Ask the Lawyer

Litigation Law

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Q: My company recently was named as a defendant in a lawsuit relating to my business. I informed the general liability insurer of the litigation and received a letter back stating that due to supposed exclusions in my company’s policy, the claims were not covered. How is this possible? I’ve been paying premiums to the same insurance company for more than 10 years!

A: Unfortunately, this is a common occurrence. Many insureds who have paid their insurance premiums for years, believing they and/or their company have insurance, receive multi-page letters from their insurer purporting to quote various policy provisions and disclaiming any obligation to defend or indemnify the insured once it is named as a defendant in a lawsuit. You should know that you don’t have to take “no” for an answer, but can challenge your insurer’s disclaimer. Furthermore, if your insurance company issues even a partial disclaimer, you can hire your own attorney to defend you or your company in the lawsuit, even if under your policy the insurer usually appoints counsel on your behalf.

First some basics: Insurance companies potentially owe two duties to its insured. The first is the duty to pay a claim under the policy, which is known as the “duty to indemnify.” An insurer has a duty to indemnify where a claim is covered by a policy (i.e., it does not come within a policy exclusion) and the party suing the insured prevails on that claim. Insurers also may have a “duty to defend” its insured in a lawsuit (i.e., pay the insured’s defense costs), even if it ultimately turns out that there is no insurance coverage for the claim, or the insurer ultimately does not have to pay any money to the plaintiff, in other words, the defendant insured prevails.

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