Civil claim settlement talks involving third parties and insurance company adjusters: When should lawyer conduct standards apply?

St. John's Law Review, Summer 2003 by Parness, Jeffrey A

2. Sanctions for Litigation Misconduct

Consider, as well, whether Klein could be sanctioned for helping to present frivolous pleadings,94 discovery documents,95 or other litigation papers96 in a civil lawsuit filed by the Joneses against the Frances in which Klein helped the lawyer representing the Frances.

3. Negotiation Guidelines

Finally, consider whether Klein could be held to any settlement-talk guidelines that operate for lawyers. Some guidelines may emerge from the "Ethical Guidelines for Settlement Negotiations" approved by the American Bar Association in August of 2002.97 If such guidelines apply, the possible sanctions flowing from Klein's breach of settlement-talk guidelines may differ from the possible sanctions flowing from an attorney's breach.98

C. Insurance Law Duties

Assuming no unauthorized legal practice barriers, insurance law duties within agency pronouncements or statutes may also speak to post-lawsuit settlement talk activities involving third-party adjusting. Often, however, no distinction exists between pre-lawsuit and post-lawsuit acts in such written laws. Thus, the Texas Administrative Code simply says that no insurer shall engage in unfair claim settlement practices, including "refusing to pay claims without conducting a reasonable investigation based upon all available information" and "not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear."99 Similarly, a West Virginia statute bars certain acts as "[u]nfair claim settlement practices" if the acts are part of "a general business practice," including duties like those found in the Texas Administrative Code.100 Application of such written laws to post-lawsuit acts undertaken in courthouses, as with litigation paper presentations, could prompt separation of powers issues if reasonable inquiry is not made or bad faith occurs in settlement conference conduct when liability is clear. Reasonable inquiries preceding all litigation papers might need to be guided, by a single civil procedure rule, especially where high court authority over procedure is primary, if not exclusive. For insurance company adjusters, however, good faith settlement duties, even during civil litigation, may differ from litigation paper presentations duties, especially if settlement acts are deemed substantive in nature and therefore require special standards limited to the insurance context.101

CONCLUSION

Acting both before and during lawsuits, insurance company adjusters help facilitate settlements of civil claims involving their companies, their insureds, and those harmed by company insureds. While some lawyer conduct standards have been applied to third-party adjusting, many related issues remain. Further, even certain developed rules are troublesome, both substantively and on separation of powers grounds. Serious reflection on a single question would help a great deal. We should explore the circumstances under which insurance company employees who undertake third-party adjustments should be governed by the same or similar professional legal services and civil procedure standards that govern lawyers who facilitate civil claim settlements for their clients. In such an exploration, we should distinguish between authorized and unauthorized legal practice acts; pre-lawsuit and post-lawsuit settlement acts; conduct before and after lawyers are retained; administrative, legislative, and judicial lawmaking responsibilities; and conduct within and outside of courthouses.