WHAT DO YOU MEAN WE’VE BEEN SUED?! Fourth in a Series of Six Articles
You are hopefully still well within the response deadline for the suit. You have taken the preliminary steps to calendar deadlines, identify witnesses and preserve records, and you have consulted with company counsel. Unless you have been advised otherwise, now is the time to send the claim off to the insurance company. As we noted in the last article, be sure to follow the requirements in the policy exactly. If there is a specific address and claims office where the claim is to go, make sure it goes there. This is true even if you have also provided a copy to your insurance agent.
Also note that there will be time frames set out in the policy in which this must be done. However, there are potential traps. Even if there is a specific outside deadline set, it may be phrased something like “as soon as possible but no later than 30 days after becoming aware of the claim”. So, the outside date may not actually be a safe harbor. You may be required to give notice earlier.
How seriously should you take the deadline? Very seriously. There are two general rules observed by courts in America regarding what happens if you miss the claims deadline in the policy. Some states are remorseless about missing the outside time frame. Even if the insurance company has not been prejudiced in any fashion, some states will say, “Times up!” and that is it. Other states will follow what can be referred to as the “prejudice rule.” Missing the deadline maybe excused if the insurance company has not been hurt by the delay. Prejudice can arise if substantial work has been done on defending the claim without the insurance company’s involvement. Prejudice can also arise if a default judgment is rendered against you because an answer or other pleading was not filed within the deadline.
I have had a significant number of occasions over the years where an insurance company received its report in a timely fashion, but failed to hire defense counsel in time to file the answer by the deadline. I am not suggesting that this is common, but it does occur. This is why you will want to keep track of the deadline internally and personally verify that the required action has been taken by some counsel on your behalf. I have appeared and extended the answer date for clients where the insurance company did not show up in time. A substitution of counsel can be worked out later when time is not so critical. However, remember, it is your company’s responsibility and exposure if a pleading is not filed on time.
Once you have reported the claim, stay on the insurance company until they take a position on coverage. Do not let the insurance company simply string you along without taking a position. You may receive a letter denying coverage and, in that event, they will stop paying the insurance attorney even if one had been hired. You may receive what is called a “reservation of rights letter” and a defense will be provided until the insurance company makes a decision on coverage, which can be significantly delayed. Or, you may receive something indicating that there is coverage. Insurance companies are bureaucracies and sometimes things fall through the cracks. Therefore, you will want to be vigilant to make sure that you get a formal definitive response from your insurance company relative to coverage.
One final note, regardless of whether or not you keep your company attorney involved in the suit, you do have an obligation under your policy to cooperate with insurance company appointed counsel. If you have questions about that duty, you should definitely direct them to your own attorney and not the attorney appointed by the insurance company in order to get an independent judgment on your obligations.
In our next article, we will talk about with whom you should discuss the loss and with whom you should not.