By: Morgan Gaynor
I recently heard from a fellow lawyer in Tampa who had won a homeowner's
insurance case. The insurance company had denied coverage to his client,
but a judge ruled that the claim was covered. The insurance company then
wanted to settle the claim.
That sounds straightforward enough, but there was a huge catch. In exchange
for a settlement, the insurance company wanted the plaintiff and his lawyer
to agree to have the court withdraw its ruling against the insurance company.
In other words, the insurance company wanted to make an unfavorable order
This practice is disturbing to say the least. A little background information
will show why.
In cases where a consumer is fighting with their insurance company about
whether a claim is covered, courts often decide the dispute by carefully
examining the language of the insurance policy. Many policies are "form"
policies containing the exact same language, so a court's interpretation
of that language can be a powerful precedent for future cases.
Demanding that an unfavorable court decision go away in exchange for settlement
dollars rigs the game. If an insurance company can pay to make decisions
it doesn't like vanish, then it can argue in later cases that there
are no court decisions in a plaintiff's favor. This could greatly
influence a judge's decision, because judges are generally supposed
to follow previous decisions covering the same issue.
It's no surprise that legal observers have criticized this practice.
Federal courts, including the U.S. Supreme Court, have also weighed in
against it. They generally say that a settlement alone is not a good enough
reason for a court to withdraw a decision it has already made. They've
also noted that everyone - not just the parties to a lawsuit - can benefit
from the guidance court decisions provide. The practice of making decisions
disappear deprives others of a precedent which could be useful for future
cases. It also distorts the weight of precedent available to legal researchers.
Nonetheless, this cynical manipulation of the scales of justice goes on.
State courts do not condemn it as strongly as federal courts, so state
courts are more likely to go along with this type of request.
Aggrieved consumers may not be in a position to resist either. Many individuals
who fight with their insurance companies simply want to be paid for their
losses. As a result, they feel great pressure to cave in when money is
dangled in front of them. By nature, they don't have the same incentive
as an insurance company to take the long view.
Even plaintiff's lawyers can get in a tough spot when an insurance
company makes this a condition of settlement. They know it's bad news,
but ultimately must do what their client wants to do. If a client needs
the money and doesn't care about a court order, then lofty ideals
about the integrity of the justice system must go by the wayside.
Therefore, it is really up to courts to put a stop to this practice. Judges
should not withdraw their orders unless there is a compelling reason to
do so. And needless to say, an insurance company's desire to stack
the deck for future cases is not a compelling reason.