December 11, 2006, by John A. Lassey

 

If you are served with a lawsuit, it is imperative that you contact your attorney, if you have one, immediately. There are legal issues that need to be addressed quickly; for example: was the service of the suit papers legally sufficient and are there any affirmative defenses available? Ordinarily such issues must be raised within a very short time or you may lose your right to object or defend based on them. Some affirmative defenses, if raised in a timely fashion, can result in the lawsuit being dismissed. In New Hampshire, a suit for personal injuries must ordinarily be brought within three years of the date of the accident that caused those injuries.[33] But failure to raise this defense quickly can mean that the lawsuit will go forward to trial even if the plaintiff has missed that deadline.

If you have liability insurance coverage for your business, the suit should be reported immediately to the appropriate insurance company following the procedures outlined in the policy. You must notify your insurance company when a lawsuit is filed even if the company already knows about the occurrence. Most liability insurance policies require notification: (1) of an “occurrence” that a reasonable person knows or ought to know could lead to a lawsuit (e.g., an accident resulting in injury to somebody); (2) when a claim or demand is made (e.g., a letter from an injured person’s attorney) and (3) when a lawsuit is actually filed. Each such event will give rise to a separate obligation under most insurance policies; and all required notification must be made in order to trigger obligations on the part of the insurance company, first, to hire an attorney to defend you and, second, to indemnify you, if necessary. Failure to make the required notification, if it prejudices the ability of the insurance company to investigate or defend the claim, can leave you and your company without coverage.[34]

Steps should be taken immediately after you become aware of the lawsuit (or that a lawsuit is likely) to preserve any documents (records, correspondence, spreadsheets, databases, e-mail, etc.) whether in paper or electronic form, or other tangible things, that may pertain to the issues raised by the plaintiff. If any potentially relevant documents are destroyed, whether deliberately or inadvertently, you or your companycould be subject to penalties imposed by the court. To the extent that you have normal procedures for systematic destruction of documents, these should be suspended as to anything that might be relevant to the lawsuit. All employees who may have custody of such should be advised of the need to preserve them.[35]

If you carry liability insurance that covers the allegations made against you in the lawsuit, the attorney who will defend you will most likely be selected by your insurance company, which will ordinarily be responsible for paying the attorney’s fees and other defense costs; however, you will become a client of that attorney the same as if you had selected counsel yourself. Therefore, communications between your company’s management and the attorney will be deemed confidential.[36]

Insurance companies usually have lists of approved counsel in well-established law firms who have a great deal of experience in defending civil lawsuits. The standards for getting on such approved lists are pretty high because the people at the companies are also experienced and screen their approved defense firms carefully.

Often, if the insured (you or your company) is a good enough customer, the insurance company will consider your wishes and at least listen to you regarding choice of attorneys. If you want to have a say in choice of counsel, you should start discussions on this point with your carrier’s claims representative soon after reporting an occurrence. Find out which law firms are on your insurance company’s approved list of counsel. In some cases, particularly if your regular attorney has a recognized expertise in the area involved, your insurance company may be willing to add that attorney to its approved list.

Most insurance companies have developed procedures and criteria for evaluating exposure presented by lawsuits and require their approved defense counsel to follow established guidelines in preparing a plan of action and a litigation budget at an early stage. You should expect to work closely with defense counsel in preparing such a plan or budget.

Before you are even contacted by the attorney selected by the insurance company, his or her firm will have already done a check of their records to make sure that representing your company will not create a conflict of interest with other clients of the firm. New Hampshire attorneys are, as are attorneys in all states, governed by rules of professional conduct that prevent representation of individuals or entities in matters that would jeopardize the interests of another client.[37] Before agreeing to take the case, the attorney’s firm will check to see, for example, whether the firm has ever represented the plaintiffs and, if so, under what circumstances.

When suit is filed in court and the papers have been served on the defendant or defendants, things will begin to happen quickly. Deadlines are established by law, some of which have short time limits. The recipient of a lawsuit must react quickly, even when the suit is deemed to be utterly groundless, or risk being found in default – with potentially disastrous consequences. Failure to respond officially to a lawsuit by entering a written “appearance” in court by the time established in the suit papers (usually done through an attorney), can result in your company losing the chance to defend the case. In other words, failure to respond in time could mean that the only question left for determination by a judge or jury is how much money will be due to the plaintiff.

Those businesses that apply the principles of project management will recognize the similarities between preparation of a case for trial and, for example, a project to develop and market a new product. As with any major undertaking, all people with a stake in the outcome of the litigation must be invested in the project. A successful defense requires a marshaling of resources, designation of team members, and assignment of responsibilities. Realistic objectives, both interim and final, must be established. Ordinarily a budget is prepared (usually by the attorney in consultation with the claims representative at the insurance company) and a time line is estimated. There is, however, one big difference between litigation and most other projects. That is, there is someone else (the plaintiff) who is running a parallel project with the goal of making sure that your project is unsuccessful.

Soon after suit is filed, you should designate a person within your organization to act as a point of contact with your defense attorney. In most cases where a small business is sued, this person should be the principal owner or the chief executive officer. Often decisions must be made quickly; therefore, the more authority your contact person has, the better.

Whoever is designated as the contact should plan to attend the entire trial if the case is not settled prior to that time. Do not succumb to temptation and designate some underling to sit through trial because you think you are too busy to do it yourself. Your trial representative must do more than just keep the chair warm. Juries, the members of which did not volunteer to be there, do not like it when the people most interested in the outcome of the trial appear to be “blowing them off.” They are being forced to decide your case and they typically believe they have a right to expect you to be heavily involved as well.

Most cases where a civil lawsuit for personal injuries has been brought will be covered by liability insurance. The most common type of liability insurance is, of course, automobile insurance, whether business or personal. In addition to automobile insurance, most businesses carry commercial general liability (CGL) insurance. Members of professions (e.g., doctors, lawyers, engineers, architects, etc.) may be covered by more specialized professional liability (sometimes referred to as “malpractice” or “E&O”[38]) policies. In addition, nowadays it is becoming increasingly common for businesses to add extra layers of protection through the purchase of so-called “umbrella” policies.

The New Hampshire Legislature has also made provisions for additional protection should a liability carrier become insolvent. When that happens, the New Hampshire Insurance Guaranty Association will take over for the carrier and will “be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not been insolvent.”[39] While this sounds fairly comprehensive, the process when an insurance carrier becomes insolvent is not seamless. Should your carrier become insolvent, you will need to seek specialized legal advice soon to make sure that you understand all of your rights and obligations.[40]

Under most liability insurance policies, the insurance company has two primary obligations: (1) to indemnify its insured if the latter is found to be monetarily responsible for a risk covered by the policy and (2) defend its insured when a lawsuit is brought claiming damages covered by the policy.

The duty to defend is separate from, and broader than, the duty to indemnify.[41] The duty to defend is triggered when the claim is made and exists even when the claims made are ultimately determined to have been groundless. Ordinarily, what determines whether or not there is a duty to defend is how the claims are worded in the writ of summons or complaint.[42]

Usually the duty to indemnify is worded broadly. For example, the language in a typical commercial general liability policy states that the insurance company “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”[43] This general duty is limited by a list of specific exclusions. For example, the insurance coverage will not apply to injuries or damages that are “expected or intended from the standpoint of the insured.”[44] There are many specific exclusions, which vary with the type of coverage purchased, and a careful reading of the policy, including all endorsements,[45] will usually be necessary.

If a liability insurance carrier questions whether it should provide coverage for a lawsuit, it may nonetheless provide a defense, but under a so-called “reservation of rights,”[46] while seeking a judicial determination of its rights and obligations under the policy in a separate action.[47]

Having retained almost complete control over the conduct of the litigation, the insurance company also has an obligation to protect its insured’s assets from judgments that exceed the amount of coverage available. If an opportunity to settle with the plaintiff within the policy limits becomes available, the company must have due regard for its insured’s interests and settle the case, if it would be negligent not to.[48] Normally, the lower the amount of coverage for a given claim, the greater is the insurance company’s duty of care, since the insured’s exposure is greater under those circumstances.[49]

As an insured, you or your business will also have duties under the insurance policy. Throughout the course of the litigation, you will have a duty to cooperate with and assist the insurance company and defense counsel in preparation for trial.[50] You must be careful not to prejudice the ability of the insurance company to defend the case on your behalf.[51] Don’t speak about the case with anyone other than people associated with the insurance company or the attorney assigned to your defense. The reason for this is that conversations with people other than these may not be protected by the attorney-client privilege. Such people may be subpoenaed by your opposition and compelled to disclose the content of those conversations.

The relationship among you or your company, the insurance company, and the attorney assigned by the insurance company to defend you, has come to be known as the “tripartite relationship.” Under the law of New Hampshire, the attorney assigned to your defense represents the interests of both the insurance company and the insured.[52] The tripartite relationship has evolved over time and has worked very well, largely because the primary goals of the relationship – the successful defense of lawsuits and the swift resolution of claims – are shared by both the insurer and the insured. While there may be issues of conflict between an insured and the insurance company, the attorney assigned to defend the lawsuit cannot become involved in such disputes or conflicts. For example, if there is a question whether coverage will ultimately apply to a lawsuit, the defense attorney cannot become involved in those questions at all. As stated earlier, if the coverage dispute leads to another lawsuit both the insurance company and the insured must obtain separate counsel to represent them in that dispute.

The insurance company probably started its investigation of the case soon after having been notified of an occurrence. Most companies have well-established procedures in place to investigate and (possibly) adjust and settle claims before suit is brought. If a case is obviously one where the insured is likely to be held liable (e.g., one of your employees was not paying attention and rear-ended another motorist), the insurance company will try to keep expenses down and to settle the case at an early stage before having to retain a defense attorney.

This is one reason why all policies require report of an occurrence at an early date. Investigation is best begun while facts are fresh in witnesses’ minds, and the company needs to have a clear picture of what happened in order to make an early determination whether the case is one that should be defended or should be settled.

Normally, the insurance company will assign the case to a claims representative or adjuster who will establish contact with the plaintiff or the plaintiff’s attorney to gather information and to establish a working relationship. Sometimes, despite the insurance company’s efforts to resolve the case before suit, the plaintiff will bring suit with few, if any, preliminary negotiations. There are a number of reasons to do this. In the first place, all judgments for money damages carry interest that does not begin to accrue until the lawsuit is filed.[53] Filing suit may also put pressure on the insurance company to pay more than it otherwise would if it is faced with the prospect of paying for a lot of pretrial and trial expenses, including defense attorney’s fees. Another reason to bring suit at an early stage is that it gives the plaintiff and his or her attorney access to discovery materials that might otherwise not be readily available. And, of course, the plaintiff’s attorney might fear that the statute of limitations (as previously stated, three years) is about to run.

Sometimes your first notice that a claim is being made is the lawsuit itself. For example, in a products liability case where one of your products allegedly caused injury to a consumer, you may not be aware that there was even an accident or injury until suit is filed. Sometimes a long period of time has passed between the time of the injury and the date suit is brought. If you had no prior notice and your insurance company had no prior notice, the plaintiff will have had ample opportunity to investigate the claim and to prepare for the suit. You, your attorneys, and the insurance company will be playing “catch up.”

After suit has been brought, you and your company can expect to become involved very quickly in trial preparation. Your defense attorney will be looking for input from you and your people regarding the events surrounding the accident or occurrence. Your attorney will want names of witnesses as well as copies of documents, photos, sketches, maps, and other things relating to the lawsuit, names and addresses and phone numbers of people who have given statements, and the names of people to whom such statements were given.

The attorney’s job will be to review and analyze the material developed during the investigation phase. If for some reason there was little, if any, investigation (for example, when the lawsuit is the first notice of the claim), the attorney must direct and participate in necessary investigation. The defense team must begin gathering relevant records and other evidence on liability, such as police reports and other government reports, including any investigations done by federal, state or local officials. If personal injuries are claimed, the attorney will begin to gather medical records, employment records, and any other evidence of expenses allegedly generated as a result of the injuries. One issue that often arises in claims for personal injuries is whether the injuries alleged by the plaintiff are entirely due to the claim of liability. For this reason, the defense team will probably need to obtain a complete medical history of the plaintiff prior to the accident or injury complained of.

If the case is filed in a state court, the suit papers will indicate that the defendant must appear in court by the return date.[54] This just means that a document must be filed by your attorney indicating that he or she represents your company. This triggers an obligation on the part of the plaintiff, the court, and any other parties involved in the case to provide notice to your attorney of anything going on in court (motions, hearings, depositions, etc.). It does not mean that you or any of your employees must be physically present in court on the day named.

Typically, your attorney will file a “special” appearance. By entering a special appearance, you are given thirty days within which to raise any special matters.[55] If no special matters are pleaded within thirty days, the appearance automatically turns into a “general” appearance,[56] which acts as a denial of all factual allegations made in the writ of summons.[57]

If the case is in federal court, the defendant must respond to each individual allegation made by the plaintiff and must admit or deny each one, or indicate that the defendant has insufficient knowledge to either admit or deny the allegation.[58]

Most state civil actions are actions at law for money damages.[59] The rules do not require that each factual allegation be addressed in a response. However, any affirmative defenses[60] must be set forth in a formal written response, either by way of a special plea or a brief statement of defense.[61] For example, if the defense team believes that the plaintiff shares in the blame for the accident, the affirmative defense of “comparative fault” should be raised in response to a writ of summons.

Once the initial pleadings and responses or motions have been filed, the court will schedule a preliminary structuring conference. The purpose of this structuring conference (which need not be attended by the parties themselves, but only the attorneys), will be to set an orderly schedule of interim deadlines in order to facilitate moving the case toward settlement or trial.[62]

Typically, the discovery phase of a lawsuit will last for a year or even longer before trial, depending on the complexity of the issues involved and the amount of discovery that will have to be conducted.

Many who have not been exposed to the litigation process are surprised by the adversarial way in which it is conducted. The theory behind this approach is that out of the clash of opposing partisan viewpoints, neutral objective viewers (i.e., the jury), will be able to come close to ascertaining the truth and reaching the right decision. Despite the adversarial nature of the process, however, experienced New Hampshire attorneys try to avoid becoming involved in a “cat fight” and normally work hard to eliminate unnecessary conflict. They recognize that it is usually in the best interest of their clients – whether the insurance company, the insured defendant or the plaintiff – to pick their battles carefully and to maintain a professional approach when dealing with the other side. More often than not, it is counterproductive to be a so-called “street fighter.” Nowadays, judges commonly begin monitoring or supervising the progress of the litigation soon after it commences. They expect attorneys to be civil with each other and to cooperate in the cause of expeditiously moving the litigation forward, so long as their clients’ interests are not adversely affected.[63]

 

---