Insurance companies and the myth of no insurance.

Insurance companies nearly always play a huge role in how, when, and why lawsuits are brought, and whether the case is settled or decided by a jury. But you will seldom see them acknowledged or even mentioned in a courtroom. Like the wizard behind the curtain, they control many levers, but are never seen.

The parties sit at tables in the front of the room, their lawyers beside them. Spectators are scattered along benches in the back, watching the witness testifying on the stand. Jurors are in the jury box paying quiet attention. The bailiff and court reporter sit near the judge, unmistakable in her black robe. Everyone with an important role in the case can be seen in the courtroom – everyone, that is, except the one hidden behind a cloak of invisibility and a curtain of silence.

When someone claims to have been hurt by another, an insurance company decides if the claim will be paid or denied. If it chooses to deny the claim, the insurer picks the lawyer who will defend the resulting lawsuit. The insurance company pays the lawyer and the other costs of defense. The insurer affects and often controls what defenses are claimed against the injured person, and chooses whether the case will be settled or decided by a jury. But it does so while hidden behind well-intended rules that disguise its role and confuse everyone but the lawyers and judges.

Some jurisdictions allow “direct actions” against insurance companies when an insurance company’s insured is liable for hurting someone. In those cases, because the insurance company is the named defendant, the jury knows who is controlling the defense and who will pay the verdict if a jury decides in favor of the injured plaintiff. South Dakota is not a “direct action” state, though, so when someone in this state is hurt by another’s negligence and the liability insurance company refuses to pay, the resulting lawsuit names the individual insured as the defendant. The insurance company is never mentioned and the case appears as if there were no insurance involved. Behind the scenes, the lawyers know what insurance is available, and injured plaintiffs and their attorneys virtually never bring a lawsuit – much less take a case to trial – unless there is substantial insurance coverage protecting the named defendant. But jurors are not supposed to care whether or not there is insurance, so no one is allowed to let jurors in on the secret.

The rule says, “Evidence that a person was or was not insured against liability is not admissible to prove whether the person acted negligently or otherwise wrongfully.” That makes sense, since having insurance doesn’t prove you did anything wrong. Over the years, however, judges and lawyers have allowed the rule to grow well beyond what it actually says. Now, insurers insist on extraordinary measures to try to keep anyone from uttering “insurance” in the courtroom – no matter what the context. During trial, witnesses might be naturally inclined to refer to the defendant’s liability insurance, not to claim it proves fault, but to explain various other parts of the story. The reason the injured person isn’t asking for the cost of car repair, for example, might be because the liability insurer already paid for that. Photos or statements may have been taken by the insurance company’s adjuster. The injured person may have been required to be examined by someone the defense likes to call an “independent medical examiner” or “IME,” but who really was chosen and paid by the insurance company. Those parts of the story, if understood by the jury, might allow jurors to make better sense of the entire picture and focus on the central issues they need to decide. Instead, jurors are left confused by the gap between what they know by their own experience – that insurance is common and auto insurance is required by law – and the artificial scenario played out in the courtroom as lawyers and witnesses tiptoe around the subject of insurance.

Defense lawyers hired by the insurance company sometimes exploit the situation by falsely implying there is no liability insurance, hoping that resulting sympathy for the defendant causes jurors to keep the verdict low. If you’ve ever been on a civil jury, you probably wondered whether that nice person sitting at counsel table called “the defendant” can afford to pay for the damage he caused. No one was allowed to tell you the verdict would not be paid by the defendant himself, but by the insurance company who sold him a policy to cover just such a claim. Other times, defense lawyers claim their client has “taken responsibility,” even though their client has never paid a dime toward paying for any of the damages he caused. Still other times, defense lawyers imply jurors should disregard certain damages, like medical expenses, because they already have been “taken care of” – even though they know the expenses were “taken care of” by the injured person’s own health insurance company, which is waiting in the wings, demanding to be paid back once the trial is over.

The confusion is obvious. Some of the most common questions juries ask judges during deliberations are about insurance. In an effort to keep jurors from using insurance for the wrong reason – to decide if the defendant was at fault in the first place – the system goes overboard in the other direction and leaves jurors puzzled and frustrated with what they sense is only a partially true story.

It is hard to imagine a case in which any good purpose would be served by letting jurors know how much insurance the defendant has, and of course evidence of insurance should not be used for purposes of proving fault. It would be a fine idea if judges told jurors not to use any evidence of liability insurance as if it were proof of fault, since defendants should be free from the prejudice that would result if jurors did that. But injured plaintiffs deserve to be free from prejudice, too – the prejudice that occurs when juries get the false impression that a defendant is standing all alone, uninsured and financially vulnerable. And jurors deserve to be free of the confusion and mistaken impressions they experience when no one is allowed to mention the phantom of the courtroom.