INSURANCE POLICY DOESN’T ALWAYS COVER AGAINST LAWSUIT

Sometimes when a lawsuit is filed against you, your insurance company will provide you with an attorney to represent you but indicate that this is an “excess claim” and that it is defending you under a “reservation of rights”. An excess claim is one in which the amount sought exceeds the policy limits. In such a situation, you are responsible for any amount awarded in excess of your policy limits.

A reservation of rights means that your insurance carrier is reserving its right to deny coverage and to withdraw its defense in the matter. This may be because it believes you are insured for one of the claims against you but not for others.

For example, if you sell and install a built-in oven that later explodes and injures someone, you may be sued for negligent installation and a breach of warranty. Your insurance carrier may believe you have coverage for the negligence claim but not for the warranty claim and thus will defend under a reservation of rights. If you win on the negligence claim and lose on the warranty claim, your insurance company may deny coverage.

If a claim for punitive damages is included in the lawsuit, your insurance company will usually indicate it is not responsible for that portion of the claim.

Another reason your insurance company may reserve its rights to deny coverage is if it thinks you may have provided false or misleading information on your application for insurance, such as failing to inform them that you install the ovens you sell.

Sometimes it is unclear whether your policy covers the type of claim being made against you. Your insurance carrier may choose to defend you because if it fails to do so and you lose, it would be responsible for the judgment if a court subsequently rules that the policy did provide coverage in this area.

When your insurance company indicates that you have less than full coverage and/or it is defending under a reservation of rights, your interests may be diametrically opposed to your insurance company’s. While both of you hope that you win the case outright, your insurance company wants the matter to be settled or resolved outside of your coverage. You, of course, want it to be settled or resolved within your coverage.

While the attorney provided by your insurance company represents you on the claims against you, he or she cannot get involved in the coverage issues raised by your insurance carrier.

It is wise to consult your own attorney at the outset to represent you on the coverage issues. Your attorney can negotiate with your insurance carrier to settle the claim within your policy limits so that you do not run the risk of being liable for any award in excess of your policy limits. If you insurance company acts in bad faith and fails to settle the matter within your policy limits, it may become responsible for the excess amount, as well.

Your own attorney may also suggest that you reject the reservation of rights and force your insurance company to either defend without any limitations or to deny coverage.

If the insurer denies coverage and refrains from providing you with an attorney, it runs the risk of being responsible for the judgment if another court ultimately rules that your policy covered you against the claim. If either you or your carrier do not like this element of risk a separate suit on the policy (a declaratory judgment action) may be immediately filed by either of you seeking a judicial determination as to whether there is coverage and if so, where the coverage lies.

When you receive a letter from your insurance company indicating that the claim is in excess of your coverage or that it is defending under a reservation of rights, you should contact your own attorney immediately so that crucial strategic decisions can be made early on. If you wait until the case against you is ultimately resolved, it may be too late.

December 22, 2008

About The Author

James F. Adler has been a Senior Partner at his law firm for 30 years and has handled 100’s of cases as a personal injury lawyer for a truck accident in Missouri or Kansas

Annulment possibility?

I'm looking to leave my husband but would prefer an annulment. He has a lot of debt that he has obtained over the years that have nothing to do with my and I don't want to cover half of his debt. I also can not afford lawyers and all of that. We were married a month and a half after my son was born. I was suffering from ppd and anxiety issues and in the process of getting my medications worked out. I married him at that time because he was in the process of joining the air force and said we had to be married that weekend in order to get any benefits from him and to be able to live with him on based. So we hurried up and threw a small backyard wedding. Eight months later he never made any further effort to joining the air force. He took passed asvab and then stopped trying. He is a terrible husband and a terrible husband. I'm only 20 and want to be rid of him and start my life new. I'm graduating college in a few months and feel annulment would be a better choice. I plan on talking with my uncle who is a paralegal for a divorce attorney but haven't been able to get in contact with him yet. Do I even have a chance of getting the annulment? I live in Indiana btw.

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