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What are the odds of winning a coverage case?

Negotiating with the carrier can sometimes be successful in resolving claims. In many cases, however, the transporter will be stubborn and not reconsider his position. This leaves litigation as an alternative.

b. File a lawsuit. If negotiations fail, the coverage attorney may recommend filing a complaint against the carrier. If the carrier has already filed a declaratory judgment action, then the attorney will likely recommend filing a counterclaim. A lawsuit (or counterclaim) for coverage is essentially an action for breach of contract. However, this is a special type of action for breach of contract, and some special rules apply.

Because insurance policies are contracts of adhesion - that is, they are written by carriers and sold on a "take it or leave it" basis - they are construed against the carrier and in effect. favor of the insured. These and other rules give the insured at least a theoretical advantage in the event of a dispute. In many cases of coverage, however, inexperienced lawyers do not take full advantage of the rules. This has led to a number of unfortunate and, in my opinion, ill-decided decisions against policyholders.

In reviewing the briefing (the legal arguments filed by lawyers) in some of these cases, the lawyer representing the insured simply failed to present arguments and cite case law that could have changed the outcome. When an inexperienced (or uneducated) lawyer runs into a gun from an insurance company, it's often not a fair fight.

What are the odds of winning a coverage case? Obviously, it depends on the facts of the case, the terms of the policy, the lawyers on the other side, and many other factors. Georgia's recent rulings suggest the outcome is a bit uncertain, as the rulings are not entirely consistent. The law in other jurisdictions varies.

vs. File a bad faith claim. If an insurer's refusal to defend or indemnify is objectively unreasonable, the insured may have a bad faith remedy in addition to recovery under the policy. The remedies in Georgia have been briefly discussed above. A finding of bad faith is far from automatic and requires the insured to prove more than what the insurer simply erred in refusing the claim. There is no hard and fast rule about when an insurer crosses the line from good faith to bad faith, and Georgia's rulings indicate that a jury should generally decide the issue.

In practice and when considering recent Georgia decisions, the ability to rely on a bad faith complaint appears to depend as much on the court in which it is located as on the facts. The federal court in Atlanta sometimes seems to take a very hard line against policyholders who make bad faith claims.

On the other hand, the Georgia Court of Appeals made two recent decisions that are much more receptive to a finding of bad faith. In a very recent decision of the Court of Appeal, the court upheld the summary judgment trial judge's finding of bad faith, meaning that the trial judge found the bad faith so obvious that the case could be decided without jury trial. This case involved an underlying claim by a building owner against a building contractor resulting from a fire that was started negligently by a subcontractor. The insurance company refused to defend or indemnify the insured based on a broad interpretation of the “business risk” exclusions in the policy, which generally limit coverage for damage to the insured's work.

The Court of Appeal concluded that the insurer's recourse to the builder's risk exclusions was incorrect and upheld the trial court's ruling that the insurer had acted in bad faith. The Court of Appeal also cited with approval the order of the trial court noting that the failure of an insurance company to provide a defense when it clearly should have done so could have put a small entrepreneur in jeopardy. bankruptcy. This is one of the few cases in which a court has expressly observed the enormous real practical consequences of a Never Pay approach.

There is case law in Georgia that suggests that an insured can only recover his attorney fees to obtain coverage by proving bad faith, rather than simply relying on the determination of coverage (proving that the insurer raped the police). This is true even if another law allows attorney fees in contractual matters after it has been demonstrated that the other party has been "stubbornly contentious" or caused "unnecessary trouble and expense". There is a federal appeal case to the contrary.

Early rulings are particularly unfortunate, as they indicate that a party to a commercial contract - which unlike an insurance policy is likely to be heavily negotiated - has a better chance of recouping attorney fees in a lawsuit. on the commercial contract that an insured whose insurer violated the policy, a non-negotiated membership contract, by wrongly refusing a claim.

There is a great irony here because lawyers for insurance companies love to argue that an insurance policy should be treated the same as any other contract instead of being interpreted against the insurance company, as provided by law of Georgia. However, when the issue of attorney fees is brought up, the same attorneys argue that insurance policies should be treated differently from other contracts.

Again, this discussion is based on Georgian law. The laws of other states in this area vary considerably.

4. Possible future assistance for insured persons. In addition to the millions of dollars that insurers spend on TV advertising, as discussed in the first article of the series, insurers also spend a lot of money on "government relations", or what you might colloquially call lobbying. . Any change in the current circumstances will certainly lead to substantial opposition. At least in Georgia, I suspect carriers pretty much like it the way it is.

Insurers say if they are forced to pay more claims, premiums will rise. There are a few obvious retorts to this argument. First, what do policyholders pay premiums to in the first place? Second, insurers rarely seem to take into account the enormous costs associated with paying an army of adjusters, national advisers, regional advisers and local advisers to try to support denials of coverage.

In many cases, the result is that the insurer has to pay the claim anyway, and sometimes even a bad faith penalty. It would be really interesting to see the results of a study comparing the costs of the current approach taken by many carriers to the cost of an approach that would give the insured the benefit of the doubt by simply paying the claims.

I'm not suggesting that insurance companies should be forced to pay claims that their policies were never meant to cover. What I am suggesting is that insurers should recognize that they are aiming to cover risks. Therefore, doubts should be resolved in favor of the insured, rather than trying to force a claim to a clumsy or forced interpretation of a term, condition or exclusion from the policy.

Here are some minor suggestions that would make the playing field a little more level for Georgia's insureds.

a. The General Assembly, the Insurance Commissioner, and the courts should prevent and give no credit to “Never Pay” provisions in policies or “Never Pay” interpretations of such provisions. It should be clear that the fundamental promise of an insurer is to defend and indemnify claims. Insurers should not be allowed to sell policies with Never Pay provisions. Courts should follow existing precedents and interpret exclusions narrowly so as not to swallow up the fundamental promise of coverage.

The Georgia Court of Appeals recently did this as part of the "business risk" exclusions in commercial general liability policies that insurers have used in an attempt to deny coverage for claims resulting from construction defects or negligence. of construction. Similar results should follow with respect to the pollution exclusion, the exclusion of fungi, and other policy provisions that are sometimes used to try to deny coverage in circumstances that were never intended.

b. If an insured wins a lawsuit against their insurer, they must recover their legal fees. In Georgia, a carrier can deny a claim knowing that they likely face little risk beyond having to pay the claim, while at the same time forcing the insured to hire and pay a coverage lawyer. It can be a double whammy if the carrier has refused a defense and the insured must also pay to defend the underlying claim. In many cases, the insured may simply lack the resources to fight.

This allows carriers to engage in an economic war against their policyholders with little risk of consequences. If insurers force their policyholders to go to court for coverage and the policyholder wins, the award of attorney fees should be automatic. This rule should apply regardless of whether the insurer or the insured initiates the dispute.

The reverse shouldn't be true. Why? Because the insured does not have a say in the wording of the policy, does not have access to an army of lawyers, and is generally economically disadvantaged.

At an absolute minimum, Georgian courts should ignore the line of cases that the general statute of contracts for the recovery of attorney's fees does not apply to insurance coverage cases. An insured, as a party to a “take it or leave it” contract, should not be at a disadvantage compared to a party pursuing an action in a carefully negotiated commercial contract.

vs. The bad faith remedy should be made more meaningful. Currently, an insured who wins in a bad faith action can recover, in addition to the amounts owed under the policy, a penalty of 50% of the loss. Previously, the law provided for 25 percent of the loss. It's just not enough to get the attention of a carrier. A 200 percent multiplier would change that, and it wouldn't be a drastic end to bad faith remedies in other states.


This series generated a lot of interest and a little discussion. This is not surprising, as the topic is general. Almost all businesses and individuals purchase insurance to protect against a wide variety of risks. Monty Python's "Never Pay Policy" sketch is still funny after many years. As is the case with a lot of humor, the skit is fun because it points to a generally accepted underlying truth. It's no laughing matter, however, when insurers deny claims and act like they're selling Never Pay policies. The consequences for policyholders can be devastating. Until the insurance industry changes its methods or state legislatures and insurance commissioners act, policyholders must look after their own interests. Hopefully this series has provided at least some useful observations on the fight against the never pay policy.