A recent experience reminded me of the value of taking a considered and nuanced approach to insurance coverage issues when faced with a dispute. A business entity was named in a personal injury lawsuit. Although several of its sister companies were clearly covered under the parent company’s Commercial General Liability Policy, coverage for this particular entity was not clear-cut. The insurance company initially indicated that there would be no defense or coverage, and truth-be-told, it looked like the insurance company might be right.
The business then engaged coverage counsel, who took a non-combative approach in discussions with the insurer. The insurer escalated the issue internally and engaged outside coverage counsel. After some detailed back-and-forth over the legal and factual issues, the matter was resolved amicably within two months with full defense and indemnification of the entity that was sued. It didn’t hurt that the insurer saw the business benefits of providing a defense to such a good client.
Of course, reaching such a great outcome quickly has been the exception and not the rule in my experience, having represented both policyholders and insurers for almost 30 years. But even when the dispute is more contentious and drawn-out, I have found that a scalpel is much more effective than a sledgehammer when dealing with insurance coverage issues.
A targeted approach begins with the initial notification to the insurer that there is a lawsuit. Most policyholders know the importance of giving notice in a timely manner, lest the insurer argue that coverage is waived as a result of delay. But how the notice is given can be important. Many businesses just send a copy of the complaint, through the broker, without any context. In the example above, explaining the context and related issues was key to a resolution. Pointing out specific policy provisions can also help the insurer see things in the same light as the policyholder does.
Doing your homework and being patient is crucial. It is not uncommon for the insurer – after weeks or even months – to respond to the most carefully crafted arguments with a long dense letter categorically dismissing those arguments without out much apparent justification. A back-and-forth process is often (frustratingly) required to escalate the issue to an individual with the authority to deviate from knee-jerk reactions. Knowing you are on solid ground legally and calmly pressing your points can make all the difference.
Of course, often one of the biggest questions is whether to give notice to the insurer at all. It sometimes may appear that there is no coverage, and some policyholders shy away from even trying. So, does it hurt to tender the lawsuit, and see what happens?
In such cases, it is even more important to undertake an initial analysis to flesh out your position. In general, however, I almost always err on the side of giving notice to the insurer. The cost of completely foregoing coverage often far outweighs the risks of tendering. And who knows: the insurance may be incentivized to be accommodating.
I would be remiss, however, in not highlighting how such a “give it a try” approach can backfire. If your tender of a lawsuit is denied, it may make it harder to get coverage for subsequent lawsuits that are deemed to be related. Also, although rare, some insurers have been known to respond to a notice of claim by immediately filing a lawsuit seeking a declaration that they have no obligations. Such a tactic is (in my opinion) an overreaction and heavy-handed, but it does force the policyholder to either give up or litigate.
