5th Aug 2013
Plaintiff’s lawsuit often has as its main issue the solvency of the defendants. The defendant may be an insured with one or more insurers that denied a defense/coverage. In this circumstance there may be multiple issues to plan for in preparing for mediation including but not limited to whether the denial of coverage by the insurer was wrongful.
Suit on judgment
In mediation a default or uncontested judgment can be negotiated against some defendants who have been wrongfully denied a defense. Insurance issues must be carefully considered and studied. Such issues are:
(1) enforceability of a default judgment against the insurance company’s policy [§D14 DEFAULT JUDGMENT – AGAINST NAMED INSURED],
(2) whether a stipulated judgment is enforceable under a liability policy [§ S86 STIPULATED (UNCONTESTED) JUDGMENT AGAINST INSURED; LIABILITY OF INSURER],
(3) where the defendant insured incurred defense costs and/or suffered emotional distress or other personal economic losses, the third party plaintiff will have need of an assignment of the defendant’s (insureds) rights under its policy to pursue these damages. See § A103 ASSIGNMENT OF RIGHTS; § S124:4 SUPPLEMENTARY PAYMENTS –COVERAGE UNDER LIABILITY POLICY [§ S124:4 Third party judgment creditor; no right to make claim under supplementary payments coverage absent an assignment]. Thereafter the third party judgment creditor will likely have to file an “action on a judgment”. See § A13 ACTION ON JUDGMENT BY THIRD PARTY AGAINST INSURER.
The third party lawsuit against the defendant insured may involve multiple issues, some of which are covered under a liability policy and some which are not covered. See § C146 COVERED AND NONCOVERED AGAINST INSURER–CLAIM FOR INDEMNITY; § S28 SEVERABILITY CLAUSE.
The underlying suit may involve property damage occurring over a number of years. There may be multiple insurer as well as a single insurer issuing multiple policies. See § C100 CONTINUOUS OR REPEATED EXPOSURE TO CONDITIONS RESULTING IN BODILY INJURY OR PROPERTY DAMAGE; § S110 SUCCESSIVE LIABILITY POLICIES.
Denial of a defense; can an insured enter into a settlement without notifying insurance company
A wrongful denial of coverage results in the insurer’s forfeiture of the right to control the defense of the action, as well as forfeiture of the insurer’s ability to take advantage of any protections and limitations set forth in the policy or under Civil Code § 2860. See § D25 DENIAL OF COVERAGE [§ D25:1 In general].
Denial of a settlement
After the third party has obtained a judgment against the insured, and after the third party obtained an assignment of rights under the insured’s policy, the issue post-judgment may be whether the insurer refused to enter into a settlement. There is a distinction between a denial of a defense without bad faith and a denial of a defense that is tortious in nature. See § D85 DUTY TO DEFEND [§D85:18]. Whether the judgment, however obtained, is enforceable after an insurer denied a settlement demand made by the third party is a complicated subject requiring a meaningful examination of the facts existing at the time the settlement offer was made as it relates to liability and as it relates to the economical circumstances of the insured. See § S25 SETTLEMENT.
Directors and officers policy [D&O]
Suits against a corporation or its directors and officers may arise when the action is directed against a large corporation, or a smaller entity such as against a homeowners association. Such suits are different from actions to collect under a liability policy due to the fact that policy provisions are significantly different in a D&O policy. For extensive discussion see § D49 DIRECTORS AND OFFICERS LIABILITY POLICY.
Preparation for mediation regarding insurance coverage
In a tort action, a plaintiff may obtain discovery of the existence or contents of any insurance agreement. See CCP § 2017(b); § D59 DISCOVERY [§ D59:6]. Discovery is limited to the policies and does not include reasons behind a denial of coverage or the reasons behind a reservation of rights that may have been issued by the insurer to the defendant. Accordingly, any questioning of an adjuster or claims supervisor concerning the circumstances surrounding the denial of coverage cannot be undertaken in the tort action.
The knowledge and extent of potential coverage post-judgment is therefore limited to reading the policies in order to resolve the multiple issues discussed above. An insurance coverage expert should be able to discern a likelihood of coverage post settlement with any defendant-insured. See discussion § M28 MEDIATION PROCEEDINGS [§ M28:2.4].