When it comes to insurance coverage litigation, a key tool used in coverage disputes is the declaratory judgment action. Once an insurance company determines that a declaratory judgment action must be filed to determine insurance coverage under its policy, there are certain parties that must be named as defendants for the complaint to survive dismissal.
Every personal injury lawsuit has two areas of investigation: liability and damages. The majority of a claimant’s damages consist of medical treatment. Before insurance defense counsel can completely prepare for a claimant’s deposition, he or she must obtain an accurate picture of claimant’s medical history for the alleged injury.
Insurance adjusters are swamped with claims of all sizes, but not every claim is a major injury or a wrongful death. Some claims could be small, soft tissue claims with $3,000 in medical bills or a $2,000 rear-end subrogation action. These claims are usually filed in the small claims division of the courts. In Cook County and the collar counties, these small claims divisions have different names, but Illinois Rules of Civil Procedure and Illinois Supreme Court Rules still apply.
In determining insurance coverage, an insurer’s duty to defend its insured is much broader than its duty to indemnify. In order to determine whether the insurer’s duty to defend has arisen, the court must compare the allegations of the underlying complaint to the policy language. Those allegations must be liberally construed in favor of the insured. If the court determines the allegations fall within, or potentially within, the policy’s coverage, the insurer has a duty to defend the insured against the underlying complaint. Outboard Marine Corporation v. Liberty Mutual Insurance Company, 154 Ill.2d 90, 125, (Ill. 1992) (citations omitted). If the underlying complaint alleges several theories of recovery against the insured, the duty to defend arises even if only one such theory is within the potential coverage of the policy. United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 74 (Ill. 1991).
Whether there is insurance coverage for a loss known by the insured prior to purchasing an insurance policy depends on several factual issues. By its very nature, insurance is fundamentally based on contingent risks which may or may not occur. One dictionary defines “insurance” as “a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from an unknown or contingent event and is applicable only to some contingency or act to occur in the future.” The risk ceases to be contingent and becomes a probable or known loss when the insured knows or has reason to know when purchasing a commercial general liability policy that there is a substantial probability that it will suffer or has already suffered a loss. Under such circumstances, the loss is uninsurable under that policy unless the insurer otherwise agrees because the “risk of liability is no longer unknown.” Therefore, the insurer has no duty to defend or indemnify the insured with respect to the known loss unless the parties intended the known loss to be covered. Outboard Marine Corporation v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 103-104 (Ill. 1992) (citations omitted).
In Illinois insurance coverage actions, an insurer can be estopped from asserting any policy defenses to coverage if the insurance company fails to take proper action. The general rule of estoppel provides that an insurer taking the position that a complaint potentially alleging coverage under a policy that includes a duty to defend may not simply refuse to defend the insured by declaring it not to be covered under the policy. Rather, the insurer has two options: (1) defend the suit under a reservation of rights or (2) seek a declaratory judgment that coverage does not exist. If the insurer fails to take either of these steps and is later found to have wrongfully denied coverage, the insurer is estopped from raising policy defenses to coverage. Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127, 150 (1999).
Insurance defense counsel must always keep the lines of communication open with their carriers and be diligent in responding to client inquires. Client reporting is a mandatory task every defense attorney must perform. The various stages of litigation call for different reporting periods. Also, new material information or events could call for extra client reporting.
Those working in insurance defense litigation are familiar with bad faith claims which can arise when insurers breach the duty to act in good faith when responding to settlement offers. According to the Illinois Supreme Court: “The ‘duty to settle’ arises because the policyholder has relinquished defense of the suit to the insurer. The policyholder depends upon the insurer to conduct the defense properly. In these cases, the policyholder has no contractual remedy because the policy does not specifically define the liability insurer’s duty when responding to settlement offers. The duty was imposed to deal with the specific problems of claim settlement abuses by liability insurers where the policy holder has no contractual remedy.” Cramer v. Insurance Exchange Agency, 174 Ill.2d 513, 526, 675 N.E.2d 897 (Ill. 1996).
Settling a personal injury lawsuit is the usually the objective for litigation defense attorneys. When the case gets settled, the defense attorney must review the entire file for all liens whether they are medical or otherwise. Protecting a medical provider’s lien is a duty, not only of the plaintiff’s attorney, but also of the defense attorney when the defense has notice of the lien..
There are many situations where one insurance coverage company will seek contribution from another insurance company for defense costs and indemnity payments. However, this does not give insurers a carte blanche to file lawsuits against each other seeking reimbursement.