Quick Fixes

Acquiescence Is Dangerous

Policyholders, plaintiffs and their counsel who are tempted to ignore or defer responding to an insurer’s reservation of rights should read Acquiescence Is Dangerous.

The Insurer’s First Response to a Notice of Claim:

When a policyholder or a plaintiff notifies a defendant’s liability insurer or a claim or suit, “every insurer . . . shall immediately. . . accept [yes] or deny the claim, in whole [no] or in part [maybe].”[1]

One Letter Can Clarify the Meaning of “Yes”:

An insurer usually accepts full coverage by silence – agreeing to defend without reserving rights.[2] But, like modern dating on a college campus, it may be best to expressly confirm that “yes” really means what you think it means. One letter can do the trick.[3]

If the Insurer Says “No”:

There are no quick fix when an insurer denies all coverage. But, the policyholder and counsel may consider analyzing the duty to defend[4] and cooperating with plaintiff[5] before urging the insurer to reconsider its denial. Proper techniques for urging an insurer to change a “no” to a “maybe” may include pleading into coverage[6], truthfully testifying into coverage[7], and settling the lawsuit either by an agreement[8], or an arbitration. Both the policyholder and plaintiff should analyze coverage.[9] They may then ask the insurer to reconsider by downloading, adapting, and sending appropriate model letters.

If the Insurer Says “Maybe”:

When an insurer decides to reserves its rights,[10] it has a series of additional decisions it may make:

• Should the Insurer Agree to Pay Independent Counsel? By sending a single Ethical Questionnaire to dependent counsel, the policyholder may establish a factual foundation sufficient to establish whether or not a disqualify conflict of interest exists.[11]

• Should the Insurer Hire Dependent Counsel? By sending a single Coverage Questionnaire to the insurer, the policyholder can establish an evidentiary record to determine whether the insurer has satisfied the necessary prerequisites needed to secure a statutory right to have its counsel “participate in all aspects” of the liability lawsuit.

• Should the Insurer Actually Pay Independent Counsel? While some insurer agree in writing to provide independent counsel, some try to control the defense by not paying the invoices of independent counsel. Such a breach my result in the forfeiture the insurer’s contractual right to control settlement. If Civil Code § 2860 applies at all, arbitration may resolve all attorney fee disputes.

• Should the Insurer Accept a Settlement Offer? To achieve the desired result, a policy limit settlement offer should be made properly.

• Should the Insurer Sue for Declaratory Relief? While some insurers seek to be excused from a duty to defend by filing a declaratory relief action that is entitled to trial preference, such a suit must be stayed or dismissed if it raises issues that are related to disputed issues that are also being litigated in a liability dispute.

• Should the Insurer Seek Reimbursement of Defense Costs? While an insurer has an equitable right to seek reimbursement of costs of defense from its policyholder for those costs allocable to claims that were never even potentially covered, doing so creates an incentive for the policyholder to confess covered liability, and may entitle the policyholder to seek reimbursement from conflicted dependent counsel.

• Should the Insurer Seek Reimbursement of Settlement Costs? While an insurer may also seek reimbursement of certain settlement costs from its policyholder, there are several simple techniques available to the policyholder to resist this claim.


Resolving a coverage dispute created by an insurer’s reservation of rights is easier if the policyholder and the plaintiff decide[12] to cooperate with each other regarding coverage.[13]

Develop Written Evidence:

An insurer may change its mind about coverage at any time.[14] It is important to develop a written record of admissible evidence regarding any potential coverage dispute.

Telephone Conflicted Dependent Counsel:

Readers may make or receive telephone calls with the insurer and its lawyers to orally discuss the substance of the letters received.[15] Consider reviewing Pitches and Fallacies prior to placing a call.[16]

[1] Cd. Reg. § 2695.7(b).

[2] “[I]f a liability insurer assumes the defense without [a] reservation of rights, it is precluded from [later asserting] noncoverage. [T]he insurer’s unconditional defense constitutes a waiver.’” (Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 754 (ellipses omitted).) See, Article: Silence May Concede Full Coverage.

[3] See, Model Letter: Am I fully covered?

[4] See, Article: Step by Step Analysis.

[8] See, Article: Settle and Sue.

[9] See, Article: Step by Step Analysis.

[10] See, Article: Reservation of Rights.

[12] See, Practice Pointer: Prize: Price or Pride.

[13] See, Practice Pointer: Collusion – PP" href="http://dutytodefend.com/line-dividing-cooperation-from-collusion/">Line Dividing Cooperation from Collusion.

[16] Hyperlink to Practice Pointer: Pitches and Fallacies of Dependent Counsel.

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