The cases analyzed in this week's newsletter illustrate an important principle for policyholders: a basic understanding of how their policies work and the controlling insurance law in the relevant state(s) can make all the difference in whether, and to what extent, they are able to secure coverage.
For example, most insurance policies contain mandatory conditions like notice of claims and cooperation with the insurer. Failure to comply with these conditions may result in a denial of coverage. Other key terms will vary among policies as well, so policyholders need to have at least a basic understanding of these terms for each of their policies and how they differ from each other in order to maximize coverage.
Moreover, insurance law is state-specific, and can differ significantly from state to state. Being aware of the controlling state's law is critical in determining which risks are likely to be covered by insurance and the best strategy for presenting claims to the insurer.
In the first case addressed below, the insured learned this lesson the hard way. Seeking coverage for an employment discrimination lawsuit, the policyholder failed to appreciate the difference between a "claims made" policy and the "claims made and reported policy" that it had purchased. The policyholder also failed to recognize when a triggering "claim" had been made against it under controlling state law. Accordingly, the policyholder lost out on coverage.
In the second case, the insured managed a better result by challenging - and bringing about a critical change in - the law. In that case, West Virginia's highest court reversed more than a decade of prior case law to find that commercial general liability policies can cover defective construction, joining a growing majority of states in that regard.
The third case presents an important lesson for policyholders on timing – that they need not wait for their damages to be fully determined or for their insurer to issue a coverage determination before initiating coverage litigation. Initiating litigation early may expedite the inevitable where the insured believes its claims are likely to be denied. Moreover, being the first party to initiate coverage litigation may be a critical factor where choice of law is at issue, making timing of coverage litigation an important strategic consideration.
Finally, as demonstrated by the fourth case, an understanding of Alabama law regarding the "number of" occurrences issue and a cohesive theory of how releases of contaminants from its natural gas pipeline were governed by that law helped an insured maximize its coverage for environmental losses. Although multiple locations along the pipeline were contaminated, the insured pointed to prior case law to support its argument that a single "occurrence" may have multiple and disparate impacts over time. As a result, the Alabama Supreme Court affirmed a jury verdict of several million dollars in coverage, proving that a little knowledge really can go a long way towards maximizing coverage.