monies? |
| A: |
No. |
| Q: |
Has the roofer indicated that he cannot complete the job unless he is paid more than $1.8 million? |
| A: |
No. |
| Q: |
Has the contractor almost finished replacing all the roofs of all your buildings to your satisfaction? |
| A: |
Yes. |
| Q: |
Then, sir, please explain to me, as the corporate representative of the condominium association submitting this insurance claim for more than $3.8 million for the cost to replace all the roofs as a result of the hurricane, how do you reconcile that insurance claim with the actual costs you have incurred to replace all the roofs for only $1.8 million? |
| A: |
I can't. |
| Q: |
You can't? |
| A: |
No, I can't. You will have to speak to my public adjuster about that. |
| Q: |
Well, sir, you and the members of the board of the condominium association had to vote to submit this insurance claim, correct? |
| A: |
Yes. |
| Q: |
And at the time you decided to submit such an insurance claim you already knew that you had contracted with this contractor to replace all the roofs for $2 million less, correct? |
| A: |
Yes. |
| Q: |
Then how does this not constitute insurance fraud? |
| A: |
I don't know. You have to ask our public adjuster. |
| Q: |
Sir, do you know what insurance fraud is? |
| A: |
No. Can you define it for me? |
VI. The Interrupter
| Q: |
Sir, when did you first notice the balcony collapsing? |
| A: |
Well, it's a very old building and there was cracking and spalling of the concrete going on for many years and in fact we had some complaints about the railings on the balconies a long time ago and then we reported it to the insurance company. |
| Q: |
Yes, thank you for that information. When did you first notice the balconies collapsing? |
| A: |
Well, like I said the property is very old and there were maintenance issues and termite problems and wet rot problems and there were other issues. For instance, we had a fire in one of the units in 1998 and of course we had some subsequent storm damages – |
| Q: |
Sir, do you remember the question? |
| A: |
I believe I do. |
| Q: |
Well, respectfully, please answer my question – |
| OPPOSING COUNSEL: |
He has already answered your question, Mr. Pappas. He has answered your question two or three times already. Go on to the next question. |
| JOHN PAPPAS: |
I am sorry, but I don't recall receiving an answer – |
| OPPOSING COUNSEL: |
Mr. Pappas, I already told you he answered your question twice already. You've asked the question two or three times, move on the next question. I don't know what more we can tell you. |
| JOHN PAPPAS: |
I understand but – |
| OPPOSING COUNSEL: |
Mr. Pappas move on – |
| JOHN PAPPAS: |
Counsel, are you done? |
| OPPOSING COUNSEL: |
Yes, for now. |
| JOHN PAPPAS: |
Well, the reason why I ask is because I have attempted to explain myself several times but you keep on interrupting – |
| OPPOSING COUNSEL: |
Mr. Pappas, I don't need to hear an explanation. Move onto the next question. He has already answered your question several times and you've asked the question several times. Just because you don't like the answer doesn't mean you get to answer the question again and again, and again. Do you understand? |
| JOHN PAPPAS: |
Yes. I understand what you said. Now, respectfully, I don't recall hearing any – |
| OPPOSING COUNSEL: |
Mr. Pappas. It doesn't matter if you recall anything. Move onto the next question or this deposition will be terminated. Do you understand? |
| JOHN PAPPAS: |
Counsel, respectfully, every time I attempt to address the issue, you interrupt and cut me off, would you please provide me the courtesy – |
| OPPOSING COUNSEL: |
Mr. Pappas, I don't need to hear explanations, I don't need speeches. I don't need to hear anything but your next question to the witness and it better be something other than the question you have already asked him two or three times? |
| Q: |
Sir, on what date did you first notice the balconies collapsing? |
| OPPOSING COUNSEL: |
There you go again. Asking the same question over and over again. He has already answered the question, please move on. |
| Q: |
Please answer my question, sir. |
| A: |
Well, I recalled there being cracking and spalling of certain areas of the apartment complex over many years and I remember there was a fire in a kitchen in a unit. . . |
|
. . . |
VII. That's A Stupid Question
After about ninety minutes worth of testimony at an Examination Under Oath, I was compelled to ask the following question of the insured, a gentleman who owned a convenience store combined with a gas station while living here in America under a “green card.”
| Q: |
Sir, given the facts and circumstances of this fire loss and insurance claim, I am now compelled to ask you, whether you agree that you indeed set fire to your own business? |
| A: |
What? That I agree that I actually set fire to my own business? |
| Q: |
Yes sir. |
| A: |
Why? Why do you say that? |
| Q: |
Well, sir. You agree that the fire was intentionally set. You agree that you were the only one who had a key to the premises. You agree that there was no forceable entry and that the first notice of the fire was the fire alarm within the convenience store. You also agree that there was nothing stolen from the property. And you were the last one at the property before you locked it up and punched in your personal passcode into the security system. Thus, I am compelled to ask you whether you agree that in fact you were responsible for setting the fire? |
| A: |
Mr. Pappas, Mr. Pappas. No, no, no, no. Why would I do that? Business was good. Why would I burn my business down? I was making money. |
| Q: |
Sir, are you testifying that your business was actually profitable? |
| A: |
Yes sir, very profitable. |
| Q: |
Well, sir, please look at what we have already marked as Composite Exhibit 3. These are your personal income tax returns for the past three years through which you reported your revenues and income for this business, correct? |
| A: |
Yes sir. |
| Q: |
Well, look over the past three years, the cost of goods sold have always exceeded by a couple hundred thousand dollars your gross revenues resulting in a net loss of approximately $200,000 a year let alone any taxable gain, correct? |
| A: |
No, no, no, Mr. Pappas. These are my tax returns. |
| Q: |
Yes. So what do you mean by that? |
| A: |
Well, my actual revenues, not that I report in my tax returns, but my actual revenues are easily $400,000 more a year and therefore this business provided me on average a profit of more than $200,000 a year. |
At this time, I could physically feel my client, a member of the insurance company's SIU department quiver with rage. He's a nice man, a family man, drives a Saturn, and apparently is saving as much money as he can for his childrens' college educations, while, apparently continuing to timely pay his income taxes.
| Q: |
Sir, do you mean to tell me that your testimony is that you did not burn this property for insurance proceeds, that is insurance fraud, because the business was indeed in actuality making you a profit of more than $200,000 a year and that we are not suppose to rely upon your tax returns, because they are false? |
| A: |
Yes. Yes. That is it, Mr. Pappas. |
| Q: |
Sir, I don't understand. Why are your tax returns false? |
| A: |
Mr. Pappas, Mr. Pappas, that is a stupid question. |
| Q: |
Sir, I assure you that it will not be my first nor will it be my last. Please answer my question. |
| A: |
Because, Mr. Pappas, if I had reported my true revenues to the IRS I would have had to pay taxes on the money that I had earned. |
Apparently it was a stupid question.
Summation
The attorney thought he was well within his bounds of “zealous representation” in his accusations against the insurance company and its counsel. The adjuster thought nothing of questioning a one-hundred dollar charge while giving away an additional $25,000 on a claim. A company does not hesitate to pay $1 million on a claim it believes it has no liability. A caller does not hesitate to accuse and berate a stranger before asking for the “other-side-of-the-story.” A President of a condominium association testifies he does not know what is insurance fraud. A lawyer continually interrupts opposing counsel. A man testifies readily that he does not report all his income to the IRS because if he did he would have to pay taxes. Many competent and honest persons comprise and pass through our civil justice system. But such competent and honest participants should be aware that many are not.
Endnote
1.Although these are non-fiction, some changes have been made to protect both the “innocent” and the “guilty.” Of course, much is also a paraphrasing of the actual events as opposed to a verbatim account.