Navigating Insurance Coverage Issues: What You Need to Know
by Amy Elizabeth Stewart
Equipped with a basic knowledge of fundamental insurance issues, the business litigator can help her client maximize the insurance policy proceeds potentially available to defray defense costs and cover a judgment or settlement. Although not all causes of action and remedies are typically covered by insurance, business disputes often implicate multiple theories of liability, some of which will trigger insurance.
Identify the Policies
Early in the engagement, counsel should assist his client in gathering complete copies of all potentially applicable insurance policies. Commercial general liability (CGL) policies may provide coverage for business disparagement, defamation, misappropriation of advertising ideas or copyright infringement.
Errors and Omissions policies offer coverage for wrongful acts, errors or omissions in the rendition of “professional services,” typically defined in terms of the insured’s business. Directors and Officers liability policies also cover various wrongful acts, which may include mismanagement, breach of fiduciary duty, and misleading statements. Fiduciary Liability policies apply to breach of the duties imposed upon employee benefit plan fiduciaries and administrators.
When identifying applicable policies, bear in mind that some policies provide occurrence-based coverage, triggered by an accident or occurrence during the policy period that later results in a lawsuit. A lawsuit arising from multiple occurrences taking place over time may trigger more than one policy period.
Other policies provide coverage on a claims-made basis, triggered by the assertion of a “claim” during the policy period. A lawsuit is a “claim,” but some policies define claim more broadly to include written demand letters, subpoenas, governmental investigations, or administrative proceedings. While a claims-made policy may provide coverage for misconduct before the policy’s inception, the policy’s retroactive date and prior acts provisions may limit coverage for such claims.
Along with primary policies, locate any excess or umbrella policies. Inquire about policies procured by other entities involved in the particular project or transaction at issue in a dispute, which may list the client as an additional insured.
Notice to the Carrier
Insurance policies generally require timely notice to the insurer of any claim against an insured. Under claims-made policies, prompt reporting is typically a condition precedent to coverage. The best practice is to provide notice as soon as possible for all potentially applicable policies. Late notice may be a defense to coverage if the insurer is able to demonstrate that it was prejudiced. Consult the policy for when and how notice must be given.
The Insurer’s Response
In some cases, the insurer may accept coverage unconditionally. More often in business torts cases, the insurer will identify one or more defenses to coverage. It may deny coverage or issue a letter specifying the policy provisions upon which it may later rely to deny coverage. The timeliness of the insurer’s response is governed by Section 542 of the Texas Insurance Code, which imposes an 18 percent penalty for violations.
Defending the Lawsuit
Many liability policies impose on the insurer a duty to defend the insured against claims. The duty to defend is triggered for the entire lawsuit if even one claim or allegation potentially falls within the coverage of the policy.
Policies that impose a duty to defend often give the insurer the right to conduct the defense, including the authority to select defense counsel. When certain conflicts of interest exist, however, an insurer may not insist upon its contractual right to control the defense. The insured may have the right to select independent counsel if “the facts to be adjudicated in the liability lawsuit are the same facts upon which coverage depends.”Rx.com, Inc. v. Hartford Fire Ins. Co., 426 F. Supp. 2d 546, 559-560 (S.D. Tex. 2006).
Investing time at the outset of a case to assess the potentially available insurance may have a substantial impact on the client’s bottom line. Make it a habit.
Amy Elizabeth Stewart is managing shareholder of Amy Stewart PC, which represents policyholders in insurance coverage litigation. She can be reached at email@example.com.