This article is the third of a four-part series. The first installment, published in April, surveyed the structural, strategic and tactical ways that major corporate defendants may successfully manage their way through mass-tort liabilities. It also listed 17 best practices that every defendant should adopt, irrespective of the path chosen. The second installment detailed the first step — the most important one.

This article details steps two through nine:

2. Research and document all factual defenses and corporate records that may be asserted in litigation.

The nature of factual defenses and corporate records is as varied as the product(s) for which the plaintiffs assert liability against defendant companies. But what is not in doubt is that the ability to put on such defenses and enter evidence into the record only deteriorates with the passage of time. When a product liability is in its early stages, defendants may be justifiably reluctant to expend what may be significant legal fees. My somewhat bold answer is often along the lines that if the research turns out to be a waste of money, then that is a great outcome. But more realistically, in-house counsel must use judgement to determine how much research to sanction prophylactically as potential defenses.

The types of research needed may include:

• Sales records going back decades, detailing the location of deliveries of all products;
• Materials purchased, from where and from whom, in the manufacture of products;
• Product catalogues and standard warnings;
• Interviews with pre- and post-retirement sales and purchasing managers to ascertain transaction sales and records.

To the last point, many corporations seem to have the quintessential “Bob” or “Becky” who is on the point of retirement, and who knows the location of everything. Bob and Becky may have been resistant to sharing that knowledge whenever outsiders have taken an interest. In depth pre-retirement interviews and post-retirement consulting contracts are obviously a must for Bob or Becky.

It is not unusual for dozens of defendant companies to be named on product complaints and/or plaintiff fact sheets. Not being named in the first place is obviously the preferred result, but being dismissed from the case on summary judgement is a good second place. The analysis of the facts presented in the complaint is key here. A plaintiff may assert exposure to the product in an area of the country in which it can be proven from corporate records that the product in question was never distributed.  As so the work ups progress to respond to the facts presented in the complaints and later in the interrogatories, and the corporate research hopefully leads to a dismissal, eventually leading to the defendant not being named in most cases in the first place.

3. Comprehensively search for all relevant general liability insurance policies and engage with insurance archaeology specialists, if needed.

General liability insurance policies issued to American corporations in the post-war period provide coverage for products liability, both indemnity and defense, unless specifically excluded. Almost all American corporations purchased such coverage. For most of the post-war period, corporate general liability coverage was issued on an “occurrence basis”, meaning that the limits in the policy can be “triggered” based on when an event “occurred” — which could be many years later. For instance, if a drug caused harm within a latency period of several decades, then any insurance policy covering a period after the drug was ingested may be triggered. As such, depending upon the facts and state law, many years of general liability coverage may be triggered by an asserted products claim. Later years of coverage may have been issued on the “claims made” basis as opposed to the “occurrence basis”. Again, depending upon the facts and exact policy language, an insurance claim may be made for an occurrence that triggered policies based upon notice period.

Given the great value and availability of general liability insurance coverage, one would expect every corporation to have this contingent asset beautifully organized, analyzed and documented.

Not true. Many corporations facing products liability do not have their insurance policies in hand, let alone organized and analyzed. Frequently they are lost or destroyed in fires or floods. But all is not lost. So-called “secondary evidence” that points to the existence and general terms of such coverage may be sufficient to establish its existence, in combination with the standard insurance form in use in that era. This is where specialists — so-called “insurance archaeologists” — may come in handy.

With the passage of time, a remarkable number of insurers have declared insolvency under relevant state statutes. But many still-solvent insurers also continue to offer policyholders the protections they contracted for providing a fund of off-balance-sheet dollars to step in and assist with defense and indemnity for corporate liabilities.

Given its great potential value, spending time and resources early to identify, organize and analyze as much of that coverage as possible is an important, early, best practice step.

4. Put all insurers on notice unless they clearly attach too high in coverage to be implicated.

Commercial general liability insurance policies generally require the insured to put the insurer on notice when they become aware of events or occurrences that have the potential to implicate the coverage afforded by the policies. Notice typically should include complaints and other documents providing information on possible occurrences.  The exact language of the policy in question (along with any applicable case law) dictates what constitutes knowledge of an occurrence, how quickly notice must be sent, and sometimes where it must be sent.

One challenge resulting from putting carriers on notice is the stream of correspondence that follows. Other standard language in almost all policies requires the insured to cooperate with the insurer in its investigation and defense of the claim. The insurer likely will send a reservation of rights letter to preserve its arguments as to why the occurrence may not be covered under the relevant policy(ies).

This article does not provide legal advice. In step 8 below, I will discuss the importance of retaining coverage counsel. Suffice it to say for now — an insured that is a defendant in products liability litigation should:

• Notice all potentially implicated policies in accordance with the exact policy language’
• Send such notice (often referred to as "tender" by insurers) by registered means;
• Respond reasonably to questions from the insurer;
• Keep records of all insurer correspondence.

The duty to defend and indemnify the insured will depend on the exact policy language, but there are certain broad generalizations that can be about primary coverage versus excess. The duty to defend is generally broader than the duty to indemnify, which means that the insurer may well provide a defense on claims that are ultimately not covered. Primary policies generally underwrite a defense to be provided by the carrier in addition to the limits of liability. Excess carriers generally underwrite for a defense to be reimbursed within the limits of liability. This is an important distinction. Securing a defense from a primary carrier can shield an insured from the expensive costs it may take to defend itself against a claim. In contrast, the insured often must pay such costs out of pocket and submit them for reimbursement from its excess insurers.

5. Research and engage national counsel.

When, and if, to engage National Coordinating Counsel (NCC) is as important a decision as identifying the firm best suited for the role. Engaging an NCC presupposes that the products liability being managed is large and complex enough to merit the appointment of NCC. What if it turns out to be a waste of money because the liability is, in the end, not high enough risk? My well-known answer is: “Good, I’m glad it was a waste of money”. Some defendants fill the role of NCC with an internal candidate from their office of the General Counsel, though typically it is an outside lawyer. National Counsel is a key, vital player on the product defense team, overseeing a network of local counsel, attending strategically to the development of defenses across cases, and coordinating discovery. The NCC may, or may not be, a litigator or trial counsel. But they will certainly be overseeing litigation and trial strategy and making the important decisions as to who will represent their interests at trial.

As the term implies, there is an important administrative and leadership aspect to the NCC role. In some major products defense, there may be dozens of defense firms around the country. The incentives at the local law firms may be to litigate the case when it might have been settled early. The NCC attempts to align the interests of local counsel with those of the defendant. The local firms may also be using a hodge-podge of timekeeping systems, litigation management platforms, and approaches to taking depositions. Ideally, the NCC will assist in maximizing insurance recovery through well-communicated and enforced timekeeping, a standardized approach to keeping key litigation documents (e.g. motions) easily accessible, and a strategy for depositions tightly connected to the defendant's defenses (thus requiring an alert attorney). As previously noted, incentives for counsel may not be in the best long-term interest of the defendant, and a huge waste of resources can occur in a poorly organized approach.

6. Research and engage trial counsel.

Not every litigator is a trial attorney. In fact, most of the time expended by litigators is not spent trying cases. Not every defendant has winnable defenses and may not intend ever to try a case to verdict. For some defendants, the discovery that accompanies trying a case may carry too high a risk of incriminating documents finding their way into the record.

But it is my opinion that almost every defendant should have a trial team ready to try a case in every jurisdiction at any time, whether or not they believe they can win at trial.

There are plenty of examples of defendants that have gone “all in” on a trial strategy, or on a settlement-only strategy, only to end up bankrupt. The perfect approach, perhaps with certain exceptions, is to be ready to quickly settle for prevailing settlement dollars any cases with provable exposure and clear diagnosis, and to have a trial team ready to go if settlement can’t be achieved.

Trial lawyers are their own particular species of litigator that bring a special understanding of juries, cross examination and presenting evidence. Having a lawyer with a proven track record of courtroom results is a valuable asset to any defendant even if they rarely try cases to verdict.

7. Keep copies of all correspondence and loss run from insurers.

As already alluded to in steps 3 and 4, turning the contingent assets of an insurance program into paid defense and indemnity dollars takes more than giving notice and tendering claims. Insurance policies are contracts, and all states have statutes and case law dealing with their interpretation.

The shocking fact is that insurers often deny coverage. Insurance is an essential public/private good that enables individuals and corporations to mitigate their risks in exchange for premiums. But it is uniquely open to abuse in that the premiums are paid up front, then claims can be made sometime later. In the meantime, the insurer gets to keep and invest the premiums. For this reason, states have enacted statutes that require insurers to act in good faith. Most follow the model statute suggested by the National Association of Insurance Commissioners. Insurers hate being accused of bad faith claims handling, and especially of being convicted of it. There is potential for reputational harm and punitive damages that may be available to the insured. For these reasons, keeping a scrupulous record of all insurer correspondence will provide prima facie evidence if bad faith conduct is an issue.

Loss runs are another kettle of fish entirely. As discussed in step 1 concerning a comprehensive claims database, loss runs are often close to unintelligible. However, they still represent an important source of evidence of the way in which the insurer has applied or “allocated” tendered claims against the policy. At some point, the insurance policy may exhaust. To bring the policy above “on to the risk” the insured has the burden of proof to demonstrate that the underlying limits are exhausted. Said unintelligible loss run likely won’t do the trick. The insured must allocate back from the very first claim to demonstrate convincingly exhaustion of the relevant policies.

8. Engage coverage counsel.

How many more lawyers am I going to recommend? This is the last one, I promise. It is a very important one. The insurance coverage bar is essentially split between lawyers that represent insurance companies and those that represent policyholders. Occasionally they change sides, but typically not. You are going to want, obviously, to engage from those that only represent corporate insured and are averse to the insurance industry. Coverage lawyers come in many shapes and sizes. A number of large and highly prestigious full-service law firms have coverage practices. There are also a number of boutique law firms that only do coverage work, and there are lawyers at small and mid-size firms, and even some solo practitioners. In evaluating a coverage lawyer and whether I would describe them as excellent, I use the following criteria:

• Will they always act in the client’s best interest, no exceptions?
• Are they highly intelligent?
• Do they have a comprehensive knowledge of the relevant law?
• Are they creative?
• Do they understand how the game is played?

Viewed through this prism, many coverage lawyers will not make the cut. It is a unique area of the law with a maddening variety of differing state law and well-established rules of engagement between insurers and their policyholders.

It is also very important to think through the economic consequences of legal decisions. Do you really want a pile of cash for the insurer to “buy back” the policy and give up the opportunity to file a future claim against the coverage?

Coverage counsel may be able to steer you to an arrangement with your insurers that does not require litigation. Once started, it can easily last for decades. And the result, assuming you are successful, will usually be either a coverage-in-place agreement — essentially a simpler contract than the insurance policy, under which the insurer agreed to pay claims — or a cash-out deal.

Beware of contingency arrangements under which coverage counsel is paid only as a percentage of cash-out deals. Also beware of giving coverage firms incentives to sign you up for never-ending coverage litigation paying them by the hour. Remember step 1, about always acting in your interests?

9. Use technology to triage cases and ensure the most dangerous receive immediate attention.

There are certain risk factors that generally result in higher settlement values for all defendants, other factors that are unique to the defendant, and still others that are unique to the case.

Common risk factors for all defendants include:

• Small number of defendants named on the complaint
• Young age of plaintiff
• Significant dependent parties on the plaintiff
• Strong evidence of exposure to the product
• Serious illness or injuries

Other factors which are more particular to the defendant may include:

• Jurisdiction of lawsuit
• Plaintiff firm
• Product exposed to
• Site of exposure

And there may simply be bad facts for a particular case that it would be better to keep out of a trial record where they can be used in other cases.

With the comprehensive database of complaints and resolutions outlined in step 1, it is possible to calibrate the common risk factors and identify particular risk factors for the defendant using quantitative analysis of resolution history. In calibrating common risk factors based on settlement history, it is possible to ascertain the seriousness of them to resolution. In doing the same for more unique risk factors, it is possible to not only calibrate, but also to identify them to management as danger points. Certain products, or locations, may be far more dangerous than others. This may be a factor of the quality of evidence already in plaintiffs' hands, or a concentration of exposures already known at a particular site.

By leveraging technology, email notifications can be programmed in real time to alert designated parties immediately after a data point meeting high-risk criteria is entered into the litigation management system. This may be when such data is first entered from a complaint — or as additional data points are entered as the case progresses (which stresses the importance of local counsel updating the system promptly).

It does generally behoove the defendant to begin settlement efforts of the most dangerous cases as soon as they are identified. The price of settlement generally rises as other defendants settle out, or discovery is undertaken, and as costs are incurred by the plaintiff and defendant. If for no other reason — and even if settlement costs did not increase — the defense cost savings on the most dangerous cases is significant and worthwhile for a moderate expenditure in technology.

I will provide the rationale for the remaining steps in a final, forthcoming article.