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 (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
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.
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
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.