Insurance expert witness advises on city’s failure to give notice of excess claim by injured employee

Michael Morgenstern

Written by
— Updated on October 2, 2017

insurance expert witnessThis case takes place in Rhode Island and involves a dispute between a city and its excess worker’s compensation insurance carrier. The city filed a declaratory judgment action. The city is self insured for claims made by its employees up to $500,000.00 in disbursed benefits. The excess insurer covers claims by city workers exceeding that amount. The policy requires the city to give notice to the insurer when a claim likely to reach the threshold of the excess coverage. The city also is required to exercise diligence, prudence, and good faith in the defense and settlement of all claims in their entirety.

The city was met with an excess claim — one for permanent total disability — and admittedly failed to give timely notice. However, the failure does not automatically negate coverage under state law. The failure raises a rebuttable presumption of prejudice to the insurer. The insured can overcome this by proving a lack of prejudice in fact. The insurer also asserts that the city breached its obligations to exercise due diligence and good faith in settling the underlying claim.

Question(s) For Expert Witness

  • 1. What conduct is required of an employer in a worker’s compensation case?
  • 2. How did the city fail in this regard?

Expert Witness Response

The city, its claims administration personnel and its legal counsel initially misevaluated the exposure on the underlying claim because they failed to account for certain offsets. Further, the claims team failed to allow for the potential/likelihood that the employee would be entitled to supplemental benefits beyond the age of 62.

Regarding notice, the city was required by the policy to provide prompt notice to the insurer of any claim or action commenced against the city that exceeds, or is likely to exceed, 50 percent of the self-insured retention per occurrence. Based on the nature of the injury/claim alone and the average weekly wage of the claimant, it should have been apparent to the city at the initial stages of this case that the exposure was likely to exceed 50 percent of the self-insured retention.

Additionally, the city failed to use “diligence, prudence, and good faith in the investigation, defense and settlement” of the underlying claim because the city unreasonably refused to even engage in settlement negotiations with the employee and his counsel, or to even extend any settlement authority in an attempt to resolve the claim. The claimant is a long-time first responder with a heart condition that is statutorily presumed to be work related, and who earned a relatively high average weekly wage.

It is generally accepted and good faith claims practice for the employer to present settlement options to the claimant and his counsel with proposals that might be mutually beneficial and found acceptable by the claimant.

The expert has decades of experience in workers’ compensation law, claims administration and practice and has published and spoken extensively on the subject.

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