When a business is sued, it should report the action to its insurance company, as soon as possible. Sometimes, an insurer will deny coverage of the claim, asserting that a certain exclusion in its policy is applicable, or other policy defenses.
In Wisconsin, however, this is not necessarily the end of the story. If there is any possibility that coverage may exist given the terms of the claim made against its insured, the insurer is required to provide its insured with a defense attorney at its cost, and seek a stay of the action while the court determines whether it owes coverage under its policy. It’s failure to do so may result in it being held liable for the claim and its insured’s defense costs, regardless of whether coverage actually exists under the policy.
If its failure to provide coverage, a defense, or seek a stay of the proceedings is the result of a deliberate attempt to avoid providing coverage it is obligated to provide, it could be liable for the amount of the claim, its insureds attorneys fees, and other damages resulting from its failure to take action. It may even be subject to punitive damages.
Businesses therefore should not simply accept a denial of coverage without question. The basis of the denial and the terms of the policy should be reviewed to determine whether the insurer should be defending the business and seeking a court determination regarding whether it has coverage. If it fails to do so, the business may bring the insurer into the action or commence a separate action to determine whether it is owed coverage and a defense under the policy.
Even when an insurer does what it should do, and seeks a stay of proceedings and a court determination, the business should consider consulting with an attorney to represent it in the coverage dispute.