DENIAL OF INSURANCE COVERAGE
By Attorney Randall J. Andersen
February, 2013
By Attorney Randall J. Andersen
February, 2013
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
Ordinarily one of the first steps taken by a business facing a claim or lawsuit is to notify its insurance carrier of the claim, with the hope that the insurance carrier will respond to and settle the claim, or hire an attorney to defend against the claim, and pay any damages which may be awarded to the plaintiff.
If there is a question as to whether the business’s insurance provides coverage for the claim, the insurance company may issue a “reservation of rights” letter, advising the insured that its insurance policy may not provide coverage for the claim.
Occasionally, the insurance company may hire and pay for an attorney to represent the insured in the lawsuit, even though it takes the position that it is not liable for the claim.
In the past, it was usually assumed that if the insurance company did not issue a reservation of rights letter, and proceeded with the hiring of an attorney to defend the insured in the lawsuit, that the insurance company had waived its right to claim that the policy does not provide coverage.
That assumption has now changed with the Wisconsin Supreme Court’s 2012 decision issued in the case of Maxwell v. Hartford Union High School District. In Maxwell, the insurer provided an attorney to represent the Hartford Union High School District and the Hartford Union High School Board of Education in a wrongful termination lawsuit filed by an administrative employee. The insurance company provided an attorney to represent the school district and the board of education. The school district lost at trial, and a significant judgment was awarded in favor of the plaintiff.
Following the trial, the insurance carrier refused to pay the judgment, claiming that an exclusion in the policy applied, and that the insurance company was not liable for the claim.
The Wisconsin Supreme Court decided in favor of the insurance company. The Court held that the failure of the insurance company to issue a reservation of rights letter did not expand the scope of the policy, and that the insurance company had not waived its right to rely on the exclusion after the trial.
The Maxwell decision presents new challenges for Wisconsin businesses facing lawsuits which may or may not be covered by their insurance. Attorneys in some instances are now advising their clients who face a lawsuit to send what is called a “Maxwell letter” requesting that the insurance company provide its position as to whether coverage exists for the claim, and advising the insurance company that if no response is received, the policyholder will rely on the insurance policy to provide full protection for the claim.
If the insurance company takes the position that the policy does not provide coverage for all or some part of the claim, then the policy holder may have the right to control the defense of the claim at the insurer’s expense, which could include the right to select defense counsel and be more involved in the making of strategy decisions regarding the lawsuit.
With any significant claim, it is advisable for a business owner to consult with its own attorney regarding its rights and responsibilities with regard to the business’s insurance coverage.
If there is a question as to whether the business’s insurance provides coverage for the claim, the insurance company may issue a “reservation of rights” letter, advising the insured that its insurance policy may not provide coverage for the claim.
Occasionally, the insurance company may hire and pay for an attorney to represent the insured in the lawsuit, even though it takes the position that it is not liable for the claim.
In the past, it was usually assumed that if the insurance company did not issue a reservation of rights letter, and proceeded with the hiring of an attorney to defend the insured in the lawsuit, that the insurance company had waived its right to claim that the policy does not provide coverage.
That assumption has now changed with the Wisconsin Supreme Court’s 2012 decision issued in the case of Maxwell v. Hartford Union High School District. In Maxwell, the insurer provided an attorney to represent the Hartford Union High School District and the Hartford Union High School Board of Education in a wrongful termination lawsuit filed by an administrative employee. The insurance company provided an attorney to represent the school district and the board of education. The school district lost at trial, and a significant judgment was awarded in favor of the plaintiff.
Following the trial, the insurance carrier refused to pay the judgment, claiming that an exclusion in the policy applied, and that the insurance company was not liable for the claim.
The Wisconsin Supreme Court decided in favor of the insurance company. The Court held that the failure of the insurance company to issue a reservation of rights letter did not expand the scope of the policy, and that the insurance company had not waived its right to rely on the exclusion after the trial.
The Maxwell decision presents new challenges for Wisconsin businesses facing lawsuits which may or may not be covered by their insurance. Attorneys in some instances are now advising their clients who face a lawsuit to send what is called a “Maxwell letter” requesting that the insurance company provide its position as to whether coverage exists for the claim, and advising the insurance company that if no response is received, the policyholder will rely on the insurance policy to provide full protection for the claim.
If the insurance company takes the position that the policy does not provide coverage for all or some part of the claim, then the policy holder may have the right to control the defense of the claim at the insurer’s expense, which could include the right to select defense counsel and be more involved in the making of strategy decisions regarding the lawsuit.
With any significant claim, it is advisable for a business owner to consult with its own attorney regarding its rights and responsibilities with regard to the business’s insurance coverage.