Vacatur

Vacatur is an order by a court whereby a decision that has been rendered in a proceeding or judgment is set aside, annulled or vacated. Vacatur is a procedure by which a court either invalidates its own decision or the decision of a lower court. (FBIC comments as cited herein do not apply to when a higher court invalidates a lower court’s wrongful decision). It is understandable as to why a higher court would invalidate a lower court’s decision made in error but why would a court invalidate its own decision? This type of vacatur when a higher court invalidates its own decision occurs mainly when a losing party, e.g. an Insurance Company, agrees to pay the winning party, but only if the winning party joins with the losing party in requesting the judge to vacate the court’s decision. Unfortunately once a decision is vacated in this manner, in most cases it winds up disappearing from all legal records, the very same records which judges and lawyers use to find precedents for common law and for the settling of future cases.

Generally, plaintiff insurance claimants overwhelmingly win their cases more and more today to include compensatory damages but only a few with substantial punitive damages awards, adequate enough to act as a potential future deterrent to hopefully stop or influence bad faith insurers from continuing their illegal practices.  (For more on those states which “state laws” permit punitive damage awards, click here).  Unfortunately, the punitive damages awards are usually appealed for as long as possible by bad faith insurers in order to put off having to pay. In addition, generally, the payment of many medium-size and larger verdict awards, that are exclusive of punitive damages, are also delayed as long as the courts and court actions allow the insurers and their defense lawyers to use the system to get away for as long as possible without paying the adjudicated claim and judgment amount.

Generally, the defense upon losing a court case and decision and depending upon the size of the award and the insurer’s willingness to pay, the insurance company agrees to pay the amount of the verdict award and not to appeal or further appeal the decision only if the plaintiff agrees to have the court’s decision “vacated” and the information surrounding the case be kept confidential as part of the terms and conditions of settling the case. Accordingly, through the “vacatur” process, the insurance industry removes from all records and publication the bad faith insurance court information from ever being viewed.  In so doing, experts estimate that 50-80% of all cases and case laws decided in favor of plaintiffs, policyholders and claimants are sealed, kept secret and/or erased (aka “vacatur”) from court records.  Because of the agreed upon confidentiality and substantial number of cases sealed from view and/or erased from record, the number of published bad faith case verdicts available to plaintiff lawyers and the public have been minimized and articles on the subject kept limited. Further adding to this information imbalance, the McCarran-Ferguson Act of 1945 exempted the insurance industry from federal laws leaving insurance companies free to collect and share information and documents amongst themselves that are not available to policyholders, claimants, plaintiff insurance attorneys or anyone else.

Insurance companies will often pay the winning litigants more than they won in court, but only if the winner will agree to vacatur, the judgment being vacated and the case disappearing from record. Many court decisions that go against insurance companies disappear from record in this manner. In other cases the insurance company will pay a losing party not to appeal and let stand a judgment favorable to the insurance company. A decision in any insurance coverage case may have nationwide impact because of common insurance policy language.  As such, one decision can affect insurance claims for hundreds of millions of dollars in dozens of other cases where policyholders are trying to collect from their insurance companies. Therefore, the insurance industry has a huge vested interest in seeing that any precedent setting judgment that supports a policyholder over an insurance company is erased.

Courts justify vacatur on the ground that it promotes immediate settlement of disputes and thus helps to clear the court’s docket. However, when a judgment is vacated, it most often disappears from all records with nobody knowing about it except those involved who are often sworn to secrecy as part of the settlement. In so doing, the law remaining on the books is skewed as it does not reflect all of the decisions on an issue. This allows parties in later actions to having to concede to argue the law and have the courts reach conclusions without the knowledge and benefit of having these vacated precedent setting case judgments to cite as reference and support their positions. The losers in the case of vacated insurance decisions are the insurance buying public who may find that the previous reported cases on the books wrongfully favor the insurance companies.

Insurance companies, whose lawyers are always in court, are the beneficiaries of vacated judgments. They have an enormous financial exposure and tremendous amount to lose if judicial decisions harmful to their industry and company interests are allowed to stay on the books. Outrageous, in essence, they engage in the practice of buying decisions that go against them by immediately paying the winners the amount awarded or more, provided the court vacates its decision. The policyholder and winning party often is willing to settle even after obtaining a favorable decision, because appeals by the losing side can delay or prevent payment of judgment until all appeals are concluded which can take a number of years. Therefore, to secure the benefit of its victory, the policyholder will often agree to vacate the decision in order to get its money sooner rather than later. If the policyholder does not agree, many times insurance companies will offer the policyholder immediate payment of even more money than the court awarded in its decision if the winning party will agree to vacatur. Courts frequently consent to that request since both parties are making the request.

The practice of vacatur in effect changes, misrepresents and rewrites history, the law and outcomes of future cases. The losers when vacatur occurs are all the other parties with similar actions who would have been able to negotiate an immediate satisfactory settlement or win their cases outright without litigation had the original decision(s) not been vacated. Other losers are all of the taxpayers and those who use the courts to resolve a dispute. Vacatur affects every court system and area of the law in America.

It is estimated by knowledgeable attorneys however that as much as fifty percent of judicial decisions favoring policyholders are wiped off the law books by the insurance industry by such vacatur actions. FBIC believes that the practice of vacatur should stop.