Eric Jesse, partner in Lowenstein Sandler's Insurance Recovery Group, discusses how insurers might use policyholder statements and evidence from underlying litigation to deny their duty to defend, highlighting the importance for policyholders to act proactively and early to ensure their right to coverage is protected.
Speakers:
Eric Jesse, Partner, Insurance Recovery
READ THE TRANSCRIPT
Eric Jesse: Hi, I'm Eric Jesse, partner in
Lowenstein Sandler's Insurance Recovery Group. Welcome to
"In the Know."
Today we're going to discuss insurers using evidence and
policyholder statements from the underlying litigation to disclaim
their duty to defend.
As if a policyholder doesn't already have enough to worry about
when defending itself in an underlying case, a policyholder may
also have to worry about an insurer, who is supposed to be aiding
in the defense, taking the insured statements and possessions from
the underlying litigation and using them against the insured in a
coverage action.
In most jurisdictions, however, the insurer's duty to defend
a lawsuit is broader than its duty to indemnify a settlement or a
judgment. And that defense obligation arises purely on complaint
allegations and whether they potentially fall within the
policy's coverage.
When an insurer denies coverage, an early coverage action and an
early duty to defend motion may be necessary to establish the
insurer's defense obligation from day one of the underlying
lawsuit.
It is unfortunate that insurers force their policyholders to
simultaneously fight on two fronts of litigation—in the
underlying action and in the coverage case. A quagmire can develop
when a policyholder litigates the underlying action and then later
litigates the insurer's duty to defend to recover their defense
costs.
When a duty to defend motion is brought at the outset of an
underlying action, the court deciding the coverage action can be
focused exclusively on complaint allegations. But if a policyholder
waits until the underlying action has progressed or ended, insurers
will inevitably try to present the court with discovery and
statements from the underlying case to distract the court from the
complaint allegations that triggered the duty to defend.
Even if a particular jurisdiction allows an insurer to later step
away from its defense obligation because of the emergence of
evidence in the underlying action, the duty to defend should at
least exist from the day the complaint is filed until concrete
evidence is discovered.
However, courts may nevertheless rule that there's no duty to
defend at all because the court fails to delineate between the time
periods when a defense obligation existed based on the complaint
and later, after it no longer existed because of evidence from the
underlying case.
As we often recommend on "In the Know," policyholders,
right or wrong, need to be proactive to protect their rights to
coverage and to prevent insurers from clouding what may otherwise
be clear-cut issues.
Thank you for joining us, and we look forward to seeing you next
time on "In the Know."
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