Civil Litigation Defense Thursday, December 21, 2017
Insured policy holders generally buy insurance to secure two major obligations from an insurance carrier when they become the subject of a claim for damages. What can be unclear is what constitutes the type of claim or suit that triggers coverage under the insurance policy warranting the triggered obligations of the carrier.
As discussed by the American Bar Association, there are two main obligations of a carrier, duty to indemnify and duty to defend. Duty to indemnify and duty to defend
The first obligation under a covered claim to the carrier is that of indemnification, where the carrier agrees, as per the policy terms, to cover the expense of the insured entity’s liability under the law, as least as far as the purchased policy limits. This would be the damages.
The second obligation is very important also, and is the duty to provide a defense to a suit. Because legal defense expenses can be tremendous, even more, potentially, than the damages alleged in a suit, policyholders rely on this policy obligation perhaps more so than the indemnification requirement at time.
Preliminary inquiries about whether to defend
The following inquiries need answers before a concluding whether that carrier must defend the suit or claim at all, on behalf of the insured.
- Does a suit exist?
- Where the alleged damages caused by an occurrence?
- Are the damages the kind covered by the policy?
These may seem like easy-to-answer questions, but not necessarily. In particular, what actions constitute a suit to trigger coverage is not always clear.
What constitutes a “suit” triggering duty to defend?
After all, a suit typically includes an actual law suit in a civil proceeding in court whereby a plaintiff files a complaint against the defendant insured-policyholder. However, it may include other forms of claims against the insured, such as when a demand for arbitration ensues.
May it also include a governmental notice issued to an insured that it is a potentially responsible party for some damages that have occurred? This question, as discussed by EnviroForensics, became an issue before the New Jersey Supreme Court.
EPA’s notice of potentially responsible party may be a suit
In that case, a company among several others, received a PRP notice from the United States’ Environmental Protection Agency regarding pollution damages in the Passaic River. It notified its liability insurance carrier, who denied coverage on the basis that the PRP notice did not constitute a law suit under the policy.
The court rejected that argument, noting that the PRP threatens legal process including the company’s obligation to remediate the pollution effects. As such, it was a covered suit under the policy.