At least once per week, I am contacted by a potential new client that has either been sued or receives a letter from an attorney threatening to sue their company for a variety of alleged injuries. And almost every single time, during the initial consultation, when I bring up the subject of whether they may have available general liability insurance coverage the potential client says they hadn't thought about it.
What is interesting to me is that a person or company pays a good amount of money for coverage against claims of injury when they purchase a liability insurance policy but they don't understand how those policies work or what they must do after they receive notice of a potential claim that may be covered.
Universally, an insured has an affirmative duty to provide their insurer with notice as soon as possible after the insured receives notice of a claim or potential claim. If the insured fails to provide notice in a timely manner, and if the insurer claims that the failure to provide notice has adversely affected the insurance company's rights, then it's possible that a claim that may have been covered by insurance may actually not be covered - simply because the insurer failed to or forgot to notify the insurance company.
One of the first things a person or company must do after they receive notice of a claim or potential claim is to determine the date of the alleged injury (if there is an occurrence-type liability insurance policy) and give notice of the claim to the insurance company by providing a copy of the demand letter or lawsuit papers. Then the duty of the insurance company to defend the insured against the allegations begins and assuming there is the possibility of coverage the insurance company will hire an attorney to defend the insured against the allegations. The insurance company has the right to control the defense against a claim so without notice they are prejudiced. The insurance company will normally select an attorney themselves that they are comfortable with, although sometimes an insured can negotiate the right to keep using an attorney of their own choosing who will be paid at least in part by the insurance company. Either way, having the insurer defend the lawsuit or claim will save the insured a lot of money in potential legal expenses.
Additionally, this notice from the insured to the insurance company will also trigger the insurer's duty to indemnify (pay any damages) assuming the claims actually fall under the coverage of the insurance policy. If the claims are covered, then the insurance company has a duty to attempt to settle the claims within the policy limits or possibly risk being responsible for any judgment that exceeds the policy limits if they fail to act responsibly in refusing to settle.
Sometimes I am told by the potential client that they do not want to provide notice of the claim to the insurance company because they are afraid of their premiums going up or of being cancelled altogether. Then I have to remind them that the insurer will find out about the claim or lawsuit during the next renewal because you are required to disclose the existence of any claims or threatened claims during that process. And I also remind them that the entire purpose of buying insurance is to protect against losses caused by lawsuits or other claims. It makes little business sense to pay for an insurance contract and then refuse to use it when circumstances arise that bring it into play. Further, you will be required to disclose the existence of the insurance policy through the discovery process - so there is no way to hide its existence from the opposing party.
Not every claim or lawsuit is covered by liability insurance. Most claims for breach of contract, for example, are not covered by liability insurance. Claims by employees for discrimination or wrongful termination or workplace injuries are generally excluded from coverage in comprehensive general liability policies. If you want coverage then you must normally pay for additional employer coverage and workers compensation coverage. However, no matter the type of claim, it's important to discuss the issue of potential insurance coverage with an attorney if and when you are faced with a lawsuit or demand letter or other type of claim. You need to ensure that you do not waive your rights to receive the benefits of any insurance contract that may be in effect for the relevant times.
If you have any questions about the possible applicability of insurance coverage to a claim you are facing, please contact the Jansen Law Firm, PLLC at (713) 388-6150 or email me directly at firstname.lastname@example.org and we will be glad to assist you.
Jeff Jansen is the founding member of the Jansen Law Firm, PLLC and has more than 20 years of experience as a business and trial attorney.