Stages of a Lawsuit, Legal Expense Controls, and Alternative Dispute Resolution: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Insurance Operations, Regulation, and Statutory Accounting, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:

Myhr, A.E.; and Markham, J.J. Insurance Operations, Regulation, and Statutory Accounting (Second Edition). American Institute for Chartered Property Casualty Underwriters. 2004. Chapter 10, pp. 10.26-10.30.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-71-1.

(a) Describe the two ways in which a lawsuit can be initiated.

(b) What must the defendant do, usually within 20 to 30 days, after being informed of the plaintiff's allegations?

(c) What is the initial stage of a lawsuit called? What entities typically provide the first papers in this stage?

Solution S5-71-1.

(a) According to Myhr and Markham, p. 10.26, a lawsuit can be initiated either via a summons - a "legal document issued by the clerk of the court requiring the sheriff or another officer to notify the person named that an action has commenced against him or her and that he or she must answer the complaint" - or a complaint - a "document listing what the defendant has done to harm the plaintiff and the amount of money the plaintiff wants to recover."

(b) The defendant is required to provide an answer - a "document that responds to the plaintiff's allegations and that can include defenses to the complaint" (Myhr and Markham, p. 10.26).

(c) The initial stage of a lawsuit is called the pleadings and entails "formal written statements of the facts and claims of each party to a lawsuit" (Myhr and Markham, p. 10.26). A court officer, such as a sheriff, sheriff's deputy, or U. S. marshal, will typically present the initial papers of the pleadings to the parties in the lawsuit.

Problem S5-71-2.

(a) What is the discovery stage of a lawsuit?

(b) What is the difference between interrogatories and depositions?

(c) In a lawsuit, what is the most expensive and time-consuming form of discovery?

(d) What other two elements, besides interrogatories and depositions, might the discovery stage of a lawsuit involve?

Solution S5-71-2.

(a) Discovery is a "pretrial exchange of all relevant information between the plaintiff and defendant" or "the formal process by which each party obtains the evidence and information known to the other parties" (Myhr and Markham, p. 10.27).

(b) Interrogatories are "specific written questions or requests raised by one party to a lawsuit that the opposing party must answer in writing", whereas a deposition is a "a series of oral questions and answers that are recorded by a court reporter" (Myhr and Markham, p. 10.27). Interrogatories are answered in writing, whereas depositions are answered orally.

(c) Depositions are the most expensive and time-consuming form of discovery in a lawsuit (Myhr and Markham, p. 10.27).

(d) The following other possible elements of the discovery stage of a lawsuit are mentioned by Myhr and Markham, p. 10.27:

1. Requests for documents;
2. Requests for admission: "written statements that the receiving party must either accept or dispute";
3. A right of inspection;
4. A right of medical examination.

Any two of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-71-3.

(a) In a lawsuit, what is a motion?

(b) At what stages of a lawsuit can motions be made?

(c) What is a motion for summary judgment?

Solution S5-71-3.

(a) A motion is "a formal request to the court for a decision or ruling" (Myhr and Markham, p. 10.27).

(b) A motion can be filed at any stage of the lawsuit, from the time it is initiated to the time that it is appealed (Myhr and Markham, p. 10.27).

(c) A motion for summary judgment is a motion "in which the moving party asks the court to decide the case in its favor, usually after only pleadings or discovery has been completed and before trial. A motion for summary judgment is essentially an argument that no real issues exist and that, as a matter of law, the moving party is entitled to judgment" (Myhr and Markham, p. 10.27).

Problem S5-71-4.

(a) In a jury trial, what is the role of the judge with respect to the jury?

(b) What are the only aspects of a case that can be heard on appeal?

(c) Name two techniques that liability insurers use to control legal expenses.

Solution S5-71-4.

(a) In a jury trial, "the judge explains to the jury the relevant law and explains what factual issues the jury must resolve" (Myhr and Markham, p. 10.27).

(b) On appeal, the only aspects of a case that can be heard are alleged errors of law - such as misstatements of the law by the judge or presentation of inadmissible evidence. Issues of fact may not be disputed (Myhr and Markham, p. 10.28).

(c) The following techniques used by liability insurers to control legal expenses are mentioned by Myhr and Markham, p. 10.28:

1. Using only specific preapproved firms to defend liability lawsuits. These firms typically work at a lower hourly rate;
2. Requiring "monthly or quarterly bills on active cases." These bills would typically show a highly detailed breakdown of expenses;
3. Requiring law firms to submit budgets or quote fixed prices for a case.
4. Requiring adjusters to "preapprove all depositions or motions".
5. Settling cases before a lawsuit can even emerge.

Any two of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-71-5. The following six types of alternative dispute resolution (ADR) are discussed by Myhr and Markham, pp. 10.28-10.30:

1. Negotiation;
2. Mediation;
3. Arbitration;
4. Appraisal;
5. Mini-trial = summary jury trial;
6. Pretrial settlement conference.

Each of the following characteristics pertain to one of the six types of ADR above. Match the characteristic to the type of ADR to which it pertains.

(a) A procedure in which the amount of covered loss is determined by the insurer and the insured each choosing a representative; thereafter, the two representatives may select an umpire who would resolve differences between their estimates.
(b) A referee assists the parties in dispute in reaching a mutually agreeable settlement.
(c) Before the parties to a lawsuit actually go to trial, they discuss the case with the judge who will be presiding over it and attempt one final time to reach an agreement that would render the trial unnecessary.
(d) A disinterested third party acts as a judge and reaches a decision regarding the dispute, which may or may not be binding.
(e) Direct communication between the insurer and the claimant or claimant's representatives in an attempt to settle the claim and prevent a lawsuit.
(f) Representatives of each side in a dispute offer an abbreviated version of their case to a panel whose decisions may or may not be binding. The rules and procedures used in this method of ADR are often the same as those of conventional courts.

Solution S5-71-5.

Characteristic (a) pertains to 4. Appraisal.

Characteristic (b) pertains to 2. Mediation.

Characteristic (c) pertains to 6. Pretrial settlement conference.

Characteristic (d) pertains to 3. Arbitration.

Characteristic (e) pertains to 1. Negotiation.

Characteristic (f) pertains to 5. Mini-trial = summary jury trial.

See other sections of The Actuary's Free Study Guide for Exam 5.