As the cliché saying goes: “When it comes to love, never settle for less than you deserve.” But when it comes to insurance coverage, sometimes settling for less than the full limits of a policy is an effective compromise that saves time and avoids costly litigation. However, if losses may reach excess policies, then policyholders should take a second look before signing on the dotted line. Excess liability policies often include a limitation requiring the “exhaustion” of underlying policy limits before excess coverage is triggered. If the policyholder settles with an underlying insurer for less than the underlying policy limits, excess insurers may dispute whether the settlement qualifies as “exhaustion.”
Florida is a hotbed for insurance claims, from run-of-the mill auto accidents to pervasive construction defects to post-hurricane business interruptions, and everything in between. Insurance companies are likely to deny many of those claims—whether or not that denial is proper—hoping that their policyholders will be unwilling to spend the time and money required to demonstrate coverage. But with its new decision in Johnson v. Omega Insurance Company, the Florida Supreme Court reminds policyholders that they have a powerful tool against improper denials of coverage—the awarding of attorney’s fees. Continue reading →
In what resembles a kabuki dance of sorts, insurers often fire off reservation of rights letters as an automatic response to any and all claims-related correspondence. A policyholder sends notice of circumstances that could give rise to a claim? Reservation of rights. A policyholder requests defense coverage? Reservation of rights. A policyholder requests consent to settle with the underlying claimant? Reservation of rights.
Ever since the U.S. Court of Appeals for the Second Circuit decided Zeig v. Mass. Bonding & Insurance Co. in 1928, it has been well-settled that a policyholder can compromise a disputed claim with its insurer for less than the full limits of the policy without putting its rights to excess coverage at risk. In a seminal opinion by Judge Augustus Hand, the Zeig court said, “We can see no reason for a construction so burdensome to the insured,” to require collection of the full amount of primary polices in order to exhaust them. The Zeig court emphasized that a compromise payment by the primary insurer discharges the limits of the primary coverage, while the excess insurer is unharmed, since it must pay only the amount exceeding the attachment point of its policy.