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Two recent decisions remind us that a one-size-fits-all approach
to coverage analysis and claims handling is ill-advised. Insurance
claims representatives situated within the jurisdiction for which
they handle claims generally need to familiarize themselves with
the law of one jurisdiction. Not so with claims representatives who
frequently handle wide swaths of territory, such as those in the
aviation insurance business. Their ability to maintain familiarity
with the ever-changing law in numerous states presents greater
challenges, and differentiated handling is required by the
patchwork of state laws. As illustrated by the two recent cases
discussed in this Alert, local distinctions can create different
duties and procedural requirements with outsized consequences
potentially befalling the insurer that fails properly to account
for these differences in its coverage analysis and claims
handling.
The first recent case, which was decided by the U.S. Court of
Appeals for the Ninth Circuit on June 11, 2012 held that insurers
have a duty to make reasonable efforts to settle cases when their
insured's liability is reasonably clear and likely to exceed
the policy's limit of liability, irrespective of whether a
settlement demand is made by the plaintiff. In Yang Fang Du v.
Allstate Ins. Co., No. 10-56422 (9th Cir. Jun. 15, 2012), the
panel predicted that California law imposes this duty on insurers
but concluded that the Allstate subsidiary involved in that case
had insufficient information about other persons injured in the
subject accident to have been obligated to agree to a global
settlement. The company had offered $100,000 (the applicable per
claim limit), but refused to put up the remaining $200,000
available under its policy for a global settlement.
In most jurisdictions, a settlement demand within policy limits
is a prerequisite to exposure in excess of policy limits. In cases
governed by California law involving entry of a judgment in excess
of limits, plaintiffs are likely to use the Yang Fang Du
case to support bad faith arguments. While proactive steps to
settle a case in which liability is clear typically are appropriate
whether or not a demand has been made, the need to do so now is
greater in cases governed by California law. An insurer that fails
to make affirmative efforts to do so may end up with
extra-contractual liability.
The other recent case is from the Supreme Court of Georgia. It
held that an insurer disclaiming coverage of a lawsuit is limited
to the grounds for noncoverage asserted in the disclaimer. In
Hoover v. Maxum Indem. Co., Nos. S11G1681, S11G1683 (Ga.
June 18, 2012), the high court ruled that only those insurers that
undertake the defense of their insureds under a reservation of
rights are permitted to assert additional grounds for their
subsequent disclaimers.
Hoover was severely injured when he fell from a ladder. He sued
his employer, EWES, which tendered its defense to Maxum. Maxum
declined coverage on the basis of an employer's liability
exclusion. After a large judgment was entered for Hoover against
EWES, EWES assigned its rights against Maxum to Hoover. Maxum
defended the suit that Hoover filed against it on two grounds, the
exclusion and late notice of the occurrence. The trial court ruled
that Maxum, on the basis of late notice of the occurrence, did not
have a duty to indemnify, even though it found that the exclusion
did not apply, but held that Maxum did have a duty to defend. The
Court of Appeals held that Maxum, because of the late notice, had
neither a duty to defend nor a duty to indemnify.
The Supreme Court of Georgia reversed and held that insurers may
reserve rights to assert additional defenses only if they undertake
an insured's defense and then bring an action for declaratory
judgment. As a result, insurers handling cases governed by Georgia
law may choose to defend under a reservation of rights rather than
decline in order to avoid waiver of unenumerated grounds for the
declination.
These two recent decisions serve as a reminder that insurance
generally is governed by state law and that the rules of
interpretation and the requirements for claims handling vary from
JUrisdiction to jurisdiction. Familiarity with the applicable rules
in a particular jurisdiction is important, and consultation with
counsel at the beginning of the handling of a new claim may be
justified to avoid waiver of viable defenses or the creation of
potential extracontractual liability.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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