ACE Group Insurer Sues Zurich American, Claims it Negligently Handled Lawsuit Defense

ALW Original Content

April 5th, 2013 - Westchester Fire Insurance Co. has accused fellow insurer Zurich American Insurance Co. of doing too little to limit damages in a personal injury lawsuit involving the two.

The suit, filed in U.S. District Court in Chicago, seeks more than $700,000 as a result of what it called wrongful conduct by Zurich American. It said the defendant did not properly control the defense of, and settlement negotiations for, a lawsuit brought against Zurich American client F.H. Paschen Inc., a general contractor that also held an umbrella policy with the ACE Group unit Westchester.

The underlying suit was filed in 2008 by Los Angeles-area schoolteacher William Kelly, who sustained head and back injuries when his head struck the bottom of an overhanging stairwell he was descending. He claimed that Chicago-based Paschen, which oversaw construction of the stairs, allowed it to be built with too short a clearance.

At the time, Paschen owned a commercial general liability policy issued by Zurich American and an excess coverage umbrella policy from Westchester that kicked in after $1 million in damages.

Westchester said that Kelly made offers to settle below the $1 million, but that through missteps by the defendant, those overtures were not properly answered. In January, 2011, a California state court jury awarded the teacher $1.641 million in damages, of which $1.310 million was assigned to Paschen.

Cross complaints by subcontractors resulted in $411,848 more in damages, resulting in a total bill to Westchester of $727,820, plus select fees and costs.

Westchester said that Zurich American negligently controlled the defense of the teacher’s lawsuit and failed to respond to or accept settlement demands, including mediator’s proposals, in a timely fashion.

Did you know?

In January of 2011, 10 ACE Group Companies agreed to pay $70 million in settlement fees to the New York Workers’ Compensation Board after an investigation into whether certain insurance companies had been overcharging policyholders.

The New York Attorney General's 2004 insurance investigation revealed compelling evidence pointing to the widespread practice of bid rigging and other improper transactions perpetrated by ACE, AIG, and Marsh, among others. ACE avoided a trial by paying a large settlement, agreeing to significantly change its business practices, and the company issued a formal apology to consumers who had been victimized.

Bad faith is the unreasonable failure of an insurance company to honor the terms of an insurance policy and deal with a policyholder in good faith. Insurance companies who are found to have acted in bad faith can be liable for punitive damages in addition to contract damages. Some states have bad faith statutes called "Unfair Insurance Claims Practices Acts."

In a lawsuit brought against ACE subsidiary Insurance Co. of North America by Pepsi-Cola Metropolitan Bottling Co. U.S. District Judge Stephen Wilson stated in 2011 that evidence against the insurer established a pattern of delaying payments on valid insurance claims.

ACE is listed on the New York Stock Exchange and has numerous American stockholders. However, many of ACE Limited's officers and directors, who are not US residents, might be immune from civil liability under US Securities laws designed to ensure corporate accountability. This is a significant benefit of the ACE board's decision to reincorporate in Switzerland during 2008.

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