Counsel to Counsel - September 2008 - (Page Cover3) WEST VIRGINIA INSURANCE LITIGATION Social, political, statutory and procedural factors make West Virginia a difficult jurisdiction for defense of insurance claims and coverage litigation, as well as a “magnet state” for plaintiffs’ lawyers. In-house counsel for insurance carriers should be aware of these challenges: • State law favors jury trials for most disputes, many jurors reflect the state’s historic anti-corporate attitudes, and all state judges are publicly elected. • There is no automatic right of appeal in civil lawsuits. • West Virginia interprets the National Association of Insurance Commissioners’ model Unfair Claims Settlement Practices Act to create a private cause of action against insurers. • Contrary to the law in most other states, insurance defense counsel in West Virginia only represent the interests of the insured, instead of representing both the insured and the insurer. • West Virginia precedent encourages claimants to file bad faith lawsuits against insurance carriers for nearly any type of dispute. West Virginia’s insurance litigation climate has somewhat improved. State law now prohibits third-party claimants from filing statutory bad faith lawsuits against carriers. Also, privatization of the state’s workers’ compensation system is improving the overall business climate. However, in-house lawyers should still plan defensively for West Virginia litigation. For example, remove litigation from state to federal court whenever possible, and closely monitor cases involving selfinsurance to avoid disputes over control of the defense. Also, tailor any comprehensive national strategies to fit West Virginia realities. POLICYHOLDERS’ RIGHT TO INDEPENDENT COUNSEL A recent New York ruling found that insurance companies must inform insureds of their right to select independent defense counsel at the insurer’s expense when the insurer’s reservation of the right to deny coverage creates a conflict of interest with the insured. In Elacqua v. Physicians’ Reciprocal Insurers (2008), the Third Department of the Appellate Division of the Supreme Court of New York imposed an affirmative obligation on insurers to inform their insureds that they may choose counsel in such instances, and held that failure to do so may constitute a deceptive practice in New York—entitling the insureds to recover damages and attorneys’ fees. The Elacqua decision arose from a malpractice claim involving two physicians and their partnership entity. Initially, the insurer retained one attorney to represent both physicians and the partnership, but retained separate counsel for each physician when the first attorney perceived a conflict. The complaints against the physicians were dismissed, but a verdict was rendered against the partnership. The insurer refused to indemnify the partnership, saying its policy did not cover vicarious liability. The appellate court ruled that the attorneys chosen by the insurer had misled the physicians, by moving to dismiss the complaint against them without explaining the ramifications of leaving viable the uncovered claim against the partnership. As a result of the Elacqua decision, insurers should consider changing their standard reservation of rights letters to stipulate the right to independent counsel who will provide uncompromised, conflict-free representation under the insurance contract and New York law. NEW MEDICARE NOTIFICATION REqUIREMENTS The Medicare Secondary Payer Act (MSPA) was enacted in 1980 and has been amended several times to ensure that Medicare does not pay medical expenses for Medicare beneficiaries when a “primary payer” should pay. Primary payers include entities such as employers, workers’ compensation and liability insurers, and self-insurers. If Medicare does make payments for medical treatment in cases in which a primary payer exists, such payments are “conditional” and Medicare is entitled to reimbursement. In December 2007, significant amendments were made to the MSPA. Beginning on July 1, 2009, liability insurance (including self-insurance, no-fault insurance and workers’ compensation plans) are required to “determine whether a claimant (including an individual whose claim is unresolved) is entitled to [Medicare] benefits” and, if so, submit information concerning the claim to Medicare (42 U.S.C. 1395y (b)(8)). Exactly when the information must be provided to Medicare is not clear. In one section the law states that the obligation exists with regard to “unresolved” claims, and, in another, it indicates that the information should be reported “after” a claim is resolved. What is very clear, however, is that the penalty for failure to comply is stiff—$1,000 per day of noncompliance per claimant (42 U.S.C. 1395y (b)(8)(E)(i)). Accordingly, claims handlers and attorneys should develop a practice now of determining whether claimants are or will soon become entitled to Medicare benefits and prepare to provide such information to Medicare beginning July 1, 2009. Melisa C. Zwilling Partner, Litigation mzwilling@carrallison.com Seth B. Schafler Partner and Co-Chair, Insurance Practice Group sschafler@proskauer.com Bennett L. Pugh Partner, Litigation bpugh@carrallison.com Don C.A. Parker Member, Litigation dparker@spilmanlaw.com Proskauer Rose LLP Carr Allison Spilman Thomas & Battle, PLLC For more information on these lawyers and their firms as well as insurance industry analysis, please visit www.martindale.com and our Legal Articles database. SEptEmbEr 2008 www.martindale.com/c2c 29 http://www.martindale.com http://www.martindale.com/c2c
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