In the current litigation landscape, nuclear verdicts have increased both the complexity and the frequency of large appeal bonds. For insurers, managing these obligations requires a proactive approach to streamline the process once the need for an appeal bond arises while ensuring thorough risk assessment.
New to appeal bonds? Read our article, “Appeal Bonds 101: For Insurers and Insureds,” for foundational background information on how these instruments function within the appellate process.
The following strategies are intended to help insurance carriers, claims managers/adjusters , and attorneys navigate the appeal bond process in a high-pressure environment.
Initiate the Underwriting and Risk Assessment Pre-Judgment
One of the most effective methods for streamlining the underwriting of an appeal bond is to initiate the process as early as possible. Engaging with a surety agent as soon as a verdict is rendered, or before the judgment is entered, allows the agent to explore all available options.
Early engagement provides clarity regarding the insurers options and enables you to make informed decisions.
Clarify Insurance Policy Obligations and Indemnity
Before the bond process begins, determine whether the underlying policy requires the insurer to indemnify on behalf of the insured for an appeal bond. This involves a review of the policy language to confirm the carrier’s obligation.
If there are multiple insurers involved, there can be quite a bit of back and forth particularly if the insurers are not all in agreement about their respective obligations to indemnify for the bond. Starting this communication early can help avoid delays and surprises. Something to keep in mind is there is a big difference between an insurer indemnifying for an appeal bond and simply paying the premium. Indemnifying means the insurer is holding the surety harmless, and they are responsible for reimbursing the surety for any loss under the bond up to the amount that they indemnify the surety for. Sometimes this is the insurer’s policy limits, and in other circumstances, it may be for the entire bond amount.
Identifying the authorized signatory for the General Indemnity Agreement (GIA) is equally proactive. Sureties will require the insurer to execute a GIA upon issuing the appeal bond, and the GIA typically needs to be signed by an authorized corporate officer. Knowing who has the authority to sign on behalf of the writing entity early on streamlines the process.
Understanding what Surety Companies Look for
Surety companies evaluate insurers similarly to other businesses, and their aim is to determine that the insurer can and will satisfy the judgment should it be affirmed on appeal. There are several key factors sureties evaluate, and the most basic is the insurer’s A.M. Best Rating, which sureties use to gauge financial health. Stable and upgraded ratings are positive indicators of the future direction of the insurer’s financial strength. Whereas, downgrades can cause uncertainty about the insurer’s future financial prospects.
Sureties don’t simply rely on A.M. Best ratings though. Some have their own credit models they use, and others, will take a deeper dive into the insurer’s financials to understand them more thoroughly.
Surety companies also look at the size of the bond required relative to the insurer’s financial strength and the total number of bonds the surety has outstanding for that insurer.
While many insurers qualify for appeal bonds without collateral, a strong rating can expedite approval. Conversely, a lower rating may require additional underwriting steps, and in some cases, the surety may require collateral to provide the bond. In those situations, an Irrevocable Letter of Credit (ILOC) is typically the preferred form for insurers, but it is also possible for insurers to use cash or pledge a brokerage account holding publicly traded stocks and bonds. By starting the process early, you get clarity about your options and are able to make an informed decision with your surety agent.
Leverage Reinsurance
When underwriting an appeal bond, a surety may also inquire whether the insurer has reinsurance, as this transparency helps the surety understand the true impact that the potential loss will have on the insurer and can be a factor in securing more favorable terms.
If an insurer does not qualify for an appeal bond independently, a reinsurer willing to indemnify can help bridge the gap. Even for qualified insurers, involving a reinsurer on nuclear verdicts can be beneficial in obtaining better terms.
Establish an Appeal Bond Program Ahead of Time
For recurring appeal bond needs, an insurer can establish a surety credit facility to eliminate the need to go through the full underwriting process each time an appeal bond is needed. This setup ensures you are prepared for future bonds without redundant administrative burdens, and it allows bonds to be issued faster, often the same day.
Conclusion
Ultimately, the most effective way to manage an appeal bond is to start the process as early as possible. Reaching out to a surety agent as soon as a verdict is (or is about to be) rendered allows you to avoid technical delays and establish indemnity structures well before deadlines become critical. By partnering with an appeal bond specialist at the outset, you ensure that all documentation is handled correctly and administrative burdens are minimized, allowing your team to focus on the litigation at hand.
