American Association of Insurance Management Consultants

Insurance Company Cognitive Dissonance

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Insurance Company Cognitive Dissonance

Insurance Company Cognitive Dissonance:

 
 “We settled because the jury is loose cannon”…, “the policy language is what it is, because it has been court tested”.  Diametrically opposed opinions held concurrently is called Cognitive Dissonance.   On the one hand Insurance Companies invest a lot of money parcing court dicta to discover what the policy might have said in order to change the outcome of the decision, yet on the other hand believes the trial is some sort of Wild West side show and must be avoided at all costs.   The facts are …   

1.    97% of all filed suits settle out of court and are never court tested.
2.    15% of those tried are appealed. 
3.    Juries determine Facts
4.    Judges determine the Law
5.    The majority of appealed cases are based on the bad application of the law by the judge, not a bad finding of facts by the jury. 
6.    Judges follow stare decisis, that is, once a court has answered a question, the same question in other cases must elicit the same response from the same court or lower courts in that jurisdiction.
7.    Juries are disinterested parties that are not seeking reelection or political contributions. 

The reason so many cases are settled out of court is NOT because of fact finder (jury) unpredictability, but realistically because of the law applier’s predictability, (Stare Decisis). Every case that is read or cited by each side of the party is an appellate case of some sort, so good attorneys can predict the law’s application of the higher court to the decision for what the lower court should do. When lower courts refuse to follow precedent, especially any lower court decision prior to the trial, it should be appealed.  The entire precipice of the American Justice hinges on Stare Decisis. If challenged, Appellate courts will not allow lower court maverick decisions to stand. 

Insurance is precisely in the business of predictability in which it operates, it is a disservice to itself to foster the idea of unpredictability. Indeed, the jury has at time awarded aberrations, a multimillion dollar award for spilled hot coffee comes to mind, but that award was short lived. Appellate courts are strongly on the side of enforcing precedent. The Court is not a casino and operating a business based on predictability seems at odds with fostering the position espoused as a reason for settlement, unpredictability.  Unless the Directors are addicted to gambling, and with the company’s money, the behavior of unrealistic court avoidance is conflicted. The more rational explanation is that settlements are seen as an easier justification for premium rate increases, than defense costs. 

Bruce Heffner

Corporate Counsel / Attorney at Law
Boomerang Recoveries, LLC, Inmedex, LLC & Law Office of Bruce P. Heffner,