Insurance Coverage Disputes: When Insurers Deny Claims Wrongfully

The declarations page identifies the named insured, the policy period, the covered property, and liability limits. The insuring agreement defines the insurer's core coverage promise. Exclusions are the most frequently litigated provisions in insurance coverage disputes. Courts interpret exclusions narrowly. The insurer bears the burden of proving that an exclusion applies.

Insurance coverage disputes counsel analyzes insurance policies to evaluate the scope of coverage, identify applicable exclusions, and assess the insurer's duty to defend and duty to indemnify, advises insureds on the policy conditions that must be satisfied to preserve coverage, and advises on the legal standards for interpreting ambiguous policy language.

CGL policies cover bodily injury and property damage caused by an occurrence during the policy period. The CGL occurrence trigger requires the injury to occur during the policy period. Claims-made policies cover claims first made during the policy period. Directors and officers liability coverage protects corporate officers from claims arising from their management decisions. Errors and omissions coverage protects professionals from claims that their services were negligent or inadequate.

Commercial general liability counsel evaluates CGL policy coverage for bodily injury, property damage, and personal injury claims, advises on the occurrence versus claims-made distinction and its effect on available coverage, and advises on the interaction between CGL coverage and D&O or E&O policies when multiple policy types are implicated in a single claim.

Business interruption insurance covers the insured's lost income during the period required to restore damaged property. Most business interruption policies require physical loss or damage to covered property as a precondition for coverage. Replacement cost coverage pays the cost to replace damaged property. Actual cash value coverage pays replacement cost less depreciation. Disputes about depreciation methodology, comparable replacement property, and the scope of damage are common in large property claims.

Business interruption counsel evaluates business interruption coverage and the physical loss or damage requirement applicable to income loss claims, advises on the period of restoration methodology and the documentation required to support a business interruption claim, and advises on the valuation disputes that arise in first-party property claims involving replacement cost or actual cash value coverage.

A reservation of rights letter notifies the insured that the insurer is defending subject to denial of coverage. An insurer that believes an exclusion may apply may defend while reserving the right to deny coverage. When a reservation of rights creates a conflict of interest, many states allow the insured to select independent Cumis counsel at the insurer's expense. An insurer who fails to issue a timely reservation of rights letter may waive the exclusions it failed to identify.

Professional liability counsel evaluates reservation of rights letters and the coverage defenses the insurer has preserved, advises insureds on their right to independent Cumis counsel when the insurer's reservation of rights creates a conflict of interest, and advises on the exclusions that are most frequently litigated in professional liability and CGL coverage disputes.

Contra proferentem construes ambiguous policy language against the insurer and in favor of coverage. The reasonable expectations doctrine holds that the insured is entitled to the coverage a reasonable person would expect the policy to provide. Insurance policies are adhesion contracts. Courts treat this imbalance as a reason to interpret ambiguous language in favor of the insured. Coverage disputes that turn on policy interpretation require careful analysis of the entire policy, including definitions, endorsements, and the relationship between insuring agreements and exclusions.

Insurance coverage review counsel analyzes the policy language at issue in a coverage dispute, advises on the application of contra proferentem and the reasonable expectations doctrine to ambiguous policy provisions, and advises on the interpretive rules that apply to specific types of coverage disputes including pollution exclusions, professional services exclusions, and known loss exclusions.

An insurer who denies a valid claim without a reasonable basis faces insurance bad faith liability. Bad faith claims arise in both first-party and third-party insurance contexts. Most states have enacted unfair claims settlement practices statutes that define prohibited insurer conduct. Punitive damages in bad faith cases are available when the insurer's conduct was oppressive, fraudulent, or malicious. An insurer who receives supporting evidence during litigation and continues to deny coverage faces heightened bad faith exposure.

Cyber insurance counsel evaluates first-party and third-party bad faith claims against insurers, advises insureds on unfair claims settlement practices statutes and the regulatory and civil remedies available when an insurer mishandles a claim, and advises on the evidence required to support a punitive damages claim in a coverage bad faith case.

Either party may file a declaratory judgment action to obtain a ruling on whether coverage applies. Insurers often file in jurisdictions that favor their coverage positions. Choice of law is critical in coverage disputes. Different states apply different rules on duty to defend, bad faith, and punitive damages. Appraisal is available in many property insurance policies to resolve valuation disputes. An umpire resolves disagreements between the insured's appraiser and the insurer's appraiser.

Reinsurance counsel advises on the choice of forum and choice of law analysis in insurance coverage disputes, prepares and defends declaratory judgment actions in state and federal court, and advises on the appraisal process and umpire selection in property insurance valuation disputes.

Coverage disputes frequently involve multiple insurers. Excess insurance disputes arise when primary limits are exhausted and the excess carrier disputes the primary carrier. Subrogation allows an insurer who has paid a claim to pursue the party responsible for the loss. A primary insurer who fails to settle within policy limits may face bad faith liability to both the insured and the excess carrier. Coverage litigation in multi-insurer cases requires coordination across all carriers, analysis of each policy's terms, and a strategy for allocating defense costs and indemnification obligations.

Subrogation counsel manages coverage disputes involving multiple insurers and the allocation of coverage obligations between primary and excess carriers, advises on subrogation rights and the conditions under which an insurer may recover amounts paid from the responsible party, and advises on the bad faith exposure of primary insurers who fail to settle within policy limits when excess coverage is implicated.