When an insurance company feels it has a defense to coverage, it generally issues a “Reservation of Rights” letter advising its insured that it feels it does not provide insurance coverage regarding a particular claim. Its failure to send such a letter to its insured has been held to prevent it from claiming it need
Damages for Insurer’s Failure to Defend
A decision of the District Court for the Eastern District of Wisconsin has serious implications regarding the amount of damages payable where an insurance company breaches its duty to defend its insured from claims made against it.
Wisconsin law provides that an insurance company is obligated to defend its insured from legal action even if only one of several claims made against the insured is covered under the insurance policy. Wisconsin state courts have not specifically addressed what damages are payable by an insurance company where only one of several claims are covered by the policy.
In Johnson Outdoors, Inc. v. General Star Indemnity Co., 2009 WL 4043194, the Eastern District Court determined that damages payable for breach of the duty to defend would be damages attributable to the covered claim only. Therefore, where there had been a settlement of various claims made against the insured, the insurer could discover information pertinent to the question what portion of the settlement related to the covered claim.…
Insurance Coverage Denied: Now What?
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.…