Every contract contains an implied covenant of good faith and fair dealing, meaning that neither party will do anything to injure or destroy the other’s right to receive the agreement’s benefits. An insurance policy is subject to the same implied covenant as any other contract. Generally referred to derivatively in the insurance context as the duty of good faith and fair dealing, the implied covenant is typically used to impose more specific obligations on the insurer in the investigation, evaluation, and resolution of claims.
Courts have used the implied covenant to impose duties upon the insurer to not unreasonably delay or withhold payment for a covered claim and to investigate the claim thoroughly, fairly, and objectively. As applicable to first- and third-party claims, the insurer’s overarching duties include acting reasonably, with fairness, decency, and honesty towards their insured and treating the insured’s interests as equal to their own.
One insurance claims practice that has largely gone unassailed over the past few decades is the industry’s systemic use of biased experts in the claims process. This business practice is a form of institutionalized bad faith and is likely at the heart of most insurance disputes. It may be the most pervasive, pernicious, and nefarious form of predatory business conduct, bordering on mass fraud. By any measure, the practice contravenes the insured’s reasonable expectations and injures their right to receive their benefits under their policy. It’s unequivocally a breach of the insurance policy and a violation of an insurer’s duties of fairness and honesty to the insured.
Yet, the practice has continued unabated for decades, enabled and supported by structural deficiencies in the law and lax governmental oversight. The judiciary effectively created a safe harbor for insurers to exploit the practice opportunistically. The courts have shied away from issuing guidance on assessing and eliminating bias in a quasi-adjudicatory, non-tribunal setting, where the insurer maintains unfettered discretion, and the insured lacks due process protections. Regulators, charged with protecting the consumer’s rights and ensuring fairness in the system, have, with full knowledge, ignored the issue altogether and glossed over the problems when a scandal erupts. Insurers aggressively preserve the practice, maintaining the utmost secrecy and ensuring the underlying workings remain relatively hidden from public view and discourse.
This E-Treatise examines the implied covenant of good faith and fair dealing in the insurance context and its application to the institutionalized practice of using biased experts to deny or underpay claims pretextually.
Chapter 2 considers insurance’s features and the unique bond that forms when individuals and companies purchase policies. It delves into the nine crucial factors that courts consider when recognizing the special or quasi-fiduciary nature of the insurance relationship. This unique relationship is the foundation for applying robust principles of tort law in the insurance realm, permitting policyholders to pursue total compensation for all damages inflicted by insurers who unjustly deny or unreasonably delay legitimate claims.
Chapter 3 examines the implied covenant and duty of good faith and fair dealing, including its origins, development, and adoption in every state. It also discusses the key parameters and limitations applicable to expert bias issues.
Chapter 4 analyses the application of the implied covenant and duty of good faith and fair dealing in the insurance arena, imparting certain conditions and responsibilities on insurers that are conspicuously absent from the policy’s express provisions. These include a duty to perform a full, fair, and objective (e.g., unbiased) claim investigation, a duty to take reasonable measures to fulfill its promises, and a duty not to misrepresent or conceal material matters from the insured.
Chapter 5 considers the development of the “fairly debatable” rule—a safe harbor created by the judiciary for insurers to avoid liability if they conduct a full and fair investigation and determine in good faith that the claim is fairly debatable. In conjunction with biased experts, the industry now exploits with near-universal success, preying on insureds without incurring any bad faith liability.
Chapter 6 examines the standards, factors, and presumptions for identifying and evaluating expert bias, including the “inference of bias” standard and four factors generally used to assess expert bias: the expert’s compensation and amount (frequency) of assignments; the expert’s pattern and practice of offering opinions that support coverage or denial; the expert’s use of reliable principles and methodologies; and the reasonable measures taken by the insurer to safeguard expert impartiality and reliability. This section also considers the permissive, rebuttable, and conclusive presumptions associated with varying degrees of inferential bias and the practical effect of burden shifting.
Chapter 7 delves into the practical side, focusing on discovering and exposing expert bias. This chapter explores the insured’s primary duty to establish relevance and nexus between the requests and the expert bias issues in the case. It provides eight principal relevancy grounds for obtaining discovery, correlating the discovery requests with each of four primary pleadings categories—breach of contract, breach of the duty of good faith and fair dealing, unfair business practices, and punitive damages. This chapter then examines each of the 13 common objections to discovery interposed by insurers, all of which are, for the most part, specious and raised solely to cover up predatory practices and deny relevant and necessary discovery.
Chapter 8 addresses motion practice concerning the unique expert bias issues and how to address them from the initial pleadings through appeal. It emphasizes that the issues uniquely suit a claimant’s dispositive motions.
Chapter 9 provides examples of several notable scandals involving the institutional bad-faith use of biased experts over the past two decades, involving myriad policy and claim types.
Chapter 10 considers the measures insurers use to shroud the expert bias practice and avoid implementing the measures needed to restore fairness. This chapter provides numerous selection and compensation bias examples among four principal insurer-related parties: insurers and benefit plans, third-party administrators, vendors and intermediaries, and experts. Examples of other courts addressing specific insurer-related parties in the expert bias issues can be critical to discovery and case-dispositive motions, given that many experts are well-known in the courts and patterns and practices are identifiable.
Chapter 11 contrasts the federal and state regulatory regimes, their differing approach to biased expert issues, and the states’ enablement of the practice. This chapter concludes with reform measures to significantly enhance expert transparency, impartiality, and reliability, drawing upon some measures already implemented in other contexts for neutral adjudicators. These statutory schemes include expert disclosures and due consideration of the insurer’s responsibility to take reasonable measures to vet and scrutinize experts and their expertise, including considering policyholder complaints and whether independent means exist to replicate, test, and verify the expert’s findings.
Finally, the Appendices provide sample templates for exposing and eliminating expert bias, including discovery requests, expert disclosures, jury instructions, and deposition prompts and scripts.