Few things are more professionally unjust than for you, a reputable contractor, to have to pay the bills to defend against a claim when your work or the work of one of your subs is called into question. However, there is something that you can do about it – when faced with such a claim, you should make a timely and proper tender of defense and coverage to all available insurance carriers. This article will address some of the issues related to that process.
First, it is important to understand from the outset that a liability insurance carrier potentially has two different duties to you as an insured – the duty to defend you against third-party claims that are covered by applicable insurance, and a duty to indemnify you against such claims. Examples of the latter duty include settling a claim made against you or paying a judgment against you. To be clear, third party claims are claims made for losses sustained by other persons/entities (not you, the insured), for which you may be legally responsible.
When contrasted, the insurer’s duty to defend you against a claim is much broader than the insurer’s duty of indemnification. The insurer’s duty to defend generally means that, if a claim is brought against you that seeks damages on any theory that, if proved, would be covered by the policy, then the insurer has an obligation to defend you by selecting and paying defense counsel to do so. This duty generally applies even if the claim against you is without merit. Under Mississippi law, a duty to defend arises when the potential for coverage exists. Mississippi has adopted the “allegations of the complaint” rule to determine whether an insurer has a duty to defend. What this means is that if the complaint alleges facts that are arguably within the policy’s coverage, a duty to defend arises. Stated another way, the insurer has a duty to defend when there is any basis whatsoever for potential liability under the policy. Therefore, so long as the allegations in a complaint make out some claim that has the possibility of triggering coverage, the liability insurance carrier has a duty to defend, even if the complaint does not pursue that particular legal theory as a basis for relief.
Moreover, in any lawsuit involving multiple claims, if any one claim in the lawsuit is potentially covered by the policy, then the insurer generally has a duty to defend the entire action, including any non-covered claims (though the insurer may choose to do so under a reservation of rights). Only when the allegations in support of a claim are completely outside the coverage of the policy is there is no duty on the liability carrier’s part to provide a defense of that claim.
Therefore, whenever a claim is made against a contractor, the contractor’s lawyer should investigate to determine all insurance policies available to provide liability coverage to the contractor for that claim. This can include not only those policies that the contractor purchased directly, but also any policies on which the contractor may be named as an “additional insured.” For example, a subcontractor may name the prime contractor as an additional insured on the subcontractor’s liability policy.
Once an available policy has been identified, the contractor’s lawyer should make a tender of defense by providing written notice of the claim. Generally, the language in a liability policy requires that notice of a claim be given as soon as practicable. In the event a lawsuit has been filed against you, a tender to the carrier should include a copy of the suit papers. In the event a suit has not yet been filed, a proper tender should include sufficient information regarding the time, place and circumstances of the claim such that the carrier can make an informed decision about picking up the defense of the claim, at the very least, under a reservation of rights. A proper tender should also include a reasonable deadline for the insurance carrier to either unconditionally acknowledge its duty to provide a defense, or to provide a defense under a reservation of rights, or to deny any obligation to provide a defense.
Disclaimer: The information and comments presented above are general in nature, are the author’s understandings for educational purposes only, and are not intended to offer a legal opinion for use in dealing with any specific set of facts or to create any attorney/client relationship. You should consult with an attorney before taking any action of a legal consequence. Further, the authority cited above is subject to change and/or re-interpretation.