INSURANCE CLAIMS ISSUES

1. COUNSEL'S INITIAL ACTION
   1. Review of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
   2. Notice to Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. INSURER'S GENERAL OBLIGATIONS
   1. Duty to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
   2. Duty to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. INSURER'S RESPONSE TO NOTICE
   1. Refusal to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
   2. Declaratory Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
   3. Conditional Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
   4. Unqualified Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. INSURER'S DUTIES WHILE DEFENDING
   1. Duty of Good Faith and Fair Dealing . . . . . . . . . . . . . . . . . . . . 17
   2. Duty of Ordinary Care in Conducting Defense . . . . . . . . . . . . . . . 18
   3. Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
   4. Duty of Ordinary Care in Settlement . . . . . . . . . . . . . . . . . . . . . 20
   5. Article 21.21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5. SETTLEMENT
   1. Conditional Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
   2. Refusal to Defend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
   3. Restrictions on Insured's Assignment of Claims to Plaintiff . . . . . . . 26
6. ADVERSE JUDGMENT
   1. Conditional Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
   2. Refusal to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Abstract

This paper outlines the rights, duties and obligations of the insurer and the insured when the insured is sued by a third party claimant. The advice of counsel to the insured is crucial because insured is caught in the middle between a claimant and the insurance company with conflicting and competing interests. The third party claimant wants to maximize his recovery, whether it be against the insured or its insurer. The insured wants to minimize the third party claimant's recovery against it but at the same time maximize its scope of coverage for the claim with the insurer. The insurer wants to eliminate its exposure altogether, typically by avoiding coverage, or at least to minimize its exposure to the insured and to the third party claimant.

Full Text

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