December 22, 2020

What Every Lawyer Should Know About Insurance Coverage

4 min

2020 presented new challenges and opportunities for businesses in regards to their insurance coverage and related recovery. The new year will likely present new insurance products and increased litigation. As we move to 2021, Venable's insurance coverage and disputes team is launching a webinar series to address issues and questions that our clients and other businesses have on insurance coverage and recovery. To kick off that series, Venable will host a webinar on January 14 on what every lawyer should know about insurance. In advance of the webinar, John Worden and Nicole King outline the key topics every lawyer should know. Join us to learn more!

  1. Types of Insurance. Insurance is meant to safeguard businesses against liability and financial risk. There are numerous types of insurance available on the market, and purchasing the right type and amount of insurance is always determined by the business' specific situation. What are your considerations when purchasing insurance and how do you evaluate terms and conditions?
  2. The Duty to Defend. Many third-party insurance policies require that the insurance carrier defend the insured against lawsuits or claims to which that insurance policy applies, including those claims that are potentially covered (i.e., include a "duty to defend"). The duty to defend is broad, arising when an insured tenders the defense of a lawsuit to its insurer and ends when (1) the underlying lawsuit is concluded; (2) the insurer unambiguously demonstrates there is no potential for insurance coverage; and/or (3) policy limits are exhausted (note that for some policies, defense costs do not exhaust the limits of insurance). But this relationship can be affected by a number of issues, including conflicts of interest, policy exclusions, and allocation between covered and uncovered claims.
  3. The Tender of Defense. Any potential claim brought against a business that might be insured should be tendered to the insurer as early as possible, because the insurer normally cannot be held responsible for coverage until it is asked to undertake the defense, and thus, depending on the state law applicable to the policy, it may not be responsible for defense costs incurred before tender.
  4. Allocation Re "Mixed" Claims. Where the underlying action for which an insured seeks insurance coverage contains both claims that fall within insurance coverage and other claims that are not covered, disputes sometimes arise between the insured and its insurer regarding whether an insurer can defend only those claims that it deems covered. Generally, in situations like this, the insurance carrier must provide a defense of the entire action—including potentially uncovered claims—as long as at least one claim raises the potential of insurance coverage. It is important to note, however, that certain insurance policies contain explicit allocation provisions, which may allow an insurer to argue that it can split defense costs. Moreover, certain jurisdictions allow an insurer to seek reimbursement for previously paid defense costs where it later determines that a claim is not covered.
  5. Exclusions and Conditions. Policies may contain exclusions that insurers could rely on to deny coverage for an insured's claim. It is important to note, as an initial matter, whether the exclusions apply to defense costs or settlement or judgments (or both). For instance, a policy may exclude coverage for prior wrongful acts, or an insured's prior knowledge of a potential wrongful act, both of which purport to exclude coverage for alleged conduct that predates the policy's effective date.
  6. Impact of Choice of Law Provisions. Insurance law is established at the state level. Thus, the law applicable to your policy may vary. Certain policies contain explicit choice of law provisions that declare the law that will apply to any dispute regarding the terms or applicability of the policy. Where a policy is silent as to the applicable law, however, insureds must evaluate several factors, including the state where the contract was signed; the location of the insured and insurer; the location at which the injury, damage, or claim occurred; and where the insured risk is located. Sometimes, but not typically, the first to the courthouse will determine what state law applies.
  7. Lost Policies. What happens when you can't find copies of your policies? Not all hope is lost. There are ways to establish the existence of lost policies and obtain coverage even if the actual policies cannot be found.
  8. Coverage for Corporate Successors. If a business has been involved in a merger of any kind, acquired any division, subsidiary, product line, or real property, it is imperative that they negotiate an insurance policy that covers these types of entities or add them by endorsement, because insurance policies may not be able to be assigned without insurer consent.