Insurance policies are legal documents. In the event of a dispute, their scope and meaning will be submitted to a court or arbitrator for interpretation. Most brokers are not attorneys. Most risk managers are not attorneys. And few companies seek counsel to review policies before a claim arises. But underwriters, assisted by their counsel, increasingly are including litigation-focused provisions in their policies. Although these provisions often appear innocuous to readers unfamiliar with insurance litigation issues, they are like time bombs designed to explode in the event of a contested, litigated claim.
As coverage counsel, we witness firsthand the precarious positions policyholders are often left in due to the actions (or inactions) of their insurance carriers. A prime example of such a catch-22 scenario is when an insurer refuses to consent to a settlement offer while defending under a reservation of rights.
In the uncertain times ushered in by the COVID-19 pandemic, observers of the insurance law landscape can find footing in an old, familiar story: a single insured left deeply dissatisfied by her insurance provider’s coverage for an accident lawsuit against her. But in In re: Farmers Texas County Mutual Insurance Co., a novel question of settlement authority offers the chance to make new law.
When an insurer pursues a judicial determination on its duty to defend and agrees to defend its insured retroactively only five months after its insured initially requested a defense, has it breached its duty to defend? In most jurisdictions, the answer would be “yes.” In California, for example, an insurer must afford an immediate and entire defense in response to a tendered claim that is potentially covered under the Buss doctrine; belated, after-the-fact payments cannot cure that breach. But under the rule of a new Wisconsin decision, however, the same insurer would not have breached its duty to defend.
In November 2018, we noted that the California Supreme Court had agreed to resolve Pitzer College v. Indian Harbor Insurance Company, a case that hinged on the importance and application of California’s notice-prejudice rule. On August 29, 2019, the court issued its decision: a policyholder-friendly ruling that opposes technical forfeitures of insurance coverage. Although further proceedings are needed to determine whether Pitzer will ultimately benefit from this victory, the principles it articulates are of immediate interest to policyholders in California and across the country.
Since 2008, Minnesota has had a bad-faith statute that penalizes an insurance company for its unreasonable denial of a first-party insurance claim. But it was only earlier this month that a Minnesota appellate court interpreted the statute to require insurance companies to conduct a reasonable investigation and fairly evaluate its results to establish a reasonable basis for denying the claim. In so doing, the court rejected the interpretation offered by the insurance company: that the policyholder must prove there are no facts or evidence upon which the insurance company could rely to deny coverage. That interpretation would have allowed insurers to rely on post hoc justifications for denying coverage. The court’s rejection of that argument is an important development in bad-faith law that will likely affect both suits brought in Minnesota and those in other jurisdictions where courts might look to this decision for guidance in connection with many types of insurance claims. Continue reading →
As coverage counsel, we see the situation arise time and again: facing down substantial potential liability in a pending lawsuit, a policyholder engages in good-faith settlement discussions with the plaintiff. After animated negotiations between the parties, the plaintiff finally makes a reasonable offer, only for the policyholder’s insurance carrier to throw up a roadblock by refusing to fund or consent to the settlement. But policyholders need not always resign themselves to continuing costly and time-consuming litigation—a “covenant not to execute” may be the switch to put the settlement back on track.
Your factory is flooded and manufacturing line destroyed. A hacker breaks into your computer system and erases customer data even though you paid the ₿1,000 ransom in bitcoins. A jury just returned a $5 million verdict against your company and an employee who got into an accident while texting and driving to a client meeting. These may all be insured events, but how long can your business survive while you wait until your insurance company decides whether to pay your claim? Continue reading →
It’s a familiar story to anyone involved in insurance claims. A policyholder is sued and tenders the claim to its insurer. The insurer agrees to defend subject to a reservation of rights, but it also asserts that policy exclusions may ultimately preclude coverage. While the underlying litigation is ongoing, the insurer files suit against the policyholder seeking a declaration that it does not have a duty to indemnify if liability is established against the policyholder in that litigation.
A recent decision in the Middle District of Florida, Southern Owners Insurance Company v. Gallo Building Services, Inc., reminds us of the high bar an insurer must clear to avoid its duty to defend an insured—even when that insured is out of business.