Insurance Coverage in Litigation
Consider a very stressful, but not uncommon, scenario: a process server has just knocked on your door and served you with a lawsuit. Perhaps a disgruntled homeowner has sued you as a member of the association’s board of directors. Perhaps a neighbor has sued you for adverse possession of a portion of your property. Perhaps a homeowner has sued your construction company for its services.
Do not panic. Take a breath. Once you have calmed down, as yourself this question: Could I possibly have insurance coverage for this?
Many individuals and entities carry insurance policies covering a wide variety of issues, ranging from directors & officers insurance to title insurance and beyond. Yet, many policyholders only consider making a claim for coverage in the event of injuries or property damage. It does not always occur to people that insurance might cover a policyholder in the event someone commences litigation against that policyholder. As a result, it can be critical for a policyholder to notify their insurance company as soon as possible after service of a lawsuit, or in the event the policyholder is aware of a pending claim, as soon as possible after becoming aware of that claim.
Timing is crucial. While policies can differ dramatically, a policyholder does not want to prejudice its insurance company for failure to timely notify the insurer of a claim. This can lead to adverse consequences for the policyholder. If tendered properly and coverage is available, the presence of insurance can greatly alleviate some of the stress and financial hardship involved in defense litigation. Although each case varies, tendering a claim to your insurance company is often advisable even in circumstances where the applicability coverage is not crystal clear.
An insured typically tenders their claim by way of a “tender letter.” A policyholder should customize the tender letter to the particular circumstances of the issue at hand. It should, at a minimum, provide notice to the carrier of the claim at issue, and this should be done as early in the process as possible. Tender letters may often include copies of pleadings where applicable, and may also provide supplemental documentation relevant to the carrier’s understanding of the case. The assistance of an attorney can help you to provide a more comprehensive tender letter to your insurance company.
If your insurance company determines that there is coverage, it may have: (1) a duty to defend you; and/or (2) a duty to indemnify you.
The duty to defend, at its core, means that the insurance company will appoint and pay for an attorney to defend you against the claim. However, some policies may permit you to select your own counsel while still being covered for the legal fees, and in that event, the insurance company will reimburse you for your fees and costs even where you hire your own attorney. However, the duty to defend may be accompanied by a reservation of rights, which reserves the right to address other coverage issues that might preclude the duty to defend. The terms of the policy govern the scope of the duty to defend.
The duty to indemnify, on the other hand, means that the insurance company will pay off the claim, either by funding a settlement or paying off a judgment against the insured. An insurance policy may contain a policy limit that caps the amount that the insurance company must pay under its duty to indemnify. Some policies also permit an insurance company to settle without their insured’s consent, though some do not. Again, the language of the policy controls.
Finally, in Washington State, depending on the terms of the policy, the duty to defend may be broader than the duty to indemnify. Courts have found that in some policies, even where a complaint simply might allege facts that would be covered under the insurance policy, those alleged facts trigger the duty to defend. It will come as no surprise that the language of the policy controls yet again, and it is important to note that some policies contain only a duty to indemnify and no duty to defend at all. Ultimately, an insured must understand the rights afforded under the insurance policy.
If you are facing potential exposure to litigation and need assistance, the attorney’s at Beresford Booth remain willing and available to assist you. Please contact us at info@beresfordlaw.com or by phone at (425) 776-4100.