TOP 10 MISTAKES
TO AVOID WHEN
A LIABILITY CLAIM COMES IN
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Sarah E. Millin
Robert C. Vryhof
Partner & Insurance Co-Chair
Lathrop & Gage LLP
Kansas City, Missouri
smillin@lathropgage.com
Vice President, Risk Management
Republic Services, Inc.
Phoenix, Arizona
rvryhof@republicservices.com
Recording of this session via any media type is strictly prohibited.
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What to Expect
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How to ensure all relevant liability coverage is in play as soon as possible
How to work with insurers after tender to maximize their contribution
How to protect confidential and privileged communications when
insurance is involved
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1. Overlooking Potentially Covered
Allegations in the Complaint
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Dissect the complaint
Identify all possible claims and damages
o Sometimes covered allegations are not
obvious
o Insured only needs one potentially covered
claim to trigger defense
o
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Study each paragraph – do not skim
Don’t rely on headings
Assume only necessary bad elements
Resolve all doubts in favor of coverage
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Coverage-Triggering Allegations
MAY NOT BE COVERED:
MAY NOT BE COVERED:
MAY NOT BE COVERED:
“PETITION FOR PRELIMINARY
INJUNCTION, PERMANENT
INJUNCTION, AND CIVIL PENALTIES”
“ . . . fraudulent marketing scheme of the
Defendants . . . ”
BUT WHAT ABOUT:
“ . . . failed to disclose known side effects
...”
“ . . . action seeking to declare the
invalidity of a patent and to recover
damages for patent infringement,
misappropriation of trade secrets, and
unfair competition . . . ”
“ . . . is liable for costs . . . ”
BUT WHAT ABOUT:
BUT WHAT ABOUT:
“ . . . has caused damages . . . ”
“ . . . knew or in the exercise of
reasonable care should have known of
the defective nature . . . ”
“ . . . damage and injury by spreading
false rumors . . . ”
“ . . . and grant such further relief as the
court deems just and proper.”
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2. Ignoring Extrinsic Evidence
That May Trigger Coverage
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Look outside the complaint where permitted
o
o
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The complaint often does not tell the entire story
Many jurisdictions require the insurer to consider all extrinsic evidence available
Only some jurisdictions allow carriers to deny coverage based on extrinsic
evidence
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Ignoring Extrinsic Evidence
That May Trigger Coverage
•
Remember that a “suit” is not
always necessary to trigger a
defense obligation
o
o
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Some liability policies only
require the assertion of a
“claim”
May not have to be in writing –
a verbal demand or allegation of
liability may suffice
Even where policy requires a
“suit,” some jurisdictions
interpret that word broadly
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Ignoring Extrinsic Evidence
That May Trigger Coverage
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If the insurer denies, forward each
later document that may trigger
coverage
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o
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Amended pleadings
Written discovery responses
Deposition transcripts
Anything that establishes the
potential for coverage
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3. Failing to Identify All
Potentially Applicable Policies
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Look for coverage in unlikely places
Auto accident damages under CGL?
o TCPA damages under D&O?
o
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Remember that multiple lines may apply
Remember to tender under all potentially
applicable coverage years
Find missing policies by using secondary
policy evidence
Archaeology -- find lost or missing policies
o Reconstruction -- establish terms of missing,
incomplete or illegible policies
o
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Seek coverage under policies as an
additional insured
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4. Failing to Properly Notice Claims
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Benefits of proper notice
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Eliminates prejudice argument
Avoids disputes over pre-tender defense costs
Preserves rights
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Failing to Properly Notice Claims
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The Basics
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o
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Notify promptly under every
potentially relevant policy
Follow specific policy provisions
Provide basic, factual information
and avoid unnecessary
characterizations
Attach demand, complaint,
summons or other coveragetriggering document
Even a “soft-tender” may be
sufficient
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Failing to Properly Notice Claims
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“Claims-made” policies
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Pay particular attention to terms
and deadlines
Don’t ignore claims-made excess
coverage
Notice may be required before suit
Check for notice provisions on
potential claims
“Claims-made” and “claims-madeand-reported” often treated the
same
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Failing to Properly Notice Claims
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Notice as an additional insured
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Notify carrier directly
Don’t rely on named insured
Even if named insured provides
notice, may not constitute notice
on your behalf
Obtain, at a minimum, certificates
of insurance
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5. Not Preparing for the Possibility
of a Declaratory Judgment Action
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In some states, carriers must file a
DJ action or risk waiving defenses
Carriers may file quickly to select
favorable forum
Get legal involved early and
consider options
o
o
May need to file suit upon tender
Use “soft-tenders” if uncertain
whether to pursue claim
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6. Not Responding to Reservations
of Rights and Denial Letters
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Specifically object to unsupported
reservations and denials
o
o
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Can voice objections using amicable
tone
Prevents disputes down the road
Always object to
reimbursement/recoupment
reservation
Often reserved
o Check policy to see if allowed
o Failure to promptly object might
create “implied-in-fact” contract
o
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Not Responding to Reservations
of Rights and Denial Letters
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Strategically respond to
information requests
o
o
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Need to cooperate
Reasonableness standards apply
Communicate with carrier regarding
content and scope of requests
Promptly address unsupported
withdrawals
o
When can an insurer withdraw from
the defense?
Can’t so long as the potential for
coverage remains
o Must show there’s been a material
change in circumstances
o
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7. Accepting Insurer’s Selection of
Counsel, Billing Guidelines and Rates
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Know when to demand your own defense counsel
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Rate caps must specifically be stated in policy
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Most policies provide for payment of “reasonable rates,” as opposed to specific
rate caps
Raise practical considerations
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When reservation creates conflict of interest
Reservations on punitives/excess exposure may even create conflict
Continuing with long-time, highly
experienced counsel is often in
everyone’s best interests, even if rates
are higher
Watch for and reject billing guidelines
that invade privilege or impede
representation Recording of this session via any media type is strictly prohibited.
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8. Forgetting to Engage Carriers
During Settlement Opportunities
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Insurers have a “duty to settle” in
most states
o
o
Must respond to reasonable
demands within policy limits
Consequences for breaching the
“duty to settle” can be severe
Responsible for the entire amount
of any resulting judgment if the
case proceeds to trial
o Includes damages in excess of policy
limits
o May include damages outside
coverage
o
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Forgetting to Engage Carriers
During Settlement Opportunities
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Inform all carriers of settlement
opportunities, even those that have denied
Provide details about factors affecting
settlement window
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Important depositions
Pending motions
Surviving summary judgment
Get defense counsel involved
Write hammer letters
Consider three-way mediations
Explore all ways to protect the company’s
interests through settlement
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9. Failing to Properly Document
Settlement with Insurance Carriers
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Always commit to writing an insurer’s agreement to pay proceeds
Include mutual releases to avoid recoupment
Secure release of subrogation rights where required by underlying
settlement
Expressly preserve rights as to non-settled
claims
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Particularly important where underlying
claim is a class-action
Use caution when settling claims for
less than policy limits
o
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Check excess policy language
Consider allocating
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10. Wrongfully Assuming
Communications are Privileged
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Communications with brokers
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Communications with carriers
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May not be privileged until insurer agrees to
defend
Use confidentiality agreements
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May not be privileged even if counsel
involved
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Set forth purpose for exchanging information
Define common interests
When in doubt, pick up the phone
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Questions, Answers
and Final Comments
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Sarah E. Millin
Robert C. Vryhof
Partner & Insurance Co-Chair
Lathrop & Gage LLP
Kansas City, Missouri
smillin@lathropgage.com
Vice President, Risk Management
Republic Services, Inc.
Phoenix, Arizona
rvryhof@republicservices.com
Recording of this session via any media type is strictly prohibited.
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