In a promising development for policyholders, a New York state trial court recently signaled a potential end to the free pass courts often have provided to third-party claims administrators (TPAs), such as Resolute Management, Inc. (Resolute), that has enabled TPAs to act with near impunity when handling or adjusting claims on behalf of their insurer clients.
Previously, courts have demonstrated an unwillingness to hold Resolute and other TPAs responsible for breaches of insurance policies and/or bad faith claims-handling. New York Supreme Court Judge Gerald Lebovits bucked that trend, however, when he refused to dismiss a claim for tortious interference of contract against Resolute in Konstantin v Certain Underwriters at Lloyd’s London, No. 652897/2013 (Jan. 24, 2018).
Resolute – “a wholly owned subsidiary of National Indemnity Company (NICO), which is a wholly owned subsidiary of Berkshire Hathaway, Inc. [(Berkshire)], a conglomerate holding company owned by Warren Buffet” – is a TPA for a number of insurance companies, including certain of those sued in Konstantin. As Judge Lebovits explained in his recent opinion in that case, Resolute performs a number of functions for those insurance companies, including, but not limited to, approving the payment of defense costs and settlements in cases for which those insurers are responsible.
In Konstantin, the plaintiff filed suit when a number of insurers refused to pay a 2012 judgment. Not only did the plaintiff sue those insurers, but the plaintiff also sued Resolute for tortious interference with contract, alleging that the TPA had “directed its insurer clients to refuse paying any amount of the judgment.”
In a victory for not just the plaintiff, but for all policyholders, the court is allowing this claim to proceed. After setting forth and considering the elements of a claim for tortious interference under New York law, the court, in its recent opinion, found that the plaintiff had “sufficiently pleaded that the defendants intentionally procured the breach of … contract.” Therefore, it denied Resolute’s pre-answer motion to dismiss.
In reaching this decision, the court focused on Berkshire and Buffet’s business model – to make money off the “float.” For example, early in its opinion, the court observed that the plaintiff “alleges that [Resolute] has directed its insurer clients to refuse paying any amount of the judgment…, interfering and delaying payment of the claim ‘as part of a business plan designed and intended to maximize the “float” resulting from the delay between the policyholder’s payment of premiums and the date of payment of covered claims.’”
Thereafter, the court also pointed out that “[i]n support of its claims, plaintiff has submitted letters written by Warren Buffet, the chairman of Berkshire Hathaway, Inc., to Berkshire Hathaway shareholders, discussing the company’s growth in ‘float’ – money generated by insurance companies paying the required premiums, and then held or invested by the reinsurer until claims are paid.” The court then relied on those letters when concluding that the plaintiff had sufficiently pleaded a claim for tortious interference with contract.
Notably, the court also rejected the argument that Resolute could avoid liability here because it was an agent of the insurers. In relevant part, the court explained: “That Resolute is an agent of NICO does not, however, make Resolute immune from liability. Plaintiff has sufficiently pleaded in the alternative in the amended complaint that Resolute, even as an agent of NICO, has acted in bad faith and in a predatory manner by withholding funds owed to plaintiff.”
Observing that the evidence Resolute presented did “not refute the plaintiff’s claim that Resolute intentionally procured a breach of contract,” the court added: “Even if Resolute is an agent of the defendant insurers, plaintiff has a facially sufficient pleading not to allow for Resolute’s immunity under a theory of agency.”
Although “all” Judge Lebovits has determined so far is that the plaintiff adequately pleaded a claim against Resolute, his refusal to allow Resolute out of this case at the motion-to-dismiss stage is a welcome development for policyholders.
We will continue to track this case and provide additional updates as it progresses. To make sure that you receive timely updates, please subscribe to this blog by submitting your email address above.