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Policyholder PulsePublished on:
Are Denials of Coverage and Belated Defense Payments a Breach of the Duty to Defend? In Wisconsin—Not Necessarily.
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.
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. 
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? 
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, 
Before a court can resolve a dispute, it often needs to determine what law applies to that dispute. In certain insurance cases, that question will appear to have an easy answer. Some policies include explicit choice-of-law provisions indicating that they should be interpreted and applied according to the laws of a particular state, and such provisions are generally enforceable. But a case currently before the California Supreme Court highlights an important exception to this general rule and—should the policyholder prevail—would offer potential relief from the impact of stringent policy requirements.
Insurance coverage litigation can be lengthy and is usually complex, and these characteristics are only exacerbated by the need to comply with often arcane state law rules of procedure. New Jersey, long a hotbed of insurance litigation, has too often exemplified this reality. Until now.
Imagine that your company has finally released its new flagship product, which is slated to be the new lifeblood of the company. You’re elated when early sales far exceed expectations. But soon you are hit with a demand letter from a competitor alleging that the product infringes its patents, and threatening suit. Remembering that your company purchased comprehensive coverage under its commercial general liability (CGL) policy, you feel some initial relief—but soon your insurer tells you that the general policy does not provide patent coverage, or even expressly excludes such claims. Suddenly, you’re left wondering how your company will weather a costly patent lawsuit while continuing to roll out its new product.