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PRE-SUIT INVESTIGATION: THE PLAINTIFF’S PERSPECTIVE

Jay Paul Deratany
Barry G Doyle
DERATANY & CARDEN
205 West Wacker Drive
Suite 900
Chicago, IL 60606
(312) 857-7285
There are two basic types of claims which can result in bad-faith insurance litigation. A first-party claim results from the failure of an insurer to pay benefits due to their insured for some form of loss, whether it is some form of property damages claim, business interruption, or other loss suffered by the insured covered by a policy issued by an insurer. A third-party claim arises from a loss suffered by a person other than the insured for which the insurer has issued a policy of liability insurance.

The initial client interview is handled differently depending on whether the potential bad faith claim arises from a first party or a third-party claim

In the context of a first-party bad faith claim, the insured has often reached an impasse with the insurer or has received an inadequate settlement offer from the insurer and has decided that it would be wise to hire counsel. At the initial interview, one of the key assessments that must be made by the client is his or her ability to further delay the resolution of the claim while the claim is being negotiated or litigated. Before the claim has been made, the client has sustained some loss which must be paid. If the client does not have the means or the patience to hold out for an optimal resolution of the claim with the insurer, then serious consideration must be given towards settling the claim. This entails a serious assessment of the merits of the claim. To this end, plaintiff’s counsel must obtain a full copy of the policy and all the supporting documents, a complete investigation into the facts as to how the loss occurred, and a complete accounting for all of the communications with the insurance carrier. Finally, particularly when the dispute is over the extent of the loss rather than the availability of coverage for the loss, there must be an objective and accurate assessment of the extent of the loss. Only after there is a complete understanding of what has occurred prior to the retention of counsel can counsel put together a cogent strategy for advancing the client’s interests.

A third-party bad faith claim generally does not arise until there has been some point of resolution of a liability claim against the insured. There are generally two ways in which a third-party bad faith claim arises: (1) the insurer fails to settle the claim within policy limits, and the case proceeds to verdict with an excess verdict being entered against the insured, and (2) the insurer breaches its duty to defend the insured. In either event, the tort claimant is normally able to obtain the rights of the insured against the insurer as part of the resolution of the liability claim against the insured. Frequently, counsel for the tort claimant will continue to pursue the third-party bad-faith claim against the carrier, and will therefore be intimately familiar with many of the details of the underlying litigation.

Irrespective of whether the claim is first party or third party, plaintiff’s counsel must be conscious of the potential of becoming a witness should the matter proceed to litigation. Careful review of the Illinois Rules of Professional Conduct must be made before becoming actively involved in the pre-suit negotiations, and should the matter fail to settle prior to going to litigation, consideration must be made to referring the matter elsewhere for handling if appropriate.