What Every Corporate Counsel Needs to Know About Insurance Coverage

March 01, 2002


I. The Basic Anatomy of an Insurance Policy

A. The Declarations Page
B. The Insuring Agreement
     1. Duty to Defend
     2. Duty to Indemnify
C. Definitions
D. Exclusions
E. Conditions
F. Endorsements

II. The Difference between First Party and Third Party Coverage

III. Duties of the Policyholder 

A. Duty to Provide Notice
     1. Occurrence Policies
     2. “Claims Made” and “Claims Made and Reported” Policies
B. Purpose of the Notice Provision
     1. Insurer Must Receive Notice of Service of Suit, Not Just Notice of a Claim
     2. What Does Prompt, Immediate or As Soon As Possible/Practicable Notice Mean? 
     3. What is the Consequence of a Failure to Comply with a Notice Provision?
     4. Will Any Violation of a Notice Provision Avoid Coverage?
          a. Occurrence Policies - Prejudice Required 
          b. Claims Made Policies - No Prejudice Requirement
          c. Coverage B of a CGL Policy - No Prejudice Requirement
     5. Who Determines Whether An Insurer is Prejudiced?
C. Duty to Cooperate
     1. Purpose of the Clause
     2. An Insurer Must Show Prejudice in Order to Establish a Breach of the Cooperation Clause
     3. Who Determines Whether There Has Been a Breach?
     4. What Type of Conduct Does and Does Not Constitute a Violation of the Cooperation Clause?
     5. Is There a Duty to Cooperate Where the Carrier Refuses to Defend?
     6. May the Carrier Use the Cooperation Clause to Develop a Coverage Defense?
     7. Does the Cooperation Clause Require The Policyholder to Turn Over Privileged Information?
D. Duty to Obtain Carrier’s Consent to the Expenditure of Defense Costs and/or to a Settlement
     1. No Action/No Voluntary Assumption of Liability Clauses Mean What they Say.
     2. No Voluntary Assumption of Liability Clauses Have Also Been Held Applicable to Preclude Recovery of Pre-Notice Defense Costs
     3. No Action/No Voluntary Assumption of Liability Clauses Are Subject to Being Waived by a Carrier Which Refuses to Defend

IV. Defense Issues

A. The Insurer's Duty to Defend -- Generally
B. How Is the Duty to Defend Determined?
     1. The “Eight Corners” Rule
     2. Limited Exception to the “Eight Corners” Rule
C. Does the Defense Obligation Include a Duty to Appeal?
D. Can the Insurer Apportion Defense Costs Between Covered and Non-Covered Claims?
     1. The Argument against Reimbursement
     2. The Argument for Reimbursement
          a. The LaFarge Decision
          b. The Buss Opinion
          c. The Matagorda County Decision & the “Right of Reimbursement”

V. The Stowers Doctrine

A. A Stowers Claim
B. Prerequisites to a Stowers Claim
C. Damages
D. The Tension Between the Measure of Damages for a Stowers Violation and the Requirement That the Claim be Covered in Order to Trigger the Stowers Doctrine
     1. Claims Involving “Mixed” Petitions
     2. Claims Involving Insurable Conduct and Uninsurable Punitive Damages
E. Can an Excess or Other Insurer Without a Defense Obligation be  Stowerized?
F. Can a Primary Insurer Be Stowerized Where the Insured Offers to Pay the Difference Between the Policy Limits and the Claimant’s Settlement Demand?

VI. “Non-Stowers” Negligence Claims Against  Liability Carriers

A. Insurer’s Duty of Ordinary Care
B. The Traver Opinion: No Insurer Liability for the Malpractice of Defense Counsel

VII. The Relationship Between Primary and Excess Insurance Coverage

A. Understanding Some Basic Terms
     1. Primary Coverage
     2. Excess Coverage
          a. Following Form Policies
          b. Specific Excess Policies
          c. Umbrella Policies
          d. Stand Alone Policies
B. The "Other Insurance" Clause May Determine if a Policy is Primary or Excess
C. The "Self-Insured Retention" As Primary Coverage
     1. “SIR” vs. “Deductible”
     2. The Two Major Differences between an SIR and a Deductible
          a. The Effect Each Has on the Policy Limits
          b. The Effect Each Has on the Handling of Claims

VIII. Primary And Excess Policies: Issues Related To The Defense Of The Insured

A. The Excess Insurer's Duty to Defend -- Generally
     1. Defined by the Policy
     2. Only After Primary Coverage Exhausts
     3. No Obligation if the Primary Insurer is Insolvent
B. The Primary Insurer's Duty to Settle
     1. The Stowers Doctrine
     2. The Primary Insurer's Duty to Tender Its Limits
C. The Excess Insurer's Duty to Settle
     1. The Applicability of Stowers to an Excess Insurer
     2. The Excess Insurer's Obligation to Contribute to a Settlement

IX. The Duties Between Primary and Excess Insurers

A. The Primary Insurer's Duties to the Excess Insurer
     1. Equitable Subrogation
          a. The Nature of Equitable Subrogation
          b. The Canal Case
          c. Under Equitable Subrogation the Claims are Derivative
     2. Direct Duty

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