FOR POLICY HOLDERS
Insurance is a complex area of law and few people read and understand their insurance policies. A business or individual may have a significant insurance claim once in a great while, but the insurance company insuring the claim deals with multiple claims every day. Klevatt & Associates, LLC can provide you valuable assistance in evening the playing field and obtaining recovery of the insurance benefits you purchased. Some of the issues insured’s face in this area are addressed in the article below. Contact us to obtain experienced counsel.
BUSINESS INSURANCE – THE ROLE OF COVERAGE COUNSEL
David S. Klevatt, Esq.
When do you have to inform your insurer about that lawsuit you just received? Do you have to provide notice to your insurer of that demand or inquiry letter you just received even if you think it is groundless or will go away? What about that stockholder letter threatening your directors with a class action lawsuit? Do you have to tell your insurer about that nuisance slip and fall case you are sure is going to be dismissed? Once you have given your insurer notice do you have to comply with every request or demand it makes? Do you have to accept whatever coverage determination your insurer makes? Are you stuck with the lawyer your insurer hired to defend you?
Few businesses are accustomed to navigating the relatively unfriendly waters of dealing with insurance companies on claims that they have made. Smooth sailing may be easier to accomplish if companies employ “coverage” counsel who are familiar with the principles that govern the relationship between an insurer and insured, and tactical issues that may arise during the course of litigation. This article highlights some of the initial insurance coverage issues and potential pitfalls that befall corporate policyholders.
In addition to property insurance, most companies purchase commercial general liability insurance (“CGL”), and many businesses also purchase some form of professional liability insurance, i.e., directors’ and officers’ liability, errors and omissions or professional malpractice. There are two general types of CGL policies, “claims made” and “occurrence.”
Occurrence policies cover all injury or damage that occurs during a policy period, no matter when the claim is made. For example, if a person slipped in your parking lot in October of 1994, but did not make a claim against you until July of 1995, your company’s 1994 general liability occurrence policy must respond to the claim. The court’s have used this illustration to extend coverage to such delayed-manifestation injuries as asbestos and environmental pollution liability claims. Long-expired insurance policies (dating back years or even decades) are a fertile source of insurance coverage.
Claims Made Policies
The insurance industry created “claims made” policies to try to cut off the “tail” of these long- tailed future liabilities that occurrence policies must cover for events in prior periods. A claims- made policy only covers claims against the insured made during the policy period, no matter when the injury took place. For example, if your director committed negligence in 1985 but no claim was made until 1995, the company’s 1995 claims-made directors’ and officers’ liability or errors and omissions policy may be impacted — the 1985 policies would not be involved. Upon renewal these policies present a real danger to policyholders of losing coverage for “claims” that have not yet been reported to their insurer.
One way insurers have permitted insureds to avoid having a claim rejected on reporting grounds is by including an “extended reporting” provision that lets you report a circumstance to the carrier that may give rise to a future claim or by having a “retroactive date” included in the policy. For example, if your client threatens to sue you in 1992 for something you did in 1991 and you report this “threat” to your insurer, any future claim (filed after the policy expires) may be covered by the 1991 policy. If you fail to report it in a timely manner it could be denied.
Who Gets Notice?
There are also helpful steps the insured can take before a lawsuit is ever filed. For example, since occurrence policies cover events that may have taken place many years earlier, it is critical that all old policies are saved. Insurers often do not have copies of policies, only bare-bones coverage records. The passage of only a few years can make complete policy construction a challenge. If complete policies cannot be found company and insurance broker records can be used to “reconstruct” coverages. Each claim is unique and full analysis should be given to determine under which insurance policies notice should be given.
You and Your Insurance Broker
Your insurance broker can be very helpful in evaluating, placing and administering policies. You may be surprised to learn, however, that in Illinois, your broker is often considered your agent and not the insurer’s agent. This means that if your broker fails to send the insurer your premium, forgets to process your policy renewal, obtains inadequate coverage or fails to timely report your claim, the mistake will be held against you — not the insurer. Conversely, in some circumstances’ brokers are agents of your insurance company. Thus, your insurance broker might not be the best person for you to rely upon to present a claim and advocate your company’s position on coverage. In addition, your broker may be an agent of limited number of companies and will likely have side deals with those companies that will not know about unless you ask.
Rules of Policy Construction
Policy language can be confusing. In construing insurance policies, courts use fairly well established rules of construction. For instance, courts usually construe ambiguities or uncertainties in an insurance policy against the insurer as they are usually the “drafter” of the contract. Absent costly coverage litigation, however, if the policy language is confusing or unclear, the insurer will likely adopt an interpretation it finds favorable. It is common for the insurer’s claim representative to deny coverage by adopting a policy interpretation a court would not adopt.
You should not accept your insurer’s negative policy interpretation at face value. If you are unsure of your insurer’s denial or reservation of its rights, you should consult seasoned coverage counsel.
Insurer’s Duty to Defend
Most liability policies require that your insurer defend you (or your company) against all claims. The carrier’s obligation to defend a claim is broader than its duty to indemnify or pay a claim. This means your carrier may be required to defend you against a claim even though it may ultimately prove to be not covered. If a claim asserts both covered and uncovered allegations, your insurer may still have to provide a defense.
The typical liability policy requires the insurance carrier to provide counsel to defend claims against the insured. Under some circumstances — especially when the insurer has reserved its right to deny coverage — the insured can choose their own lawyer to defend them. Generally, even though the insurance company is paying the lawyer’s fees, the lawyer’s duty of loyalty is to the insured and not to the insurer.
Monitoring Insurer Appointed Counsel
Even if your insurer has acknowledged coverage and has provided an attorney to defend your interests this does not mean that all your worries are over. You must be diligent in monitoring the attorney your insurer employs to defend you. You must be mindful that this attorney, who in all likelihood will never represent you again, may still create an impact on your business. This is especially true in cases that present the risk of a judgment in excess of your available insurance, high-profile cases that affect your company’s public relations and cases involving precedential issues and other important non-economic issues.
You and your company’s lawyer (as opposed to the lawyer the insurer hired) should closely monitor the progress of the litigation. Some things you should consider doing include:
- Meet with insurer-appointed defense counsel early in the case to discuss strategy. If you find the lawyer less than competent don’t be afraid to demand a different lawyer.
- Obtain all reports the defense lawyer has given to the insurer. If the insurer has reserved its rights, ask to see the reports before they are sent to the insurer.
- Require that frequent status reports be provided to permit you and your company’s lawyer to determine early on where the case is heading.
- Require your authorization before allowing the filing of any legal briefs.
- Request explanations of legal procedures or strategic moves that you do not understand.
- Make sure the defense lawyer adequately prepares your witnesses for their depositions. You or your counsel may want to attend some or all of these preparatory sessions.
Although certainly not necessary in every instance, in the long run supervising the insurer-provided defense counsel may prove to be a very cost-effective measure. Your company lawyer’s role is to spot potential problems with coverage, supervise your defense, interact with the insurance company to protect your rights and, when appropriate get involved in settlement negotiations in order to protect your company’s interests.
An Insurer’s Duty to Settle
In a lawsuit your insurer owes you an obligation of good faith and fair dealing and must treat your interests equal to its own. Your insurer’s duty of good faith is most noticeably impacted during settlement negotiations. Generally, an insurer has a duty to accept reasonable settlement demands that are within the policy’s limits. If your insurer breaches, it can be liable for the entire verdict against your company, including all amounts in excess of policy limits.
This can be a tricky area. Assuming you have your own company counsel reviewing the progress of the case, they may be able to help you avoid a costly out-of-pocket judgment. Your lawyer can tell you what the insurer may not–that in some circumstances you may want to adopt the claimant’s position and demand that your insurance company accept an offer within its limits. This prevents your exposure to the risks of trial. In these situations, the insured can greatly benefit by retaining independent counsel familiar with insurance law.
In sum, businesses need to have their insurance coverage handled by an advocate for the company without any potential conflict of interest. Independent coverage counsel with the expertise to find and obtain coverage, to overcome insurance company objections and to protect the company in litigation and settlement are a valuable asset to any business.
Copyright 2001 – David S. Klevatt, Esq.