My liability insurance carrier has disclaimed coverage of a lawsuit which was recently filed against me. What are my options?
Very few things are as frustrating as receiving a “denial of coverage” letter from your liability insurance carrier. As a prudent business owner, you have secured and maintained liability insurance coverage to protect you in the event you ever find yourself the target of a lawsuit. You have dutifully paid the premiums on the liability policy year after year without ever having to invoke the protections of the policy. Now that you are actually faced with a lawsuit, however, your insurance carrier informs you that the claim is not covered by the policy and that the company will not pay either the costs of defending the lawsuit or the amount of any damages which might be awarded against you.
An insurance company’s denial of coverage may be based on one or more alternative grounds. An insurance company may claim that the insured failed to satisfy a condition precedent to coverage – for example, failing to provide timely notice of the claim to the company. The insurance company may take the position that the lawsuit does not involve a claim “covered” as defined under the liability policy. The insurance policy may, for example, define a “covered” claim as one which seeks damages for “bodily injury” arising from or related to an “occurrence”, and in turn, provide specific definitions for those terms. Alternatively, the insurance company may assert that although the claim is one which would ordinarily fall within the definition of a “covered” claim, coverage of the claim is specifically excluded by one or more “exclusions” set forth in the policy.
Ambiguity Has No Place in Insurance Policies
Ultimately, an insurance policy is simply a contract entered into between an insurance company and an insured, and whether a company has properly denied coverage is a question of interpreting and applying the language of that contract. In this regard, New York law recognizes a number of principles which are favorable to insureds. Many of the terms and definitions included in insurance policies are ambiguous and subject to differing interpretations – in such cases, any ambiguous provisions are to be construed in favor of the insured and in favor of coverage. The law governing the interpretation of exclusionary clauses in insurance policies is similarly favorable to insureds. An exclusion must be specific and clear and will be narrowly construed and enforced only when the insurer establishes that the pertinent language is subject to no other reasonable interpretation. If the language is ambiguous, the ambiguity will be construed in favor of the insured, and the test to determine whether an insurance contract is ambiguous focuses on the reasonable expectations of the average insured upon reading the policy and employing common speech.
An insurance company may be obligated to provide and pay for a defense to a claim, even if the claim is one which may ultimately be found to not be covered under the policy. An insurer’s duty to defend is broader than its duty to indemnify and arises whenever the allegations in the complaint in the underlying action, construed liberally, suggest a reasonable possibility of coverage. As such, the duty to defend arises if the claims against the insured arguably arise from a covered event, even if the claims may be meritless or not covered, either because the insured is not liable or because the event is later determined to fall outside the policy’s scope of coverage. An insurer can be relieved of its duty to defend only if there is no possible factual or legal basis on which it might be obligated to indemnify its insured under any policy position. If any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action.
Have the Denial of Coverage Claim Review by an Attorney
Determining whether an insurance company has properly disclaimed coverage, therefore, depends on comparing the claim or claims raised in a lawsuit with the specific coverages and exclusions set forth in the insurance policy. In some instances, it may be clear that the claim is one which falls outside the policy’s definition of a “covered” claim or falls squarely within a listed exclusion from coverage. In other cases, however, the insurance company’s denial of coverage may be significantly more debatable, particularly when it depends on the application of ambiguous words or phrases in the policy. If there is any question as to the validity of the company’s disclaimer, the insured should have the denial of coverage reviewed by an attorney. If the insurance company has improperly denied coverage, and the attorney is unable to persuade the company to voluntarily reconsider its coverage position, the appropriate remedy would be for the insured to file a lawsuit of its own for a declaration of the parties’ rights and obligations under the insurance policy.
Has your insurance denied you coverage for a personal injury or medical malpractice suit? Our lawyers can help you review your policy and ensure you are getting the coverage for which you’ve paid. Get in touch with our team to schedule your free consultation today.