Challenges in Insurance Challenges in Insurance Coverage LitigationCoverage Litigation

Gerry SchulzeGerry Schulze

B.J. WalkerB.J. Walker

May 5, 2004May 5, 2004

Analyzing InsuranceAnalyzing InsuranceContract ProvisionsContract Provisions

• Pre Litigation Opinions on Pre Litigation Opinions on Underwriting and Coverage IssuesUnderwriting and Coverage Issues– Does the Policy Cover the Damage Does the Policy Cover the Damage

Claimed?Claimed?– Did the Damage Occur within the policy Did the Damage Occur within the policy

period?period?

What is Insurance?What is Insurance?

• Insurance is a special kind of contractInsurance is a special kind of contract

• Insurance is heavily regulatedInsurance is heavily regulated

• Three elements:Three elements:– Risk DistributionRisk Distribution– Among a substantial number of membersAmong a substantial number of members– Through an insurer engaged primarily in Through an insurer engaged primarily in

the business of insurancethe business of insurance

Risk DistributionRisk Distribution

• Risk: According to Black’sRisk: According to Black’s

• The chance of injury, damage, or loss The chance of injury, damage, or loss

• The chance or degree of probability of loss The chance or degree of probability of loss to the subject matter of an insurance policyto the subject matter of an insurance policy

• The amount that an insurer stands to loseThe amount that an insurer stands to lose

• A person or thing that an insuraer considers A person or thing that an insuraer considers a hazarda hazard

• The type of loss covered by a policyThe type of loss covered by a policy

Who will suffer the risk?Who will suffer the risk?

• Without insurance, the unlucky Without insurance, the unlucky person who suffers the misfortuneperson who suffers the misfortune

• A person who intentionally or A person who intentionally or negligently proximately causes the negligently proximately causes the misfortune to occur to othersmisfortune to occur to others

• Under certain statutory schemes, the Under certain statutory schemes, the party the legislature decides should party the legislature decides should bear the loss (Workers’ bear the loss (Workers’ Compensation, e.g) Compensation, e.g)

What risk can be transferredWhat risk can be transferred

• Obviously, the actual misfortune Obviously, the actual misfortune cannot be transferred. If someone cannot be transferred. If someone runs over me in the parking lot and runs over me in the parking lot and breaks my leg, I can’t transfer the breaks my leg, I can’t transfer the broken leg to himbroken leg to him

• Economic loss, and economic Economic loss, and economic compensation for other losses is all compensation for other losses is all we can transfer.we can transfer.

Insurance transfers riskInsurance transfers risk

• Insurer work on the basis of statisticsInsurer work on the basis of statistics

• Actuaries calculate the risk of certain Actuaries calculate the risk of certain eventualities over the population of the eventualities over the population of the insuredinsured

• Insurers fix premium rates to cover Insurers fix premium rates to cover losses, administrative costs, and other losses, administrative costs, and other costscosts– Bonuses for insurance executives, for Bonuses for insurance executives, for

exampleexample

Factors in calculating Factors in calculating risk/costrisk/cost

• To figure out a premium the actuary To figure out a premium the actuary has to considerhas to consider– What is the risk to be covered?What is the risk to be covered?– How frequently will the risk occur?How frequently will the risk occur?– How much will it cost to cover the risk?How much will it cost to cover the risk?– What will it cost to administer the What will it cost to administer the

program?program?

The InsurerThe Insurer

• Primarily in the business of insurancePrimarily in the business of insurance• Compare warranties on merchandiseCompare warranties on merchandise

– An insurer is in the business of insuring An insurer is in the business of insuring against risk of lossagainst risk of loss

– A manufacturer can guarantee that its A manufacturer can guarantee that its widgets will work. There is always a risk widgets will work. There is always a risk that the widgets won’t work. If that risk that the widgets won’t work. If that risk occurs, the insurer will replace the occurs, the insurer will replace the widgets. But the manufacturer isn’t widgets. But the manufacturer isn’t really an insurerreally an insurer

Insurers act as underwritersInsurers act as underwriters

• Underwriting in this context is just the Underwriting in this context is just the act of assuming a risk by insuring itact of assuming a risk by insuring it

• The insurer assumes liability to pay The insurer assumes liability to pay the proceeds on lossthe proceeds on loss

• Historically, there were mutual Historically, there were mutual assessment associations. Sometimes it assessment associations. Sometimes it was hard to collect when members was hard to collect when members were assessed. That’s where the were assessed. That’s where the underwriter came in.underwriter came in.

UnderwritingUnderwriting

• Lloyd’s Coffee House in Lloyd’s Coffee House in London, 1600’s, shippers London, 1600’s, shippers would pass around a slip would pass around a slip of paper with relevant of paper with relevant facts. Interested person facts. Interested person would write on the slip would write on the slip the amount of insurance, the amount of insurance, the rate, and his initials. the rate, and his initials. Hence: Underwriting.Hence: Underwriting.

So what must the insurer So what must the insurer do?do?

• Gather data to fix premiumsGather data to fix premiums

• Determine what losses it will coverDetermine what losses it will cover

• Drafting insurance contracts Drafting insurance contracts consistent with the lawconsistent with the law

• Investigate and pay (or not pay) Investigate and pay (or not pay) claimsclaims– It’s the “or not pay” that is why we’re It’s the “or not pay” that is why we’re

here todayhere today

Types of InsuranceTypes of Insurance

• In theory just about anything legal In theory just about anything legal could be insuredcould be insured

• In practice most insurance actually In practice most insurance actually written can be categorized as:written can be categorized as:– Life InsuranceLife Insurance– Fire and Casualty InsuranceFire and Casualty Insurance– Marine and Inland Marine InsuranceMarine and Inland Marine Insurance

Life InsuranceLife Insurance

• Pay on death—easy enoughPay on death—easy enough

• Who is involved:Who is involved:– InsurerInsurer– ““Owner” of the policy—who can change Owner” of the policy—who can change

beneficiarybeneficiary– ““Owner” often is, but is not always the Owner” often is, but is not always the

subject of the policy, the subject of the policy, the cestui que viecestui que vie– ““Beneficiary” Who is paid in the event of Beneficiary” Who is paid in the event of

lossloss

Fire and CasualtyFire and Casualty

• FireFire– Pretty simple conceptPretty simple concept– Except that by now Except that by now

this insurance also this insurance also can cover other losses can cover other losses such as weather such as weather (lightning, water, etc). (lightning, water, etc). There is also There is also earthquake, riot, etc. earthquake, riot, etc. insurance available.insurance available.

CasualtyCasualty

• LiabilityLiability• Theft/burglaryTheft/burglary• AccidentAccident• HealthHealth• Property damageProperty damage• Workers CompensationWorkers Compensation• Fidelity and surety bondsFidelity and surety bonds• Car insuranceCar insurance• Boat / airplane insuranceBoat / airplane insurance

Marine InsuranceMarine Insurance

• ““Perils of the sea”Perils of the sea”

• Fairly comprehensive, covering all Fairly comprehensive, covering all losses except those excluded.losses except those excluded.

• Similar, Inland Marine Insurance, Similar, Inland Marine Insurance, covers gaps between seas and covers gaps between seas and docks.docks.

Yacht Insurance PolicyYacht Insurance Policy

• PERILS• Upon the Hull, Spars, Sails, Tackle, Apparel, Machinery, Boats,

and other Furniture of and in the Yacht hereby insured.• Touching the adventures and perils which we, the Assurers,

are contented to bear, and do take upon us, they are of the• seas, men-of-war, fire, enemies, pirates, rovers, assailing

thieves, jettisons, letters of mart and countermart, reprisals,• takings at sea, arrests, restraints and detainments of all

kings, princes and people, of what nation, condition or quality• soever, barratry of the Master and Mariners, and of all other

like perils, losses and misfortunes, that have or shall• come to the hurt, detriment or damage of said Yacht or any

part thereof.

Floater policiesFloater policies

• All risk insurance on personal All risk insurance on personal property not situated at a fixed property not situated at a fixed location. Another kind of inland location. Another kind of inland marine insurance.marine insurance.

No fault CompensationNo fault Compensation

• Workers’ CompensationWorkers’ Compensation

• Automobile No FaultAutomobile No Fault

Policy language: Liability Policy language: Liability InsuranceInsurance

• The company will pay on behalf of The company will pay on behalf of the insured all sums which the the insured all sums which the insured shall become legally insured shall become legally obligated to pay as damages obligated to pay as damages because of ... the property damage because of ... the property damage to which this insurance applies, to which this insurance applies, caused by an occurrence. caused by an occurrence.

OccurrenceOccurrence

• An accident, including continuous An accident, including continuous repeated exposure to conditions, repeated exposure to conditions, which results in bodily injury or which results in bodily injury or property damage, neither expected property damage, neither expected nor intended from the standpoint of nor intended from the standpoint of insured.insured.

Language of Insurance Language of Insurance PoliciesPolicies

• Legal Language is a dialect of EnglishLegal Language is a dialect of English– Special meaning of words--jargonSpecial meaning of words--jargon– Special constructionsSpecial constructions

•Subjunctive more commonSubjunctive more common

•Struggle for more precision in languageStruggle for more precision in language

•Use of “magic words”Use of “magic words”

Talking about legal writingTalking about legal writing

• What is it that makes the language of What is it that makes the language of contracts, including insurance contracts, including insurance contracts, so difficult for not only the contracts, so difficult for not only the lay person, but the lawyer as well?lay person, but the lawyer as well?

• In the most carefully crafted In the most carefully crafted language, insurance policy forms, language, insurance policy forms, educated lawyers and judges can educated lawyers and judges can disagree greatly about the meaning of disagree greatly about the meaning of words, phrases, clauses, and words, phrases, clauses, and paragraphs.paragraphs.

Characteristics of Legal Characteristics of Legal WritingWriting• ClarityClarity

– Word choiceWord choice– OrganizationOrganization– Avoid Legalese where possibleAvoid Legalese where possible

• In functional writing, legalese is often In functional writing, legalese is often preferablepreferable

• In persuasive writing you can get by with it In persuasive writing you can get by with it when you have towhen you have to

• In “informative” writing it will seldom do In “informative” writing it will seldom do much goodmuch good

Characteristics of Legal Characteristics of Legal WritingWriting

• ConcisenessConciseness– Strunk’s advice, “Make each word tell.”Strunk’s advice, “Make each word tell.”– Sometimes you have to balance the Sometimes you have to balance the

need for completeness and the need for need for completeness and the need for concise writingconcise writing

– Avoid repetitionAvoid repetition

Characteristics of Legal Characteristics of Legal WritingWriting

• Accuracy/PrecisionAccuracy/Precision– The goal is to be precise and The goal is to be precise and

understandable.understandable.– Ambiguity works against the insurer.Ambiguity works against the insurer.

Kinds of Legal WritingKinds of Legal Writing

• InformativeInformative

• PersuasivePersuasive

• ““Functional”Functional”

InformativeInformative

• Letters to clientLetters to client– Not necessarily “simple” but not Not necessarily “simple” but not

“legalese”“legalese”– Explain termsExplain terms

• Interoffice memorandaInteroffice memoranda

• Opinion letterOpinion letter– understandable.understandable.– disclaimersdisclaimers

PersuasivePersuasive

• BriefsBriefs– Vary in complexityVary in complexity– Probably the most time consuming of all Probably the most time consuming of all

documentsdocuments– Different concerns withDifferent concerns with

•Trial CourtsTrial Courts•Appellate CourtsAppellate Courts•Administrative AgenciesAdministrative Agencies

• Settlement BrochuresSettlement Brochures

FunctionalFunctional

• This kind of document is one which is This kind of document is one which is supposed to create a resultsupposed to create a result– WillWill– DeedDeed– ComplaintComplaint– TrustTrust– Power of AttorneyPower of Attorney– ContractContract– Real Estate Documents and, for our purposesReal Estate Documents and, for our purposes– INSURANCE POLICYINSURANCE POLICY

Pre Litigation OpinionsPre Litigation Opinions

• Locate and read all relevant policiesLocate and read all relevant policies– Sometimes more than one policy may Sometimes more than one policy may

applyapply•Especially in business casesEspecially in business cases

– Coordination of benefitsCoordination of benefits•Who’s primary?Who’s primary?

•Excess coverage?Excess coverage?

•Umbrella coverage?Umbrella coverage?

Read the PolicyRead the Policy

• , "Read the Statute , "Read the Statute and Read the and Read the Policy." Policy." State Farm State Farm Mut. Auto. Ins. Co. Mut. Auto. Ins. Co. v. Beaversv. Beavers, 321 , 321 Ark. 292, 295, 901 Ark. 292, 295, 901 S.W.2d 13 (1995) S.W.2d 13 (1995)

Notice ProvisionsNotice Provisions

• Insurance policies typically have Insurance policies typically have notice provisions. notice provisions. – Notice of “occurrence”Notice of “occurrence”– Notice of “claim”Notice of “claim”– Notice of “suit.”Notice of “suit.”

Notice of lossNotice of loss

• The insurance policy provides:The insurance policy provides:1. What To Do In Case Of Loss. If a covered loss occurs, the 1. What To Do In Case Of Loss. If a covered loss occurs, the insured must:insured must:(a) give us immediate written notice. In case of theft, also (a) give us immediate written notice. In case of theft, also notify the police.notify the police..... .... (d) send to us, within 60 days after loss, a proof of loss (d) send to us, within 60 days after loss, a proof of loss signed and sworn to by the insured, including:signed and sworn to by the insured, including:.... .... 10. Suit Against Us. We may not be sued unless there is full 10. Suit Against Us. We may not be sued unless there is full compliance with all the terms of this policy. Suit must be compliance with all the terms of this policy. Suit must be brought within one year (in Kansas 5 years) after the loss or brought within one year (in Kansas 5 years) after the loss or damage occurs.damage occurs.

Ripley v. Shelter Mut. Ins. Co.  1991 WL 89652, *1 Ripley v. Shelter Mut. Ins. Co.  1991 WL 89652, *1 (Ark.App.) (Ark.App.,1991)(Ark.App.) (Ark.App.,1991)

Another exampleAnother example

• Duties After Loss. In case of an accident or occurrence, the insured Duties After Loss. In case of an accident or occurrence, the insured shall perform the following duties that apply. You shall cooperate shall perform the following duties that apply. You shall cooperate with us in seeing that these duties are performed:with us in seeing that these duties are performed:

• a. Give written notice to us or our agent as soon as practicable, a. Give written notice to us or our agent as soon as practicable, which sets forth: which sets forth:

• the identity of this policy and insured; the identity of this policy and insured; • reasonably available information on the time, place and reasonably available information on the time, place and

circumstances of the accident or occurrence; and circumstances of the accident or occurrence; and • names and addresses of any claimants and available witnesses; names and addresses of any claimants and available witnesses; • b. Immediately forward to us every notice, demand, summons or b. Immediately forward to us every notice, demand, summons or

other process relating to the accident or occurrence.other process relating to the accident or occurrence.• "Immediately" means within a reasonable time under the "Immediately" means within a reasonable time under the

circumstances. With most losses, the circumstances are that circumstances. With most losses, the circumstances are that damage has been done, and evidence of how the damage was damage has been done, and evidence of how the damage was done, and how much damage was done, is quickly disappearing.done, and how much damage was done, is quickly disappearing.

Definition of DamageDefinition of Damage

• Property damage in the policy is defined as: Property damage in the policy is defined as:

• (1) Physical injury to or destruction of (1) Physical injury to or destruction of tangible property which occurs during the tangible property which occurs during the policy period, including the loss of use policy period, including the loss of use thereof at any time resulting therefrom, or thereof at any time resulting therefrom, or

• (2) Loss of use of tangible property which (2) Loss of use of tangible property which has not been physically injured or destroyed has not been physically injured or destroyed provided such loss of use is caused by an provided such loss of use is caused by an occurrence during the policy period.occurrence during the policy period.

Pre-Litigation NegotiationsPre-Litigation Negotiations

• Open a dialog with the Open a dialog with the insurer/insured if you can.insurer/insured if you can.

• Sometimes it’s a waste of time, but if Sometimes it’s a waste of time, but if both parties are willing to resolve the both parties are willing to resolve the dispute, it’s in both parties’ best dispute, it’s in both parties’ best interest to do it sooner rather than interest to do it sooner rather than later.later.

Whether a Policy Covers the Whether a Policy Covers the Damages Claimed—Example Damages Claimed—Example

• Hit-and-run automobile means an Hit-and-run automobile means an automobile which causes bodily injury to automobile which causes bodily injury to an insured arising out of physical contact an insured arising out of physical contact of such automobile with the insured or of such automobile with the insured or with an automobile which the insured is with an automobile which the insured is occupying at the time of the accident, occupying at the time of the accident, provided: (1) there cannot be provided: (1) there cannot be ascertained the identity of either the ascertained the identity of either the operator or owner of such "hit-and-run operator or owner of such "hit-and-run automobile. . .automobile. . .

Broad “Personal Injury” Broad “Personal Injury” coverage under Commercial coverage under Commercial and General Liability coverageand General Liability coverage• ““Personal injury" means injury, other than "bodily injury," Personal injury" means injury, other than "bodily injury,"

arising out of certain enumerated "offenses." These include:arising out of certain enumerated "offenses." These include:• a. False arrest, detention or imprisonment;a. False arrest, detention or imprisonment;• b. Malicious prosecution;b. Malicious prosecution;• c. The wrongful eviction from, wrongful entry into, or c. The wrongful eviction from, wrongful entry into, or

invasion of the right of private occupancy of a room, invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor;of its owner, landlord or lessor;

• d. Oral or written publication of material that slanders or d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or libels a person or organization or disparages a person's or organization's goods, products or services; ororganization's goods, products or services; or

• e. Oral or written publication of material that violates a e. Oral or written publication of material that violates a person's right of privacy person's right of privacy

Pollution ExclusionsPollution Exclusions

• This insurance does not apply to:This insurance does not apply to:• (1) "Bodily injury" or "property damage" arising out (1) "Bodily injury" or "property damage" arising out

of the actual, alleged or threatened discharge, dispersal, of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants at or from premises owned, release or escape of pollutants at or from premises owned, rented or occupied by the named insured.rented or occupied by the named insured.

• (2) Any loss, cost or expense arising out of any (2) Any loss, cost or expense arising out of any governmental direction or request that the named insured governmental direction or request that the named insured test for, monitor, clean up, remove, contain, treat, detoxify test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.or neutralize pollutants.

• Pollutants means solid, liquid, gaseous or thermal irritant Pollutants means solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.be recycled, reconditioned or reclaimed.

Another Pollution ExclusionAnother Pollution Exclusion

• In consideration of the premium charged, it In consideration of the premium charged, it is hereby agreed and declared that this is hereby agreed and declared that this policy shall not apply to bodily injury of policy shall not apply to bodily injury of property damage arising out of the property damage arising out of the discharge, dispersal, release or escape of discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or materials or other irritants, contaminants or pollutants into or upon land, the atmosphere, pollutants into or upon land, the atmosphere, or any water course or body of water. or any water course or body of water.

Another versionAnother version

• 2. a "2. a "hithit and and runrun" land motor vehicle " land motor vehicle whose owner or driver remains whose owner or driver remains unknown and which strikes: unknown and which strikes:

• a. the a. the insured;insured; or or

• b. the vehicle the b. the vehicle the insuredinsured is is occupyingoccupying and is the proximate and is the proximate cause of cause of bodily injurybodily injury to the to the insured.insured.

Uninsured Motorist—Contact Uninsured Motorist—Contact RuleRule

• Still good law, probablyStill good law, probably

• State Farm Mutual Ins. Co. v. State Farm Mutual Ins. Co. v. HendersonHenderson, ___ Ark. ___ , ___ , ___ Ark. ___ , ___ S.W.3d ___, 2004 WL 396355 (Mar. 4, S.W.3d ___, 2004 WL 396355 (Mar. 4, 2004).2004).

There may be a way outThere may be a way out

• Additionally, Henderson urges us to consider a recent act of Additionally, Henderson urges us to consider a recent act of the legislature, Act 1043 of 2003, which amended Ark.Code the legislature, Act 1043 of 2003, which amended Ark.Code Ann. § 27-19-503 (Repl.2004) to provide a presumption Ann. § 27-19-503 (Repl.2004) to provide a presumption that both a motorist and the vehicle itself are uninsured if that both a motorist and the vehicle itself are uninsured if the motorist fails to file a certificate of insurance within the motorist fails to file a certificate of insurance within ninety days of an accident. Prior to that change, section 27-ninety days of an accident. Prior to that change, section 27-19-503 only provided such a presumption to the motorist, 19-503 only provided such a presumption to the motorist, but not to the vehicle. Henderson asserts that this change but not to the vehicle. Henderson asserts that this change relieves him of the burden to prove that the other vehicle relieves him of the burden to prove that the other vehicle was uninsured, as required in was uninsured, as required in WardWard, 259 Ark. 696, 535 , 259 Ark. 696, 535 S.W.2d 830. [FN1] We do not address this argument, as the S.W.2d 830. [FN1] We do not address this argument, as the amendment to section 27-19-503 was not made until some amendment to section 27-19-503 was not made until some three years after the issuance of Henderson's policy and three years after the issuance of Henderson's policy and the date of his accident. This court has previously the date of his accident. This court has previously recognized that an insurance policy is governed by statutes recognized that an insurance policy is governed by statutes in effect at the time of its issuance.in effect at the time of its issuance.

Whether the damage occurred Whether the damage occurred during the policy periodduring the policy period

An occurrence policy provides An occurrence policy provides coverage if the event insured against coverage if the event insured against takes place within the policy period, takes place within the policy period, regardless of when the claim is regardless of when the claim is presented. The "claims made" policy presented. The "claims made" policy provides coverage only if a claim is provides coverage only if a claim is made during the policy period.made during the policy period.

Duty to DefendDuty to Defend

• Can be broader than duty to indemnifyCan be broader than duty to indemnify• "As a general matter, the duty to defend is "As a general matter, the duty to defend is

determined by comparing the allegations determined by comparing the allegations in the underlying complaint to the scope of in the underlying complaint to the scope of the coverage provided by the insurance the coverage provided by the insurance policy. If injury or damage within the policy policy. If injury or damage within the policy coverage could result from the underlying coverage could result from the underlying suit, the duty to defend arises." suit, the duty to defend arises." Union Union Insurance Company v. The Knife CompanyInsurance Company v. The Knife Company, , 897 F.Supp. 1213 (W.D.Ark. 1995). 897 F.Supp. 1213 (W.D.Ark. 1995).

Duty to DefendDuty to Defend

• ... the company shall have the ... the company shall have the right and duty to defend any suit right and duty to defend any suit against the against the insuredinsured seeking seeking damages on account of such bodily damages on account of such bodily injury or property damage, even if injury or property damage, even if any of the allegations of the suit are any of the allegations of the suit are groundless, false, or fraudulent ...groundless, false, or fraudulent ...

Comprehensive General Comprehensive General Liability Liability • In examining the duty to defend, this court In examining the duty to defend, this court

has recognized the general rule that the has recognized the general rule that the allegations in the pleadings *176 against allegations in the pleadings *176 against the insured determine the insurer's duty to the insured determine the insurer's duty to defend.defend.

Murphy Oil USA, Inc. v. Unigard Security Ins. Murphy Oil USA, Inc. v. Unigard Security Ins. Co.  347 Ark. 167, 175-176, 61 S.W.3d 807, Co.  347 Ark. 167, 175-176, 61 S.W.3d 807, 812 (Ark.,2001)812 (Ark.,2001)

Duty to defend broaderDuty to defend broader

• Additionally, this court has recognized that the duty Additionally, this court has recognized that the duty to defend is broader than the duty to indemnify. to defend is broader than the duty to indemnify. See See Commercial Union Ins. Co. of America v. Henshall, Commercial Union Ins. Co. of America v. Henshall, supra.supra. However, the duty to defend arises when However, the duty to defend arises when there is a possibility that the injury or damage may there is a possibility that the injury or damage may fall within the policy coverage. fall within the policy coverage. See Home Indemnity See Home Indemnity Co. v. City of Marianna, 291 Ark. 610, 727 S.W.2d Co. v. City of Marianna, 291 Ark. 610, 727 S.W.2d 375 (1987). Conversely, where there is no possibility 375 (1987). Conversely, where there is no possibility that the damage alleged in the complaint may fall that the damage alleged in the complaint may fall within the policy coverage, there would be no duty within the policy coverage, there would be no duty to defend.to defend.

Murphy Oil USA, Inc. v. Unigard Security Ins. Co.  Murphy Oil USA, Inc. v. Unigard Security Ins. Co.  347 347 Ark. 167, 176, 61 S.W.3d 807,812 - 13 (2001)Ark. 167, 176, 61 S.W.3d 807,812 - 13 (2001)

If the possibility of damages If the possibility of damages exists, the duty to defend exists, the duty to defend arisesarises• Home's secondary argument is that genuine Home's secondary argument is that genuine

issues of material fact remain. We are not issues of material fact remain. We are not persuaded that that is so. One fact assertedly persuaded that that is so. One fact assertedly undecided deals with the issue of whether undecided deals with the issue of whether damages will result in the federal suit. But the damages will result in the federal suit. But the duty to defend is broader than the duty to pay duty to defend is broader than the duty to pay damages and as we have seen, it is enough if the damages and as we have seen, it is enough if the possibilitypossibility of damages exists. If injury or damage of damages exists. If injury or damage within the policy coverage could result, the duty within the policy coverage could result, the duty to defend arises. to defend arises. Commercial Union Ins. Co. v. Commercial Union Ins. Co. v. HenshallHenshall, 262 Ark. 117, 553 S.W.2d 274 (1977). , 262 Ark. 117, 553 S.W.2d 274 (1977).

Claim for reimbursement of Claim for reimbursement of Defense and Settlement CostsDefense and Settlement Costs

• An insured who is forced to defend An insured who is forced to defend and settle a case may have a cause and settle a case may have a cause of action against an insurer which of action against an insurer which wrongfully denied coveragewrongfully denied coverage

• An insurer which defended an action An insurer which defended an action under reservation of rights may have under reservation of rights may have a claim for reimbursement against a claim for reimbursement against the insured.the insured.

ReimbursementReimbursement

• Brady & Handleman, INSURER'S RIGHT TO Brady & Handleman, INSURER'S RIGHT TO REIMBURSEMENT: NEGLECTED BUT VALUABLE REIMBURSEMENT: NEGLECTED BUT VALUABLE REMEDY, 59 Def.Cou.J. 547 (Oct 1992)REMEDY, 59 Def.Cou.J. 547 (Oct 1992)

• Dennis Wall, Dennis Wall, 6868 INSURED'S REIMBURSEMENT OF INSURED'S REIMBURSEMENT OF INSURERS'S DEFENSE EXPENSES: SOME INSURERS'S DEFENSE EXPENSES: SOME PRACTICALPRACTICAL

• STEPS, 65 Def.Cou.J. 68 (1998)STEPS, 65 Def.Cou.J. 68 (1998)• Melinda Kirk, THE INSURER'S RIGHT TO SEEK Melinda Kirk, THE INSURER'S RIGHT TO SEEK

REIMBURSEMENT: WILL THE BUSS STOP INREIMBURSEMENT: WILL THE BUSS STOP IN• OKLAHOMA?, 38 Tulsa L.J. 599 (2000)OKLAHOMA?, 38 Tulsa L.J. 599 (2000)

– Interesting because it’s from another state that has not Interesting because it’s from another state that has not developed much law on the subject.developed much law on the subject.

– Buss refers to a seminal California caseBuss refers to a seminal California case

ReimbursementReimbursement

• There are some practical difficultiesThere are some practical difficulties– Insured probably won’t have the moneyInsured probably won’t have the money– Insurer’s duty to defend is broader than Insurer’s duty to defend is broader than

duty to cover the losses.duty to cover the losses.

Insurer’s right to withdraw Insurer’s right to withdraw defensedefense

• Arguably, if circumstances change in Arguably, if circumstances change in the course of litigation and it the course of litigation and it becomes clear that there is no becomes clear that there is no conceivable liability covered by the conceivable liability covered by the policy, an insurer might withdrawpolicy, an insurer might withdraw

• If so, it does so at its own risk.If so, it does so at its own risk.

Actions that Trigger Actions that Trigger CoverageCoverage

• OccurrenceOccurrence– Means an accident, including continuous Means an accident, including continuous

or repeated exposure to substantially or repeated exposure to substantially the same general harmful conditionsthe same general harmful conditions

Claim Analysis/DenialClaim Analysis/Denial

• Read the statute and read the policyRead the statute and read the policy

• Who is the insuredWho is the insured

• What is coveredWhat is covered

• What is excludedWhat is excluded

• How much is payable?How much is payable?

Identifying the InsuredIdentifying the Insured

• Named InsuredNamed Insured

• Defined InsuredDefined Insured

• Insured under “omnibus clause”Insured under “omnibus clause”

Named InsuredNamed Insured

• Since plain language came into Since plain language came into effect, it’s usually something like, effect, it’s usually something like, “Throughout this policy the words “Throughout this policy the words “you” and “your” refer to the Named “you” and “your” refer to the Named Insured in the Declarations. The Insured in the Declarations. The words “we,” “us,” and “our” refer to words “we,” “us,” and “our” refer to the Company providing this the Company providing this insurance.insurance.

Homeowner, exampleHomeowner, example

• --”and a spouse if a resident of the --”and a spouse if a resident of the same household”same household”

• ““Insured means you and the Insured means you and the following persons if permanent following persons if permanent residents of your household:residents of your household:– Your relativesYour relatives– Anyone under the age of 21Anyone under the age of 21

Commercial General Liability, Commercial General Liability, exampleexample

• "your employees, other than your "your employees, other than your executive directors, but only for acts executive directors, but only for acts within the course and scope of their within the course and scope of their employment by you." Tri-State Ins. employment by you." Tri-State Ins. Co. v. Sing, 41 Ark. App. 142, 850 Co. v. Sing, 41 Ark. App. 142, 850 S.W.2d 6 (1993).S.W.2d 6 (1993).

Omnibus ClauseOmnibus Clause

• Any person using your covered autoAny person using your covered auto

• Permission issuesPermission issues– Hell or High Water ruleHell or High Water rule

Drafting a Reservation of Drafting a Reservation of Rights LetterRights Letter

• There are a lot of cases nationwide There are a lot of cases nationwide that hold that an insurer must state that hold that an insurer must state all possible grounds for claims denial all possible grounds for claims denial in the reservation of rights letter. in the reservation of rights letter. – Colorado Lawyer article, 26-AUG Colo. Colorado Lawyer article, 26-AUG Colo.

Law. 93 (Robinson and Powers)Law. 93 (Robinson and Powers)

Robinson and PowersRobinson and Powers

• If the issue of coverage is anything but If the issue of coverage is anything but certain, it is advisable that the certain, it is advisable that the insurerinsurer provide a defense for its insured under a provide a defense for its insured under a reservationreservation of rights and, if appropriate, of rights and, if appropriate, institute a declaratory judgment action to institute a declaratory judgment action to determine the insurer's obligations. A determine the insurer's obligations. A reservationreservation of of rights letterrights letter should be sent should be sent as soon as a coverage question is recognized, as soon as a coverage question is recognized, and it must inform the insured in detail of all and it must inform the insured in detail of all the potential defenses to coverage the the potential defenses to coverage the insurerinsurer has discovered from its investigation has discovered from its investigation and analysis of the and analysis of the claimclaim or suit. or suit.

Robinson and Powers, Robinson and Powers, continuedcontinued

• Defenses known to the Defenses known to the insurerinsurer, or those that , or those that the the insurerinsurer reasonably should have known, reasonably should have known, that are omitted from the that are omitted from the reservationreservation of of rights letterrights letter may be waived by the may be waived by the insurerinsurer. . However, if additional However, if additional groundsgrounds come to the come to the knowledge of the knowledge of the insurerinsurer during its during its continued investigation of the continued investigation of the claimclaim or during or during discovery in the underlying lawsuit, the discovery in the underlying lawsuit, the insurerinsurer can supplement its can supplement its reservationreservation of of rights letterrights letter to add the newly discovered to add the newly discovered coverage defenses. coverage defenses.

Robinson and Powers, Robinson and Powers, ContinuedContinued• The The reservationreservation of of rights letterrights letter should make should make

specific reference to the insurance policy and should specific reference to the insurance policy and should quote from the actual policy provisions that are the quote from the actual policy provisions that are the basis for the insurer's decision to basis for the insurer's decision to reservereserve the right the right to assert that there is no coverage for the to assert that there is no coverage for the claimclaim under the policy. The under the policy. The reservationreservation of of rights letterrights letter should be sent to each person or entity that may should be sent to each person or entity that may assert a right to be considered a named insured or assert a right to be considered a named insured or additional insured under the policy. Additionally, additional insured under the policy. Additionally, because an insured is entitled to know the excess because an insured is entitled to know the excess insurer's position regarding coverage, the excess insurer's position regarding coverage, the excess insurerinsurer should issue a should issue a reservationreservation of of rights letterrights letter to preserve the right to deny coverage. to preserve the right to deny coverage.

Robinson and Powers, Robinson and Powers, continuedcontinued

• Finally, the Finally, the insurerinsurer should include in the should include in the reservationreservation of of rights letterrights letter a statement that it is a statement that it is reservingreserving any and all any and all rights that it might have under the pertinent insurance policy. rights that it might have under the pertinent insurance policy. This phrase was recently scrutinized in Employers' Fire Ins. v. This phrase was recently scrutinized in Employers' Fire Ins. v. Western Guaranty Fund, [in which the court held that while Western Guaranty Fund, [in which the court held that while Employers' participated in the defense of its insured, it Employers' participated in the defense of its insured, it expressly reserved "any and all rights" which it might have expressly reserved "any and all rights" which it might have under the policy to later contest the existence of any duty it under the policy to later contest the existence of any duty it may have to provide a defense. While the court refused to may have to provide a defense. While the court refused to determine whether such language was sufficient to allow determine whether such language was sufficient to allow Employers' to seek reimbursement from the insured for Employers' to seek reimbursement from the insured for defense costs, it found that the defense costs, it found that the reservationreservation of of rights letterrights letter made it clear that the insurer's participation in the defense of made it clear that the insurer's participation in the defense of its insured could not be construed as a waiver of its right to its insured could not be construed as a waiver of its right to contest its duty to defend under the policy. contest its duty to defend under the policy.