If faced with cascading lawsuits from unknown attorneys and plaintiffs alleging a defect in a product, companies may panic and look to their risk management professionals to help solve the problem. These lawsuits may be a mass tort, which “occurs when there are many claims involving a product or device,” for which laws “allow consolidation of, filing and transfer of cases to an assigned state or federal court presides over cases involving common question of fact in order to serve the interest of convenience and efficacy of the parties.” Risk professionals should be prepared to confront these types of lawsuits.
Reaching out to the company’s General Counsel (GC) should be the first step. The GC will select a defense team, which will represent the company in the litigation and can take over tracking all the service of process filings. The defense team can also help by tracking important dates, deadlines, court appearances, and will work closely with the company and the GC in its defense. If the company does not have coverage counsel on retainer, the GC should retain one.
The company will need to provide a copy of all insurance policies to coverage counsel. Consider any policy that might be involved in the mass tort and make sure to include all endorsements. Coverage counsel may request to see renewal applications submittals with all exhibits and loss runs. Depending on the facts of the complaint, this can involve several policy periods.
Multi-District Litigation
Multi-district litigation (MDL) refers to a special federal legal procedure in the United States. If multiple plaintiffs file cases alleging seemingly common questions of fact, any party can file a motion to consolidate those matters before a panel of three judges forming a federal judicial entity called the Judicial Panel on Multidistrict Litigation (JPML). The district courts are not equipped to have individual trials on each case on its merits, so in principal, this consolidates the cases in one court with one judge for pretrial, discovery and common issue of law questions. The court will select some cases that it believes are representative of the majority of cases in the MDL and set those cases for trial. These representative cases, called Bellwether trials, are an attempt to ascertain how the rest of the cases will be adjudicated.
If an MDL is formed, risk management professionals should check when each insurance carrier was noticed of a matter that might result in a claim relative to the complaints filed. Each insurance policy will define what is a notice and what is a claim. Read the policy and confer with coverage counsel. Did you notify carrier of a claim? Have you notified carriers of all lawsuits?
One of the most important risk management functions will be handling communication and coordination, both of which are essential. Failure to do this correctly could result in denial of insurance coverage, and the company could end up in court or arbitration with its carrier.
Communication and Coordination
Risk professionals should request litigation guidelines from each carrier involved in MDL and provide a copy to the company’s defense team. In general, each carrier has their own set of instructions for managing defense costs, which is detailed and outlines billing procedure. Requesting this information early aids the defense team in billing matters related to the litigation, streamlines the process in payment to defense and helps avoids delays from carrier audits.
The risk professional should also start tracking communication in a spreadsheet or matter-management platform. Some important data points to consider are policy period, policy number of each carrier, date notice of claim was given, date of loss, replies from carriers, and date of carrier reservation of rights (ROR) letter. If this is a claims-made policy, be sure to note the retro date, as well as the date of any reply to the ROR. If the ROR from the carrier included a coverage determination, list the name of each adjuster with their contact information. Depending on the length of time involved, contact with each carrier may change, and it is necessary to keep all interested parties apprised of contact changes.
The risk professional needs to reply to all letters from each carrier. Over the course of the litigation, there can be several letters between carriers and the risk management professional, and this can be managed in the spreadsheet. Some carriers may request copies of all the letters from all other underlying carriers, and this can be an administrative burden. But if organized at the onset the maintenance, it will be less of a struggle.
All correspondence to/from the carrier should be shared with coverage counsel throughout the process. Correspondence from coverage counsel and the company’s defense team, to the risk professional directly as the client, is likely privileged and/or attorney work product and should not be shared unless decided after review and discussion with the GC and defense team.
Another important condition in an insurance contract is duty to cooperate. The risk professional will need to determine how to keep carriers informed of pending suits and legal actions. Preference may depend on carriers, since some policies read that policyholders provide must written correspondence, quarterly or semi-annually. That is fine if there is one carrier, but when many are involved, consider an easy, quick way to keep carriers informed with help from the defense team. Set up a monthly or quarterly conference call or video conference with the defense team and carriers to demonstrate cooperation and allow carriers to ask questions and keep apprised of the evolving litigation.
Carriers will assign adjusters who will continually ask for information related to the MDL. If the company uses a third-party administrator to handle the claims, they will be involved in providing proof of self-insured retention (SIR) exhaustion. Many policies include defense costs, but not third party administrator (TPA) costs. In that case, TPA cost will have to be deducted from expenses. Check your policy and communicate with the TPA to provide accurate required information, such as whether the defense cost is within limits. If this is unclear, read the policy and consult with the company’s coverage attorney.
The risk management professional will likely report to the executive team, which will status updates throughout the process. This could be as simple as a quick call or discussion, or providing detailed reports. The public relations team may also ask the GC for updates that might involve data the risk professional has been collecting. It is best to have current information on hand.
It is an “all hands on deck” situation when a company is involved in a mass tort, and the risk management professional’s role is critical to protecting the company from these legal risks.