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Vol. 4, Iss. 7
July 15, 2015

There’s Been No “Tender” – Does Insurer Still Need To Respond?

We’ve all seen this issue. You are handling a claim for a certain insured, and in the course of doing so, you obtain information that another involved person or entity is also an insured and may have rights under the policy. But here’s the rub – this other person or entity has never tendered a claim. Does an insurer have to address coverage for them? Or can it sit back and take a “hey, if they want coverage they’ll ask us” position?

This issue is at the heart of Lincoln General Ins. Co. v. Ryerson & Son, Inc., No. 14C8446 (N.D. Ill. June 18, 2015). The case itself is pretty complex and the opinion eye-glazing. At issue is coverage for a $27 million jury verdict involving personal injury sustained in a trucking accident. As the court put it: “[T]he various insurance companies are battling over who owes what.”

I don’t have the patience to untangle the case and there’s no real need to for purposes of making the points regarding the tender issue. In very broad strokes, one insurer argued that it had no actual notice of a potential coverage claim until ten years after the underlying lawsuit was filed. That being so, other insurers might be estopped from pursuing it now because their delay effectively robbed the insurer from controlling the defense. If, on the other hand, the insurer had actual notice when the underlying suit was filed, estoppel might apply against it for failing to take any action as to the insured.

I’m going to keep this brief and let the court do the talking. In general – putting aside the specifics of Ryerson -- the moral of the story is that an insurer that takes the “hey, if they want coverage they’ll ask us” position does so at its peril. Sitting back and waiting for a formal tender may estop an insurer from taking subsequent positions.

Here are some of the money paragraphs from the opinion:

“As to triggering the duty to defend, courts look to when the insurer knew (or should have known) that it was obligated to defend the insured. The easiest way for an insured to trigger the duty to defend is to tender the defense of the underlying action to the insurer. When this happens, there is no doubt as to when the insurer first had notice that it might be obligated to defend the insured.”

“But tendering the defense is not the only way for the duty to defend to be triggered; the duty is also triggered if the insurer has ‘actual notice.’ An insurer has actual notice only when two conditions are met: ‘the insurer must know ... that a cause of action has been filed against its insured and that the complaint falls within or potentially within the scope of the coverage of one of its policies.’ In most cases, knowledge of the underlying action, by itself, is not enough.”

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