BulletProofBlog the blog on crisis communications

In this regular feature, Bulletproof interviews top plaintiffs' attorneys for their perspective on the crises likely to affect businesses in the near future. Today we talk to Marc R. Levy of Levy, Morse & Wheeler, P.C. in Denver.

A lawyer who usually defends insurance companies, Mr. Levy recently won one of the largest plaintiff’s verdicts in Colorado history against Time Insurance (also known as Fortis and Assurant Health). In late January, a jury found for his client Jennifer Latham after the company refused to pay medical bills after she was severely injured in a 2005 auto collision.

Mr. Levy had asked for around $7 million in combined economic and punitive damages. The jury awarded $37 million.

Ms. Latham’s car had collided with a meth dealer who was fleeing the police in his car. Her insurance coverage was rescinded as a result of “post-claim underwriting,” in which the original policy application was reviewed for false or misleading representations that would allow for revocation even if that information were unrelated to the claim at hand.

Time Insurance has been depicted as “notorious” for post-claim underwriting. Is this case therefore anomalous or does it have wider industry-wide repercussions?

Marc Levy: Post-claim underwriting is standard industry practice, although not uncontroversial. Congress has been investigating the practice for a few years now and the topic is naturally hotter today because of the current healthcare debate. Henry Waxman has led the chorus of inquiry, but he’s had considerable bipartisan support on this issue.

Yet this lawsuit is not exactly about the practice itself. In the case of Time Insurance, the company rescinds coverage without disclosure to the insureds. There is no prior open inquiry. The policy is simply rescinded and the burden of proof then falls on the insureds to show why they deserve to have it restored.

So the first message to the industry is that it ought to be prepared to publicly justify the whole practice of post-claim underwriting because the pressure on them to do so will only increase. So far their justifications have been pretty lame: mainly that they don’t pull medical records before issuing the policy because it is too expensive to do so.

But the more specific take-away from this particular case is that, to the extent that they do continue this practice, they must do so fairly and openly. These preemptive strikes of theirs will not stand, as this immense judgment shows.

Are you concerned about award reductions on appeal?

Mark Levy: Colorado is a tort reform state, so there will be some reduction. But it will not be by as much as one-third.

Will Time Insurance be able to change how it does business, or is post-claim underwriting too much an ingrained part of its business model?

It will be very difficult for the company to change because this is their business model. So I’m guessing they’re reassuring themselves that it was only an aberrant verdict.

Does the verdict reflect a deep hostility toward the insurance industry? If you were an insurance company, what would you do about that?

Mark Levy: Yes, it does reflect a distrust of the industry. That said, as a lawyer who does usually defend that industry, insurance companies can still win in courts of law and courts of public opinion by finding the right story and telling it well.

What happened here was that the defendant did not adjust its story to fit the facts of the case. The case was defended with the same template that would typically be used to defend typical accidents under more commonplace circumstances. But Jennifer Latham is a mother of four who was grievously injured by a drug dealer running away from the police….Hardly typical or commonplace.

Should the fact that you normally defend insurance companies have sent an additional warning to this insurance company that the allegations here might be unusually hard to defend?

Mark Levy: Yes, I would indeed say that that is another fact to which the defense strategy was inadequately attuned.

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Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.