Navigating The Insurance Coverage Waters

By David R. Ginsburg, Esq.

Benjamin Franklin famously stated, “In this world nothing is certain but death and taxes.” If Mr. Franklin lived today and ran a business in California, he surely would have added “being sued” to the list.

Fortunately, California employers can take steps to protect themselves from a lawsuit. Insurers offer an array of products offering protection against almost every imaginable peril—from advertising injury to employment practices to general liability.

Unfortunately, simply having a policy (or several) does not mean the insurer will cover a particular lawsuit. The litigation explosion over the last 40 years, the corresponding development and revision of policy language, and the multitude of cases addressing an insurer’s obligations make the matter more complicated than you might have expected.

In California, an insurer must defend any lawsuit that seeks damages potentially covered by the policy. However, the insurer may counter that the lawsuit does not raise a single covered issue under any conceivable theory.

If the insurer acts reasonably in coming to its conclusion, but is ultimately wrong, it will have to reimburse your company for its attorneys’ fees and other out-of-pocket costs incurred to defend against the lawsuit. If the insurer acts unreasonably, that is, it has acted in bad faith, it will also have to pay attorneys’ fees incurred in pursuing your company’s claim against the insurer. This is an exception to the American rule that both sides are responsible for their own attorneys’ fees. Further, if the insurer has acted with malice, it risks paying punitive damages.

Rather than deny coverage outright, the insurer may accept coverage under a so-called “reservation of rights” to deny coverage later. In that case, your company may be entitled to “Cumis” counsel—counsel of your choice who can protect your interests and monitor the insurer’s appointed defense counsel.

Navigating the insurance coverage waters is oftentimes difficult for a business. After all, your focus is on success and growth. When your company is inevitably served with a lawsuit, you expect the insurer to defend and indemnify your company. That is why you purchased insurance—to protect your business and buy peace of mind when someone sues. What you cannot anticipate is having to fight your insurer over coverage. You may end up being stuck defending the lawsuit and pursuing a claim against your insurer.

At Roxborough, Pomerance & Nye, we are committed to assessing your company’s coverage dispute and fighting for your company’s rights under the policy. If your insurer has denied coverage, or has agreed to coverage while reserving its rights, you should contact us.

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