Clearly things did not go well between QBE and American Claims Management, Inc., its third-party claims service administrator, on one particular automobile liability claim.  QBE alleged that it sustained significant damages on account of the alleged failure of ACM to follow the parties’ claims management agreement. 

The California Court of Appeal decision in QBE Ins., Inc. v. American Claims Management, No. D073345 (Cal. Ct. App. Feb. 4, 2019) involves the aftermath of an arbitration award for QBE over the handling of the claim.  The court described the claims handling scenario as follows:

“In February 2011, Cortes was involved in a traffic collision with the Cardonas. Cortes’s insurance policy had a $30,000 liability limit per accident.  That month, the Cardonas mailed a policy limits demand to ACM, giving it 15 days to respond.  When ACM sought to accept the offer after the deadline had elapsed, the Cardonas rejected it.  In November 2012, the Cardonas sued Cortes.  With QBE’s approval, ACM hired attorneys to defend Cortes.  In June 2015, following a trial, the Cardonas obtained a judgment against Cortes in the amount of $20,974,903.

ACM did not timely communicate to QBE its receipt of the demand letter.  The Panel wrote in its final award: ‘In what would become a disturbing pattern, ACM also neglected to inform QBE that [] Cardona had called ACM . . . to follow up on his demand letter, that the demand letter expired . . ., and that [an ACM employee who was subsequently fired] failed to contact Cardona until [after the demand letter’s deadline]. In other words, ACM apparently chose to withhold from QBE evidence of its own negligent performance under the Agreement that . . . had potentially exposed ACM to hundreds of thousands, if not millions of dollars for bad faith.’

In June 2016, ACM and QBE further stipulated that $15 million was a reasonable amount to settle the Cardona lawsuit against QBE, and it was a good faith settlement. They agreed that no party can challenge the amount of the settlement, and no party ‘will assert that the other party acted as a volunteer by entering into the settlement.’  QBE subsequently paid the Cardonas that amount.

QBE sued ACM to recover the $15 million settlement plus more than $1 million in legal fees that QBE incurred in the related action.”

The arbitration panel ruled that QBE proved that ACM was deficient in the performance of its responsibilities to QBE under the claims management agreement.  The Panel ruled: “The starting point for the Panel’s analysis of contract damages is with ACM’s failure to timely review the letter demand, timely respond thereto and ultimately pay policy limits on behalf of Cortes.  Had it done so, QBE would have only incurred an expenditure of $30,000[ ], [Cortes’s] full policy limits. . . . QBE ultimately paid $15 [million] to resolve the Cortes and Cardonas claims.  All but $30,000[ ] of this payment was required because of ACM's breach.”

The court’s decision does not address the ins and out of ACM’s alleged failure to follow the parties’ claims management agreement with respect to the demand to settle.  That’s what the arbitration was about. 

Instead the court addressed ACM’s argument that the arbitration award should not be confirmed and, instead, vacated or corrected.  But the court did not do so.  As it explained, its hands were tied: “Considering the strong public policies favoring arbitration as a speedy and relatively inexpensive means of dispute resolution, the scope of judicial review of private, binding arbitration awards is extremely narrow. (citations omitted).  We can neither review the merits of the controversy, the arbitrator’s reasoning, or the sufficiency of the evidence supporting the award, nor correct or vacate an award because of an arbitrator’s legal or factual error, even if it appears on the award’s face.” 

The appeals court concluded that ACM’s claims, as to why the arbitration award should not stand, were assertions of legal error.  This, the court explained, was outside the scope of its permissible review of an arbitration award: “[t]he arbitrator’s resolution of these issues is what the parties bargained for in the arbitration agreement.”
 

Given the extent to which some insurers use TPAs for handling claims, situations no doubt arise where the insurer disagrees with a TPA’s actions.  But this one is a doozy of a coulda, shoulda situation.