June 21, 2001
The Florida Bar
Unauthorized Practice Law Committee
650 Apalachee Parkway
Tallahassee, FL 32399
RE: Whether control by an insurance company over how a claim filed against an insured is defended constitutes the unauthorized practice of law.
I am addressing you today in my capacity as General Counsel of Associated Industries of Florida and General Counsel of AIIC, a domestic stock insurance company.
Associated Industries of "AIF" is a trade association that is frequently referred to as "the voice of business" in Florida. In various legislative and regulatory matters, we represent over 8,000 of the state’s employers, ranging from some that are very large to hundreds that are very small. More specifically, we represent the interests of our member employers in matters that affect the affordability and availability of employers’ liability insurance, workers’ compensation, and in matters that affect the viability of employer liability self-insurance programs. For the benefit of these employers and their employees, we also operate and own a domestic insurance company that provides workers’ compensation coverage.
My purpose in addressing you today is to briefly express my concern over the question that is pending before you, in terms of the potential impact of your answer on: (1) Affordability and availability of employers’ liability insurance to our members; (2) the insurance company that we own and operate; and (3) our member’s respective self-insurance programs that cover hundreds of thousands of employees in Florida.
The package of insurance that our members purchase generally includes both workers compensation insurance (to cover injuries to workers) and third party liability insurance, which covers the employer and the negligent acts of employees when performed in the course and scope of their employment. Your answer to the pending question will have a tremendous impact on affordability and availability of this business liability insurance.
When our members purchase a liability policy, they purchase not only insurance coverage, but also enter an agreement that the insurer will provide and control the defense of the matter. In fact, particularly in the case of small businesses, the employer is depending upon the insurer (obviously acting through an adjuster) to use that insurers’ greater expertise to control the defense in a way that benefits both the insurance company and the insured and to control the settlement within policy limits if feasible. If the insurer or its adjuster breaches these duties, and if the defense lawyer allows them to breach these duties, we would have a separate lawsuit against the insurer for bad faith, and the lawyers would be guilty of unethical behavior, because the insurer’s actions would create an actual conflict of interest between the insurer client and the insured client. We are greatly concerned that if the Bar were to disrupt this relationship by saying that insurance adjusters were engaging in UPL, the entire system would cease to function or become unaffordable.
We know of no instance in which one of your members has been harmed (without separate legal remedy such as bad faith) due to an adjuster’s control of the defense. Conversely, outlawing the present system of liability defense (by calling it UPL) would cause tremendous public harm. As a member of the Florida Bar, I am also concerned that causing such harm would severely impair the public’s perception of the Bar.
I won’t take your time with the details of how all of the employer risk management programs work, but I will tell you that they function very much as the state’s self-insurance program that is administered by the Division of Risk Management. I understand that this has been described in information presented to you by the Division of Risk Management, in the form of a letter from Mr. R. J. Castellano, which I have read.
I want to emphasize that the concerns expressed by Mr. Castellano apply equally to all insurance companies and self-insurance programs. One thing that most of our programs have in common is that we cover both the employer and the employee in liability actions that arise from an employee’s act while in the course and scope of his employment. Quite similar to the state’s program, most of our programs use outside counsel to defend both the employer and the employee, and in most of these cases, a risk manager or adjuster controls the expense of the litigation and assures the quality of representation, through the administration of fee or litigation guidelines.
The actions of these adjusters do not constitute UPL for reasons that will be discussed by other speakers. I want to emphasize, however, that if the law were to become that these activities did constitute UPL, the results would be extremely costly to employers, and employees and consumers.
One of the most obvious examples is that if we lost control over settlements, the very existence of carriers or self-insurance programs, and our ability to protect our employees through these programs will be directly endangered. We simply could not afford to give a blank checkbook to lawyers to spend whatever that lawyer chose on defense, with no prior consultation with the adjuster. We certainly couldn’t afford to give a blank check for the settlement of the case. While defense lawyers know the law, they have no knowledge of the actual financial and accounting regulations carriers and self-insurance funds are subject to; specifically reserving practices, ALAE loss ratios, the market within which the carrier has to compete and the day to day operations of an insurance company. For adjusters not to be able to do their job would be a breach of the carrier’s fiduciary responsibilities to its insureds, investors, and the overall climate of the availability of coverage in the first place.
We also know of no case where one of our insured employees has suffered harm as a result of the actions of our adjusters. Conversely, if our programs were effectively outlawed by finding that they constitute UPL, the added expense to these programs and the possible loss of these programs would be of incalculable public harm.
Finally and most appropriately, Section 440.41, F.S. specifically substitutes the carrier for the employer as to all liability. Many times, the employer who has claims against it is no longer insured by their original carrier or the business is no longer in business or has merged with another business. The law places the responsibility in the carriers to continue to defend these entities in the claims that arose while still insured by the original carrier. The carrier cannot just ignore their previous insureds. These insureds must still be defended even if premiums were not all paid or there are not sufficient reserves to pay the claims. The carrier absorbs those losses.
Thank you for considering these views.
Very truly yours,STILES, Taylor & Grace, P.A.
Mary Ann Stiles