Policyholders and insurers frequently speak of “tendering” a claim. Insurers in particular speak as if “tendering a claim” is some sort of magical incantation that must be stated in exactly the right words in order to be effective. Despite the common use of phrases such as “tender the claim,” “date of tender,” etc., no insurance policy I have ever seen has a requirement that the insured actually “tender" anything.
Carriers, and indeed counsel on both sides of the coverage bar, have adopted the word “tender” to describe the act of an insured giving notice of claim (particularly a third party liability claim) to his or her insurer and requesting defense. However, this reinforces the erroneous view that an insured has to give some specific type of notice (or indeed direct notice of any kind) to the carrier for that notice to be effective.
It is true that most policies require an insured to give notice of a claim, but even that requirement (or action) is not necessarily the trigger of an insurer’s duties in relation to that claim. A carrier’s duties generally start when it receives notice of a claim – and that notice can come from literally any source. It can even be notice under the wrong policy. See Dietlin v. Great American Life Ins. Co., 4 Cal. 2d 336 (1935) (“We fully appreciate that such notice and proof were furnished to the accident division of defendant company or to a representative of that division. However . . . [t]he defendant's division of its business among several departments should not be permitted to work a hardship upon the insured.”).
California law holds that notice of a claim from additional insureds or even plaintiff from the underlying case are enough to trigger an insurer’s duty to investigate, and (if there is a potential for coverage), defend the insured. See, e.g., California Shoppers Inc. v. Royal Globe Ins. Co., 175 Cal. App. 3d 1 (1985) (“In the aggregate, this represents a classic case of constructive notice which raised the contractual duty to defend. In other words, given the appropriate circumstances, the law will charge a party with notice of all those facts which he might have ascertained had he diligently pursued the requisite inquiry.”).
Other state courts have reached the same conclusion. Oregon law, for example, holds that “[i]f notice from any source was sufficiently timely so that the insurer could adequately investigate and protect itself . . . the insurer is bound to fulfill its policy obligations.” Lusch v. Aetna, 272 Or. 593. 599 (1975) In Bailey v. Universal Underwriters, 258 Or. 201 (1970), the insured never reported a claim to his insurer, who learned of the claim through a third party. In fact, the insured went so far as to fraudulently deny that a claim existed that involved him. When it subsequently turned out that the insured was involved, the carrier denied coverage on several grounds, including lack of adequate notice. In dismissing the carrier’s argument regarding notice, the Oregon Supreme Court held that “when the insurer had actual notice of the accident . . . and undertook to investigate it, the fact that such notice was not given by the named insured is wholly immaterial.” Id. at 216.
Since modern procedural rules focus on the facts of a case rather than the theory of recovery in the complaint, the duty to defend should be fixed by the facts, which the insurer learns from the complaint, the insured, or other sources. An insurer, therefore, bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy. Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 276 See also Devin v. United Servs. Auto. Ass’n., 6 Cal. App. 4th 1149, 1157 (1992) (“The duty to defend arises as long as the facts (either as expressed or implied in the third party’s complaint, or as learned from other sources) give rise to a potentially covered claim . . . .”) (citing Fresno Economy Import Used Cars, Inc. v. United States Fidelity & Guar. Co., 76 Cal. App. 3d 272, 279 (1977)) (emphasis added).
As can been seen from this case law, and contrary to the common insurer position, there is no requirement that an insured “formally tender” a claim for defense, or indeed that notice be of any particular form at all. Insurers are charged with a very broad duty to act proactively to protect their insured, an obligation which is triggered by inquiry notice from any source at all.