The Supplementary Payments Provision (Part 1)

 

 

An often-overlooked provision in General Liability Insurance Policies is the Supplementary Payments provision.  This clause, tucked away in the back of the policy, provides some of the most valuable coverage available in standard general liability policies.  In particular, the provision provides coverage for, among other things, attorneys’ fees awarded to opposing counsel in litigation and pre-judgment interest.  And, notably, coverage under the provision is in addition to, and not limited by, the policy’s limits of liability.

This video blog post is the first video in a two-part series by Miller Friel attorney Tab Turano discussing the importance of the supplementary payments provision.  It demonstrates, by way of powerful example, the value of the supplementary payments provision, and how corporate policyholders can take advantage of the coverage it affords. Please watch the video to learn more, or Contact us if you have any questions.

 

We have included a transcript of the video below:

The Supplementary Payments Provision (Part 1)

Most companies are generally familiar with coverage that’s afforded on their general liability policies. They know that these types of policies cover such things as personal injury claims or third party property damage claims. In other words, if somebody slips and falls in your office, a general liability policy will provide coverage for that claim. If there’s an explosion or some sort of similar incident in your warehouse that damages the property of a third party, your general liability coverage will provide coverage for that type of claim. There’s a provision in the back of general liability policies that many people overlook. That’s called the supplementary payments provision.

What the supplementary payments provision generally provides is that in the case that the insurance company defends you against a lawsuit, in addition to paying any settlement or damages that are awarded in connection with that claim, it will also pay various other amounts. It pays things such as the cost of appeal bonds. It pays cost taxed against the insured during that lawsuit. It covers prejudgment interest awarded against the insured in connection with that lawsuit. And perhaps most notably, the provision provides that the insurer’s obligation to pay these types of additional amounts is not limited by the policy’s limit of liability. It’s excess to the policy’s limits.

In the abstract, this might not seem too meaningful to you as a policyholder. But let me give you an example of how the supplementary payments provision comes into play, and how at times it can almost provide the most important coverage in a general liability policy. Let’s take a hypothetical example. Let’s say you as a company purchase a general liability policy that provides $1 million dollars in coverage. You’re later sued in a complex business dispute with their allegations against you for copyright infringement, unfair business practices, trade disparagement, breach of contract, and various other business torts. You litigate this cause of action for several years. It culminates in trial, and ultimately a jury comes back against you.

The jury awards, let’s say, $15 million dollars in damages. Of that damage, they say $500,000 relates to the copyright claims. The other $14.5 million relate to the breach of contract, and the other business torts, or claims filed against you. The insurance company looks at this and they say, “All right, you’ve got a million dollar policy. We think that the allegations or the jury’s finding of copyright infringement is covered under our policy. We’re going to pay that.” That’s $500,000 of the $15 million-dollar judgment. Here it is. That doesn’t seem very satisfying because you’ve got to pay $14.5 million dollars out of pocket. Of course, what typically happens in these types of lawsuits is that after the jury issues its verdict, the plaintiff will follow-up with post-trial motions.

They will file motions for recovery of their attorneys’ fees that they incurred in prosecuting the action. They’ll file a motion to recover prejudgment interest. Essentially looking for interest from the date of your alleged wrongful conduct through the date of the jury’s verdict. Unfortunately, many times the combination of this post-trial relief can almost be more than the sum of the entire jury verdict. In fact, we’ve had clients where the courts award of attorneys’ fees and prejudgment interest actually exceeded the total amount of the jury verdict. Here’s where the supplementary payments provision comes into play. Again, as I mentioned before the supplementary payments provision covers all costs taxed against the insured.

Courts around the country have looked at that all costs language. They determined that that includes plaintiff’s attorneys’ fees. When the plaintiff goes and files a motion for attorneys’ fees after a trial, the amount awarded by the court is covered under the supplementary payments provision. Let’s take our example above. Let’s say the court awarded $7 million dollars in plaintiff’s attorneys’ fees and an additional $3 million dollars in prejudgment interest. You’ve got a total of $10 million dollars in post-judgment relief, and you’ve got a $15 million-dollar verdict. The insurers going to pay $500,000 of that. You’re looking to the supplementary payments provision to pay that entire $7 million dollars that the court awards in plaintiff’s attorneys’ fees.

Based on the plain language of the provision, it basically says in any case we defend we will pay all cost taxed against the insured. That means that even though only a small portion of the verdict is actually covered in the policy, the entire award of plaintiff’s attorneys’ fees is covered. The same holds true with prejudgment interest. Based on the plain language of the policy even though only, if my math is correct, 1/30 of the actual jury verdict is covered under the policy, you’re entitled to coverage for that entire $3 million-dollar award of prejudgment interest.

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