Duty to Respond to Inquiry

Introduction

Both a liability insurer and dependent counsel have independent duties to a policyholder-
client to respond to inquiry. A failure by an insurer to do so may result in constructive notice and bad faith liability. A failure by dependent counsel to do so may result in disciplinary action and civil liability.

Statutory Duty to Inquire Imposes Constructive Notice of What Might be Learned

"Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact."1

Insurers Have a Duty to Respond to Inquiry

An insurer has a statutory duty to "act reasonably promptly upon communications with respect to claims arising under insurance policies."2 "[T]he law will charge [an insurer] with notice of all those facts which he might have ascertained had he diligently pursued the requisite inquiry."3

Before a policyholder has commenced a lawsuit against an insurer, "[u]pon receiving any communication from a [policyholder], regarding a claim, that reasonably suggests that a response is expected, every [insurer] shall immediately, but in no event more than fifteen (15) calendar days after receipt of that communication, furnish the [policyholder] with a complete response based on the facts as then known by the [insurer]."4

In one case, a punitive damage award was upheld where the insurer "twice failed to respond to inquiries by its insured regarding the rejection of his claim and it failed to conduct any investigation into the validity of that claim. This evidence in combination is of sufficient substantiality to support a finding by the jury that [the insurer] wilfully and deliberately failed to avoid the adverse consequences of its wrongful denial of [the policyholder's] claim."5

When an insurer responds to a policyholder's inquiry, "a special duty arose requiring [the insurer] to use reasonable care" to respond accurately.6

Dependent Counsel Have a Duty to Respond to Inquiry

"Adequate communication with clients is an integral part of competent professional performance as an attorney."7 "All attorneys owe a duty to communicate adequately with their clients."8 "It is the duty of an attorney: To respond promptly to reasonable status inquiries of clients and to keep clients reasonably informed of significant developments in matters with regard to which the attorney has agreed to provide legal services."9 "A member shall keep a client reasonably informed about significant developments relating to the employment or representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed."10 "[W]hen an attorney attempts dual relationship without making the full disclosure required of him, he is civilly liable to the client who suffers loss caused by lack of disclosure."11

RPC, Rule 3-310(A) defines "disclosure" as "informing the client or former client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client or former client." Rule 3-310(B) provides that a lawyer "shall not accept or continue representation of a client without providing written disclosure to the client where: The [lawyer] has a relationship with a party or witness; or The [lawyer] had a relationship with a party or witness [that] would substantially affect the [lawyer]'s representation; or The [lawyer] has or had a relationship with another person or entity [such as an insurer] the [lawyer] knows or reasonably should know would be affected substantially by resolution of the matter; or The [lawyer] has or had [an] interest in the subject matter of the representation."12