A procedure of dispute resolution available when a liability insurer wrongfully fails to defend. The abandoned policyholder may cooperate with the injured plaintiff to settle their liability dispute by an adjudication of the issues of liability and damages, followed by a suit against the defaulting insurer, supported by a conclusive presumption of liability and damages. See, Article: Settle and Sue.
The American adversary system of justice is the legal process by which two or more advocates represent their parties' positions before an impartial arbiter, usually a jury or judge, who attempt to determine the truth of the case. Justice is said to be done when the most effective adversary is able to convince the arbiter that one perspective of the case is correct. "The right to be heard would be of little avail if it did not comprehend the right to be heard by counsel. Even the intelligent and educated layman lacks both the skill and knowledge adequately to prepare his defense, even though he have a perfect one. He requires the guiding hand of counsel at every step in the proceedings against him." (Powell v. Alabama (1932) 287 U. S. 45, 68-69 (ellipses omitted).)
A consensual connection between a hiring party who may be bound by the conduct of the person hired.
A liability policy makes express and implied promises that create certain rights owned by the policyholder. Some of these rights may be sold by the policyholder to others, including an injured plaintiff. Such assignments are often coupled with a covenant not to execute. However, not all rights are assignable. Some rights are deemed in the law to be personal to the policyholder such that any attempt to assign them extinguishes them. Examples of non-assignable rights include the policyholder’s right to recover from an insurer for emotional distress and punitive damages and a clients right to recover from an attorney for legal malpractice. See, Article: Assignable Rights.
A liability insurance contract describes obligations which the insurer owes to the policyholder, which in turn creates corresponding rights, held by the policyholder, to receive policy benefits. As part of a settlement of third party liability litigation, policyholders often sell or assign to a plaintiff some of these rights. See, Article: Assignment of Policyholder’s Claims to a Plaintiff.
Attorneys owe fiduciary duties to their clients. See Articles: Duty of Competent Representation, Duty of Disclosure, Duty of Confidentiality, and Duty of Undivided Loyalty.
A consensual connection between an attorney and client established by contract, conferring agency power to the attorney, and imposing fiduciary duties on the attorney. See Article: Attorney-Client Relationship.
The adversarial system of justice is one where two or more advocates represent their client's position before an impartial judge(s) who attempts to determine the truth by pitting the prosecution against the defense. Justice is done when the most effective adversary is able to convince the judge or jury that his or her perspective on the case is the correct one.
Bad faith is the unreasonable failure of the insurer to pay policy benefits. The commission of bad faith requires a predicate breach of contract. See also, Duty of Good Faith and Fair Dealing.
The implied right of a performing liability insurer to recover reimbursement of costs of settlement that are not covered by the policy. See, Article: Blue Ridge Settlement Reimbursement.
Attorneys fees which a policyholder may recover from an insurer which is guilty of bad faith. See, Article: Brandt Fees.
The implied right of a performing insurer to recover reimbursement of costs of defense allocable to the injured plaintiff’s claims that were never even potentially covered. See, Buss Defense Cost Reimbursement.
This acronym is short for Commercial General Liability or Comprehensive General Liability, titles often used in business policies.
Civil tort litigation is a judicial proceeding that asks two questions - known as issues of liability and damage: 1) does the defendant’s conduct create legal liability to the plaintiff; and 2) if so, how much are the plaintiff’s damages caused by such wrongful conduct. “There is in this State but one form of civil actions for the enforcement or protection of private rights and the redress or prevention of private wrongs.” (Civ. Code § 307.) “In such action the party complaining is known as the plaintiff, and the adverse party as the defendant.” (Civ. Code § 308.) Broadly speaking, only torts are covered by liability insurance. The word “tortious denotes conduct of such a characters as to subject the actor to liability.” (1 Restatement of Torts 2d § 6 (ellipses omitted).) “[D]uty denote[s] the fact that the actor is required to conduct himself in a particular manner at the risk that if he does not do so he becomes subject to liability to another to whom the duty is owed for any injury sustained of which the actor’s conduct is the legal cause.” (1 Restatement of Torts 2d § 4 (ellipses omitted).)
An equitable doctrine by which a person who leads a victim to believe a particular thing is true and causes the victim to act upon such belief to his/her detriment may not contradict of the particular thing. An insurer may be equitably estopped to deny that coverage exists where the insurer’s conduct caused the policyholder to have a reasonable belief that the insurer provides coverage and detrimentally relied on such conduct.
A secret agreement for an unjust purpose. California law of collusion forbids a plaintiff and a policyholder may not reach an agreement that falsely establishes a defendant's liability to a plaintiff nor the amount of a plaintiff's damages, notwithstanding the fact that an insurer has wrongfully failed to defend its policyholder. See, Articles: Elusive Definition of Collusion and Collusion: A Limited Defense.
Part of the structure of a liability policy, the Conditions describe what the policyholder is required to do, such as truthfully complete the application, pay the premium and notify the insurer of a claim. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
Conflicts of interest occurs whenever the interests of two or more parties diverge from one another. As applied to liability insurance, an insurer and policyholder develop conflicts of interest whenever the insurer denies coverage to the policyholder for a plaintiff’s lawsuit. Conflicts of interest between insurer an policyholder may create an ethical conflicts for any attorney representing the interests of both the insurer and the policyholder. "Conflict of interest occurs when a person charged with looking after the interest of A and B is faced with an option whereby if he makes one choice it will of necessity hurt A and help B, and if he makes the other choice he will of necessity help A and hurt B." (Hartford Acc. & Indem. Co. v. Foster 528 So.2d 255, 268 (Miss. 1988).) See, Conflicts of Interest.
Because an insurer’s promise to indemnify requires that a judgment be entered against its policyholder "the insurer has the right to control settlement of the third party action against its insured." (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1407 (ellipsis omitted).) However, "when a liability insurer wrongfully denies coverage or refuses to provide a defense, then the insured is free to negotiate the best possible settlement consistent with his or her interests. Such a settlement will raise an evidentiary presumption [the effect of which] is to shift the burden of proof to the insurer to prove that the settlement was unreasonable or the product of fraud or collusion." (Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 509 (ellipsis omitted).)
control of the policyholder's defense
Whether a policyholder or a liability insurer has the right to control the policyholder’s defense depends on whether a statute, contract, or common law prevail. "The [insurer] is bound, on request of the [policyholder], to defend actions or proceedings brought against [the policyholder] in respect to the matters embraced by the indemnity, but [the policyholder] has the right to conduct such defenses, if he chooses to do so." (Civ. Code § 2778(4).) However, the insurer may have a right to conduct such defense if a "contrary intention appears" from the language of the policy. "But if an insurer reserves its rights to later deny coverage, where there are divergent interests of the insured and the insurer brought about by the insurer’s reservation of rights based on possible noncoverage under the insurance policy, the insurer must pay the reasonable cost for hiring independent counsel by the insured. The insurer may not compel the insured to surrender control of the litigation." (San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375 (citations omitted).)
A standard liability policy requires the policyholder to cooperate with the insurer with language such as: "You and any other involved insured must; (3) Cooperate with us in the investigation or settlement of the claim or defense against the ‘suit’." See, Article: Control of Settlement.
Often a victorious plaintiff, as a judgment creditor, will settle with a losing policyholder, as a judgment debtor, by promising not to levy against the policyholder’s assets in return for an assignment by the policyholder of rights under the policy. A covenant not to execute is distinct from a release in that a covenant does not extinguish the policyholder’s liability to the plaintiff. Preserving such liability may be essential to perfecting a claim against a defaulting insurer, whose contractual promise is to pay on behalf of the policyholder for existing liability to the plaintiff. See, Article: Compendium of Cases: Collusion.
When a plaintiff sues a defendant in a liability dispute and the defendant/policyholder has liability insurance, the insurer and the policyholder may dispute whether the insurer will in fact cover the liability dispute. This coverage contest is governed primarily by contract law and may occupy as many as five year to resolve following resolution of the liability dispute. This coverage contest may coordinate with two additional tussles; 1) the liability dispute between the plaintiff and the defendant, which is usually governed by tort law and may occupy as many as five years to resolve; and 2) an ethical imbroglio between the policyholder/client and the insurer’s chosen dependent counsel, which is governed primarily by the Rules of Professional Conduct, and may occupy as little as 30 days to resolve.
The short-hand title for a California reported opinion holding that when dependent counsel cannot ethically represent both the insurer and the policyholder, the insurer must pay for independent counsel, selected and controlled by the policyholder to conduct the defense. See, Articles: Cumis Rule and Cumis Test.
Cumis Counsel or Independent Counsel is a lawyer who represents only the policyholder and has no attorney-client nor business relationship with the insurer. The word “Cumis” refers to the name of a court case describing the policyholder's right to independent counsel. Cumis counsel’s counterpart is dependent counsel. See, Article: Difference Between Dependent and Independent Counsel.
Part of the structure of a liability policy, the Declarations consist of the first few pages of the contract where most of the variables peculiar to a specific policy contract are found. The Declarations will identify the name of the insurer, the name of the insured, the policy period, the policy limit, and other vital information. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
A liability insurer that refuses to defend or fails to faithfully discharge the services inherent in the duty to defend. See, Article: Defaulting Insurer Forfeits Control of the Defense.
A person or entity sued by the Plaintiff in a civil lawsuit. In turn, defendants may sue others, often known as cross-defendants. See, Cd. Civ. Proc. §308.
Part of the structure of a liability policy, the Definitions ascribe special meaning to terms used in the contract. Definitions tend to limit what you might otherwise expect from by the use of the word or phrase defined. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
“Dependent counsel” is the counterpart to “independent counsel.” Dependent counsel is selected and directed by the insurer, represents both the insurer and the policyholder, and depends on insurers as a principal source of continuing business. In contrast, Independent counsel is selected and directed by, and represents only the policyholder, is not hired by the insurer, and has no expectation of future business from the insurer. Dependent counsel are sometimes called: insurance defense counsel, insurer retained counsel, insurer appointed counsel, and panel counsel. The phrase "dependent counsel" implies a continuing relationship between insurers and their lawyers that some courts have described as follows: “[a]s a practical matter . . . in reality, the insurer’s attorneys may have closer ties with the insurer and a more compelling interest in protecting the insurer’s position, whether or not it coincides with what is best for the insured” (Purdy v. Pacific Automobile Ins. Co.(1984) 157 Cal.App.3d 59, 76), “[i]nsurance companies hire relatively few lawyers and concentrate their business. A lawyer who does not look out for the Carrier’s best interest might soon find himself out of work.” (San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 364), and “defense counsel and the insurer frequently have a longstanding, if not collegial, relationship” (Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 131). “In California, an attorney may usually, under minimum standards of professional ethics, represent dual interests as long as full consent and full disclosure occur.” (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 147; See, also Ishmael v. Millington (1966) 241 Cal.App.2d 520, 528; Industrial Indem. Co. v. Great American Ins. Co. (1977) 73 Cal.App. 3d 529, 537.) “Even the most optimistic view of human nature requires us to realize that an attorney employed by an insurance company will slant his efforts, perhaps unconsciously, in the interests of his real client - the one who is paying his fee and from whom he hopes to receive future business - the insurance company. Matthew 6:24 retains a particular relevancy, ‘No man can serve two masters’. . . . [T]he conflict situation cannot be eliminated so long as the insurance company selects the counsel. It is simply a matter of human nature.” (Union Ins. Co. v. Knife Co., Inc. 902 F. Supp. 877, 881 (W.D. Ark. 1995) (citations, quotation marks, and ellipses omitted).) “Common logic dictates that counsel for [the insurer] would be inclined to bend his efforts, however unconsciously, toward establishing that any recovery by [the plaintiff] would be grounded on the theory of [the plaintiff’s] claim which was not covered by the policy.” (Howard v. Russell Stover Candies Inc., 649 F.2d 620, 625 (8th Cir. 1981) (Mo. law) (citations, quotation marks, and ellipses omitted).) “[W]e simply cannot ignore the practical reality that the insurer may seek to exercise actual control over its retained attorneys in this context. . . . [I]t would be imprudent for this Court to hold that attorneys are independent contractors vis-à-vis insurers, but then to ignore the practical realities of that relationship when it causes injury.” (Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383, 395 (Tenn. 2002) (citations, quotation marks, and ellipses omitted).) “[A] ruling that required an insured to be defended by what amounted to his enemy in the litigation would be foolish. Thus, [the policyholder] should not be forced to use [the insurer]’s attorneys to defend against [the injured plaintiff]’ claims.” Amer. Family Mut. Ins. Co. v. W.H. McNaughton Builders, Inc., 843 N.E.2d 492, 501 (Ill. Ct. App. 2006) (citations, quotation marks, and ellipses omitted).)
California Insurance Code §11580(b) construes liability policies to provide that the policyholder’s "bankruptcy . . . will not release the insurer from the payment of damages" and that where a "judgment is secured against the insured . . . based upon bodily injury . . . or property damage, then an action may be brought against the insurer . . . by such judgment creditor [ie. victorious plaintiff] to recover on the judgment."
A formal procedural process by which one party to litigation may require other parties or witnesses to respond under oath to questions about the lawsuit. Examples of discovery include depositions, interrogatories, requests for admission, and document productions.
disqualifying conflict of interest
A conflict of interest that prevents an attorney from ethically representing the interests of both an insurer and its policyholder. Disqualifying conflicts of interest often arise when an insurer reserves its rights to deny coverage to its policyholder while it agrees to provide a defense to its policyholder in a plaintiff’s lawsuit. See, Article: Disqualifying Conflict of Interest.
doubtfully insured civil litigation
A civil lawsuit in which a defendant has purchased a liability insurance policy, but the insurer denies coverage, either totally or by reservation of rights.
The duty of competence requires a lawyer to perform with the skill, prudence, and diligence commonly exercised by practitioners of the law profession. See, Article: Duty of Competent Representation.
The duty of confidentiality requires a lawyer to protect the secrets of the client. See, Article: Duty of Confidentiality.
The duty of disclosure obligates a lawyer to educate the client by disclosing all significant facts and developments to empower the client can make intelligent decisions about a civil lawsuit. See, Article: Duty of Disclosure.
duty of good faith and fair dealing
The duty of good faith and fair dealing (also known as "bad faith") is an implied covenant that neither party to a contract will do anything which will injure the right of the other to receive the benefits of the agreement. As applied to liability insurance, it is a liability insurer’s duty not to withhold unreasonably payments due under a policy. Bad faith exposes a liability insurer to pay non-contractual damages to the insured. See, Article: Duty of Good Faith and Fair Dealing.
The duty of undivided loyalty obligates a lawyer to advance the client’s interest, to exercise independent professional judgment, to refrain from assuming a role adverse to the client, to not allow the representation of one client to interfere with the representation of the other, to follow the client’s lawful directions on all substantive matters, and to not abandon the client. See, Article: Duty of Undivided Loyalty.
The phrase “duty to defend” describes a liability insurance company’s obligation to pay for a lawyer to control the defense of a policyholder who has been sued by an injured plaintiff - an obligation that the insurer cannot lawfully discharge by itself because it is not licensed to practice law. As a financial institution like a bank, all the insurer can do is pay a lawyer to represent the policyholder. The policyholder “has the right to conduct such defenses, if he chooses to do so.” (Civ. Code sec. 2778(4) (ellipses omitted).) However, most liability policies include language that successfully grants to the insurer the “right” to defend the policyholder. Some policies specify that the insurer may appoint defense counsel of its sole choice to defend the policyholder. In turn, the lawyer selected by the insurer must comply with applicable rules of ethics, specifically Rule 3-310 in California and ABA Model Rule 1.7. "Standard comprehensive or commercial general liability insurance policies provide that the insurer has a duty to defend the insured in any action brought against the insured seeking damages for any covered claim. [T]he duty to defend may be as important as the duty to indemnify. [T]he insurer’s duty to defend runs to claims that are merely potentially covered, in light of facts alleged or otherwise disclosed. It entails the rendering of a service, viz., the mounting and funding of a defense in order to avoid or at least minimize liability. It arises as soon as tender is made. It is discharged when the action is concluded. It may be extinguished earlier, if it is shown that no claim can in fact be covered. If it is so extinguished, however, it is extinguished only prospectively and not retroactively: before, the insurer had a duty to defend; after, it does not have a duty to defend further. Obviously, the insurer’s duty to defend is broader than its duty to indemnify. But, just as obviously, it is not unlimited. It extends beyond claims that are actually covered to those that are merely potentially so—but no further." (Buss v. Superior Court (1997) 16 Cal.4th 35, 45-46.) See, Duty to Defend.
The duty to indemnify is a liability insurer’s contractual promise to pay certain civil judgments. "Standard comprehensive or commercial general liability insurance policies provide that the insurer has a duty to indemnify the insured for those sums that the insured becomes legally obligated to pay as damages for any covered claim. The insurer’s duty to indemnify runs to claims that are actually covered, in light of the facts proved. By definition, it entails the payment of money in order to resolve liability. It arises only after liability is established." (Buss v. Superior Court (1997) 16 Cal.4th 35, 45-46.)
An insurer must investigate claims as an essential predicate to fulfilling its primary promises to defend and indemnify. See, Article: Duty to Investigate.
The duty to settle is an implied obligation of a liability insurer to protect the policyholder by settling a civil lawsuit in order to avoid a judgment which exceeds the policy limit of a liability policy. See, Article: Duty to Settle.
Part of the structure of a liability policy, Endorsements typically change what the policy says elsewhere. Insurers tend to use standardized preprinted contract form developed by the Insurance Services Office (ISO). In order to tailor coverage for any particular policyholder, endorsements will delete, add to, or change the standard language of the policy contract. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
Estoppel is a legal doctrine describing a species of misrepresentation. A liability insurer that misleads its policyholder may be prevented or "estopped" from taking advantage of its deception. Estoppel is closely related to waiver. See, Article: Estoppel, Waiver, and Forfeiture.
When a plaintiff sues a defendant in a liability dispute, the defendant/policyholder has liability insurance where the insurer challenges coverage in a coverage contest, and the insurer appoints its dependent counsel to represent both the insurer and the policyholder, dependent counsel and the policyholder/client may engage in an ethical imbroglio, which is governed primarily by the Rules of Professional Conduct and may occupy as little as 30 days to resolve - the time allotted before counsel must respond to a summons and complaint. An ethical imbroglio may coordinate with two additional tussles: 1) the liability dispute between the plaintiff and the defendant, which is usually governed by tort law and may occupy as many as five years to resolve and; 2) the coverage contest between the policyholder/defendant and the liability insurer, which is governed primarily by contract law and may occupy as many as a second five year to resolve.
Part of the structure of a liability policy, the Exclusions take away from the breadth of the insuring clause by the statement: "This insurance does not apply to:" followed by a long list of possible liability that are not covered by this policy. Exclusions may be easily understood as a laundry list of other policies one can buy. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
A person to whom power is entrusted for the benefit of another.
A duty owed by a fiduciary to the one for whose benefit the fiduciary wields power. An insurer has fiduciary-like duties to the policyholder which arise out of the terms of the insurance policy and are implied from the obligations assumed by the insurer in the policy. See, Article: Duty of Good Faith and Fair Dealing.
As applied to a lawyer, a connection to a client of the very highest character which depends on the client’s trust and confidence in counsel including duties of loyalty and confidentiality, which continue in force even after a representation had ended, and by which the attorney may not do anything which will injuriously affect a former client nor may the attorney at any time use against the former client knowledge or information acquired by virtue of the previous relationship. See, Flatt v. Superior Court (1994) 9 Cal.4th 275.
An "implied" right is one created by the law and superimposed into a contract, but is not expressly stated by the language of a contract.
Indemnity is defined by Civil Code § 2772 as "a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, of some other person."
Independent Counsel or Cumis Counsel is a lawyer who represents only the policyholder and has not attorney-client nor business relationship with the insurer. The word "Cumis" refers to the name of a court case describing the right to independent counsel. Independent counsel’s counterpart is dependent counsel. See, Article: Difference Between Dependent and Independent Counsel.
Insurance is defined by the Insurance Code §25 as “a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”
insurer appointed defense counsel
Insurer Appointed Defense Counsel is a lawyer who chosen by the liability insurer and represents both the insurer and the policyholder as clients, owing fiduciary duties to both. See Dependent Counsel.
See, Articles: Duty of Good Faith and Fair Dealing, Duty to Defend, Duty to Investigate and Duty to Settle.
See, Articles: Blue Ridge Settlement Cost Reimbursement, Buss Defense Cost Reimbursement, Control of Defense - Basic Principles, Control of Settlement.
Also known as the Insuring Agreement - The Insuring Clause is usually a sentence or two where the insurer makes the two primary promises to defend and indemnify the insured. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
Drafting a complaint so as to articulate genuine claims for damage which may fall within the indemnity coverage of a defendant’s liability insurance policy and influence the insurer to provide a defense and contribute to settlement. See, Article: How to Plead Into Coverage Properly. Giving truthful testimony that supports a finding that the policyholder is liable to the injured plaintiff for misconduct that is covered by an insurer’s policy that may be in the policyholder’s interests. See, Practice Pointer: Incentives to Confess Covered Liability. A policyholder testifying into coverage is a counterpart to a plaintiff pleading into coverage. See, Article: Testify Into Coverage Truthfully.
A statistical axiom that states that the larger the number of exposure units, the greater the probability that actual loss experience will equal expected loss experience. Simply put, the credibility of data increases as the number of samples increases. The law of large numbers applies to the actuarial process by which an insurer decides whether to issue a policy and how much to charge. The law of large numbers may also apply to the claims process.
When a plaintiff sues a defendant these two parties engage in a liability dispute, which is usually governed by tort law and may occupy as many as five years to resolve. When the defendant has liability insurance, two additional tussles may develop: 1) a coverage contest between the policyholder/defendant and the liability insurer, which is governed by contract law and may occupy as many as a second five year to resolve; and 2) an ethical imbroglio between the policyholder/client and the insurer’s chosen dependent counsel, which is governed primarily by the Rules of Professional Conduct, and may occupy as little as 30 days to resolve.
Liability insurance is a contract whereby an insurer agrees to indemnify a policyholder against liability imposed on the policyholder in a civil lawsuit.
Part of the structure of a liability policy, the Limitations state the policy limits applicable to a variety of circumstances. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
A third party liability lawsuit in which more than one claim for damages is asserted, some of which "are at least potentially covered and the others are not." (Buss v. Superior Court (1997) 16 Cal.4th 35, 47.)
A standard liability policy limits the policyholder’s or a claimant’s right to sue the insurer with language such as: "No person ... has a right...: to sue us ... unless all of the terms have been fully complied with. A person ... may sue us to recover on an agreed settlement [signed by us] or a final judgment against the insured." See, Article: Control of Settlement.
A rule of law that a liability insurer does not automatically waive any ground upon which it may later deny coverage to its policyholder by failing to specify that ground in a reservation of rights letter. See, Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 35.
no voluntary payment provision
A clause in standard liability insurance policies that prohibits the policyholder from paying anything of value to a third party claimant for which the insurer may be held responsible. This clause effectively bars the policyholder from settling with a plaintiff unless the insurer consents. See, Article: Control of Settlement.
A standard liability policy requires the policyholder to notify the insurer of a claim or lawsuit with language such as: "If claim is made of ‘suit’ is brought against any insured, you must: . . . Notify us as soon as practicable." See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
A rule of law that an insurer may not disclaim certain obligations it owes to the policyholder because of the policyholder’s failure to give notice to the insurer as required by the terms of the policy unless the late notice caused prejudice to the insurer.
A legal test by which an insurer’s decision to reject a policy limits demand because it denies coverage may be measured. (Comunale v. Traders & Gen. Ins. Co. (1958) 50 Cal.2d 654, 660 "An insurer who denies coverage does so at its own risk, and, although its position may not have been entirely groundless, if the denial is found to be wrongful it is liable for the full amount which will compensate the insured for all the detriment caused by the insurer’s breach of the express and implied obligations of the contract.... The insurer should not be permitted to profit by its own wrong.") The alternative is the Prudent Insurer Standard.
A liability insurer which agrees to defend and faithfully discharges the services inherent in the duty to defend.
A person or entity initiating a civil lawsuit against a defendant.
As used here, this phrase means a civil lawsuit in which a plaintiff seeks to recover damages from a defendant, which defendant has a liability insurance policy. This phrase may also refer to a lawsuit in which a cross-complaint is filed by a defendant against a policyholder.
Drafting a complaint so as to eliminate claims for damage that may fall within the indemnity coverage of a defendant’s liability insurance policy and may discourage the insurer from providing a defense.
The policy limit is the maximum amount of money the insurer agrees to pay as indemnity, stated in the Declarations.
An offer to settle by the injured plaintiff to the policyholder-defendant to resolve all claims for the policy limit.
The policy period identifies the time period that liability insurance covers. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
Parties to a lawsuit often have two goals in litigation: pride and profit. Pride is served by vindication that groundless claims of negligence are proven false. Profit is served by minimizing the payment of money to the plaintiff and to one’s own lawyer. When an insurer concedes coverage, the policyholder can afford to indulge pride, since it has no money at stake. But when the insurer denies coverage, the policyholder must weigh how much personal profit may be lost by indulging pride.
Procedural due process, guaranteed by the federal and state consitutions "is protection of the individual against arbitrary action of government. [D]ue process generally requires consideration of (1) the private interest that will be affected by the official action, (2) the risk of an erroneous deprivation of such interest through the procedures used, (3) informing individuals of the nature, grounds and consequences of the action and in enabling them to present their side of the story before a responsible governmental official, and (4) the governmental interest." (People v. Ramirez (1979) 25 Cal.3d 260, 267-68 (ellipses omitted).)
A legal test by which the reasonableness of an insurer’s decision to reject a policy limits demand may be measured. (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 429 "In determining whether an insurer has given consideration to the interests of the insured, the test is whether a prudent insurer without policy limits would have accepted the settlement offer.") The alternative is the Own Risk Standard.
The doctrine of res judicata precludes parties or their privies from relitigating a cause of action that has been finally determined by a court of competent jurisdiction as to any issue necessarily decided.
A reservation of rights is a provisional denial of coverage. A reservation of rights serves as a warning by an insurer that it may deny coverage to its policyholder on any and all grounds. By reserving its rights to deny coverage, the insurer does not waive any rights it might have against its policyholder and avoids a legal estoppel, waiver or forfeiture. As applied to liability insurance, insurers often reserve the right to contest the duty to indemnify and/or the duty to defend, while agreeing to defend. See, Article: Reservation of Rights.
A right of reimbursement is a right to get back money that a person has paid. As applied to liability insurance, the law implies two rights of reimbursement, the insurer’s right to get back from its insured: 1. The cost of defense and; 2. The cost of settlement. See, Articles: Buss Defense Cost Reimbursement and Blue Ridge Settlement Reimbursement.
A handful of contractual provisions confer on a performing insurer the right to control settlement by prohibiting the policyholder from settling with an injured plaintiff without the insurer’s consent. However, these provisions may be unenforceable by a defaulting insurer. See, Article: Control of Settlement.
The right to control the defense means two things. First, the person in control of the defense has the right to make the major decisions in the lawsuit such as whether to file a cross-complaint, whether to settle, how much to pay in settlement, and whether to go to trial. Second, the person in control of the defense chooses a lawyer to handle the defense and manages the work of the lawyer. See, Article: Right to Control the Defense.
An improper attempt by a plaintiff and/or policyholder to manufacture a bad faith lawsuit against an insurer, often by agreeing that a policyholder is liable to a plaintiff and/or agreeing to the amount of the plaintiff’s damages without legitimate evidentiary support. Properly the courts are sensitive to and uniformly decry a set-up. (Doser v. Middlesex Mutual Ins. Co. (1980) 101 Cal. App. 3d 883, 892: "bootstrapped their damages with the ingenious assistance of counsel.") (J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 18: "concoct a bad faith claim out of whole cloth.")
A standard liability policy makes no express promise to settle and creates no contractual obligation to settle. Instead, policy language usually specifies only an option to settle, such as: "We may in our discretion . . . settle any claim or ‘suit’." See definition of Duty to Settle.
structure of a standard policy
Liability insurance policies are highly structured, consisting of easily identifiable parts including Declarations, Insuring Clause, Conditions, Definitions, Limitations, Exclusions, and Endorsements. See, Article: Anatomy of a Liability Insurance Policy - Part 1: Policy Structure.
As used here, an action by an injured plaintiff filed against a defendant who has liability insurance. While the insurer and policyholder are parties to the insurance contract, the plaintiff is not, and thus is a "third party." See, Plaintiff’s lawsuit.
A coalition of insurer, policyholder and the insurer’s dependent counsel. When no conflicts of interest divide its members, this defense team harmoniously seek a single, shared, common goal and purpose of defeating or minimizing legal claims of a plaintiff in a third party civil lawsuit. When conflicts of interest do divide its members, the relationship resembles a husband (lawyer), wife (insurer) and mistress (policyholder) which may be discordant. See, Article: Three Way Relationship - Harmony or Dissonance.
A standard liability policy prohibits the policyholder from settling a lawsuit without the insurer’s consent with language such as: "No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense ... without our consent." See, Article: Control of Settlement.
The voluntary relinquishment of a known right. If one knows of the existence of a right and chooses to give it up, the result is a waiver.
When a liability insurer disclaims any duty to defend, it risks that its decision may turn out to be wrong. The policyholder’s mere potentially covered liability to the injured plaintiff may trigger the broad duty to defend. A reasonable but erroneous failure to defend garners severe consequences to the defaulting insurer. See, Duty to Defend.