Duty to defend is a critical part of any liability insurance policy. When sued, policyholders often face the enormous challenge of convincing their insurance carrier to defend. Even when an insurance company agrees to defend, however, policyholders can face unwarranted restrictions imposed by insurance companies.
The Four Duty To Defend Tricks
In this video, we discuss how to overcome four of the most common how to overcome four of the most common ways that insurance carriers try and limit their defense obligations. First, he explains how insurers often refuse to pay for defense costs incurred before the insurer receives notice and how policyholders can recover those costs. Second, he explains how insurers often try to limit the rates they pay to defense counsel and how to make certain that the policyholder doesn’t get stuck footing most of the defense bill. Third, he explains how insurers often attempt to micromanage tasks of defense counsel, and how such micromanagement has been rejected by courts. Fourth, he also explains how insurers try to avoid paying for potions of a defense based on so-called uncovered claims, and why those limitations are improper.
The bottom line is that policyholders should understand that they don’t have to accept these restrictions and, with the proper guidance from experienced coverage counsel, policyholders can overcome these and other restrictions imposed by insurance carriers.
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To read the transcript of the video, please continue.
Four ways that insurance companies try to limit their duty to defend, and how you can overcome them.
The duty to defend is a key part of any liability insurance policy. One reason policyholders buy liability insurance policies is to make sure they get a defense of the case from the very beginning. And sometimes insurance companies agree to provide a duty to defend and then the policyholder thinks they can relax. Unfortunately it can’t, because what happens is insurance companies often try to severely limit their duty to defend. Today I’m going to talk about four ways they try to limit their duty to defend and what you can do to overcome them.
The first one is pretender costs. Sometimes notice is not given right at the beginning of the case and the insurance company claims that anything that happened in the defense before it receives notice is not covered, it’s a pretender cost. Obviously the best thing to do is to give notice right at the beginning of the case, but sometimes that doesn’t happen. But when it doesn’t you’re not out of luck because in many states courts hold that late notice does not bar coverage including the duty to defend unless the insurance company has been specifically prejudice.
The second thing insurance companies try to do is cut the rates of defense counsels and other professionals. They may agree to provide a defense but insist on using their own panel counsel. Or if they agree to the policyholders choice of counsel they will only pay a much lower hourly rate. In many cases policyholders end up paying for more than half of their own defense costs because of this rate issue. Now insurance companies may claim that their litigation guidelines require them to impose certain rate caps but litigation guidelines are rules insurance companies make up for themselves and they are in there for one reason only, to save them money. They are not part of the insurance policy and policy holders should not accept these litigation guidelines without significant negotiations and objections. Litigation guidelines are almost never mentioned in the actual insurance policy. As a result they are not part of the contract and they do not need to be excepted by policyholders. You should fight them, and negotiate with the insurance company to make sure you get your full defense.
The third thing insurance companies try to do is micromanage the case by requiring pre-approval of certain tasks in the defense of the case. For example they may require approval of major events like summary judgment motion. But they also may require approval of some minor events such as which deposition to take and which discovery request to rebound. They often claimed that these restrictions are also required by their litigation guidelines. But courts have rejected attempts to micromanage cases for two reasons. One they violate the insurance companies duty to defend. And secondly they violate defense counsels ethical duty to their client which is the policyholder.
A fourth thing insurance companies try to do is narrow what they’re willing to pay for in scope of the defense. For example they may refuse to litigate anything related to a counterclaim in the action, claiming the counterclaim is not part of the defense of the case. But, as many people realize, counterclaims are an important strategic part of the defense of the case. And many courts have rejected attempts to limit coverage to counterclaims.
Another thing that insurance companies try to do is say certain tasks that are performed in the litigation are related to causes of action that the insurance company claims is not covered. However the duty to defend an insurance policy is required if any allegation in the complaint raises the potential of coverage. As a result, the entire defense should be covered and not just causes of action that the insurance company claims to cover.
Another way insurance companies try to limit their duty to defend is by claiming that certain causes of action or certain tasks relating to certain causes of action such as filing a summary judgment motion on a cause of action they claim are not covered are not proper defense of the case. But because the duty of the defendant is triggered with any allegations in the complaint raises even the potential for coverage, this should not be a limiting factor and insurance companies should be required to pay for the cost of the entire defense.
In sum, an insurance companies duty to defend is a broad one and policyholders should fight insurance companies attempts to limit that duty. For more information on this topic please see the Miller Friel website including my blog entries on this topic.