By: Morgan Gaynor

I recently heard from a fellow lawyer in Tampa who had won a homeowner’s insurance case. The insurance company had denied coverage to his client, but a judge ruled that the claim was covered. The insurance company then wanted to settle the claim.

That sounds straightforward enough, but there was a huge catch. In exchange for a settlement, the insurance company wanted the plaintiff and his lawyer to agree to have the court withdraw its ruling against the insurance company. In other words, the insurance company wanted to make an unfavorable order disappear.

This practice is disturbing to say the least. A little background information will show why.

In cases where a consumer is fighting with their insurance company about whether a claim is covered, courts often decide the dispute by carefully examining the language of the insurance policy. Many policies are “form” policies containing the exact same language, so a court’s interpretation of that language can be a powerful precedent for future cases.

Demanding that an unfavorable court decision go away in exchange for settlement dollars rigs the game. If an insurance company can pay to make decisions it doesn’t like vanish, then it can argue in later cases that there are no court decisions in a plaintiff’s favor. This could greatly influence a judge’s decision, because judges are generally supposed to follow previous decisions covering the same issue.

It’s no surprise that legal observers have criticized this practice. Federal courts, including the U.S. Supreme Court, have also weighed in against it. They generally say that a settlement alone is not a good enough reason for a court to withdraw a decision it has already made. They’ve also noted that everyone – not just the parties to a lawsuit – can benefit from the guidance court decisions provide. The practice of making decisions disappear deprives others of a precedent which could be useful for future cases. It also distorts the weight of precedent available to legal researchers.

Nonetheless, this cynical manipulation of the scales of justice goes on. State courts do not condemn it as strongly as federal courts, so state courts are more likely to go along with this type of request.

Aggrieved consumers may not be in a position to resist either. Many individuals who fight with their insurance companies simply want to be paid for their losses. As a result, they feel great pressure to cave in when money is dangled in front of them. By nature, they don’t have the same incentive as an insurance company to take the long view.

Even plaintiff’s lawyers can get in a tough spot when an insurance company makes this a condition of settlement. They know it’s bad news, but ultimately must do what their client wants to do. If a client needs the money and doesn’t care about a court order, then lofty ideals about the integrity of the justice system must go by the wayside.

Therefore, it is really up to courts to put a stop to this practice. Judges should not withdraw their orders unless there is a compelling reason to do so. And needless to say, an insurance company’s desire to stack the deck for future cases is not a compelling reason.

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