Insurance & Employee Benefits
By Mitchell B. Reiter & W. Richard Kroeger
We often receive inquiries concerning how best to respond to a carrier’s disclaimer of coverage. If one of your clients receives a disclaimer letter from its insurer, it is important to mobilize your resources to confront this challenge. This is the beginning of the story, not the end of it. Besides enlisting your assistance and speaking to knowledgeable coverage counsel, here are some immediate steps that you should advise them to take.
STEP 1. Check the Dates
It is understood that the insured has an obligation to provide notice of an occurrence or claim to their insurer “as soon as reasonably practicable.” However, in the event that the insurer decides to disclaim coverage, remember that the carrier also has a legal obligation to do so in a timely fashion. Although the courts have decided the timeliness of disclaimers on a case-
Some insurers are notoriously slow in responding to the insured’s notice of an occurrence or tender of a claim. One large insurer often takes three to four months or more before it acknowledges it’s insured’s claim. Even after taking so long to evaluate the claim, this insurer will still attempt to disclaim coverage in certain circumstances. These disclaimers frequently go unchallenged because the insured does not realize that they can challenge the disclaimer for this reason.
Always check the date of any letter they receive attempting to disclaim coverage. If the letter is dated more than 30 days after the insurance company received notice of the occurrence or claim, the disclaimer may well be ineffective.
STEP 2. Carefully compare the letter to the insurance policy
Any disclaimer letter from the insurer must be detailed and specific. Furthermore, the insurer must disclaim coverage on each and every ground that it knows (or should have known) is a valid reason to disclaim.
For example, consider a hypothetical situation where an employee is injured while working on a residential construction project. He receives workers’ compensation benefits, but the CGL carrier is never notified. Then, 2 ½ years later he sues the project general manager and owner. In turn, they tender the claim to his employer for a defense and indemnity. At this time, his employer finally reports the claim to its CGL carrier.
The employer is primarily a contractor building commercial structures. Their policy contains an endorsement that excludes coverage for any occurrences that take place on a residential project. However, their insurer only disclaims coverage based upon late notice of the occurrence. If the employer is able to get past the issue of late notice, the insurer will be obligated to provide coverage for the claim regardless of the residential construction exclusion. The insurer waived its ability to deny coverage on the basis of that issue when it failed to deny coverage on those grounds in its initial disclaimer letter.
Of course, if the insurer assumes the defense of its insureds and later discovers new information that would entitle it to disclaim coverage, it may notify the insureds at that time. However, even this notice must be made by the insurer as soon as is reasonably possible following the discovery of the new evidence (and the “new” information cannot be a fact it should have realized earlier).
STEP 3. Make sure your client is prepared to provide the insurer with
Often an insurer will conclude its disclaimer letter by offering the policyholder the chance to provide additional information if it disagrees with the insurer’s decision to disclaim coverage. This provides your client with an important opportunity to Contest and possibly reverse the disclaimer. Insist that your client avails itself of this opportunity.
Your client should “flood” the insurer with all of the information that it has to support its position. This is not the time to provide information in bits and pieces. Likewise, it is not the time to withhold any information as a “tactic” in case there is a coverage suit later. We have seen in our practice that following this strategy often yields results with insurers. Do not allow too much time to pass and legal fees to mount. Everyone’s position will only harden. Follow up on any insurance company “hint” that it is willing to discuss the issue.
In the event of a coverage disclaimer, become proactive. Tear apart the disclaimer letter. You need to understand exactly what the letter does (and doesn’t) say. With some careful analysis and appropriate effort, you, your client and your client’s coverage attorney may be able to successfully convince the insurer to rescind their disclaimer of coverage and agree to defend and indemnify your client against the claim. It is possible to push-
Mitchell B. Reiter is a Partner at Goldberg & Connolly. He may be reached at (516) 764-
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This article has been prepared for informational purposes only. It is not a substitute for legal advice addressed to particular circumstances. You should not take or refrain from taking any legal action based upon the information contained herein without first seeking professional, individualized counsel based upon your own circumstances.