Insurance Coverage Law

Whether a claim is covered under your insurance policy depends upon the type of loss you sustained and the language of your insurance policy. For example, fire losses are always insured under homeowners’ policies, except when the policyholder intentionally started the fire. Also, generally speaking, losses that occur suddenly are covered under homeowners’ policies, while losses that occur gradually over weeks or months are not covered. Insurance policies are lengthy and difficult to understand. To determine whether a loss is insured, one must read, at a minimum, the insuring clause, and all conditions and exclusions in the policy. Unless you studied insurance law or worked in the insurance industry, it may be impossible for you to determine whether your loss is covered. Therefore, if you sustain a loss, notify your insurance broker and ask him or her whether your loss is insured. That question will cost you nothing. If the broker doesn’t know whether your loss is covered, have him or her submit the claim to your insurance company. If the insurance company denies your claim, you might consider retaining an insurance coverage lawyer for a coverage opinion.

If you drive a car, you need auto liability insurance, with limits of at least $15,000 per claim and $30,000 per occurrence.

If you own a home, your lender will require you to carry property insurance. Property insurance only covers damage to the home. You will probably also need homeowners liability insurance, to cover you and your family members if someone is injured at your home.

If you have employees, you are required to carry workers compensation insurance.

If you own a business, you may need other types of liability insurance, such as employer’s liability, directors & officers or professional liability insurance.

A good insurance broker can counsel you on the type and limits of insurance you need.

In the song “Me and Bobby McGee,” Kris Kristofferson famously wrote: “When you got nothing, you got nothing to lose.” That lyric applies to your insurance limits, which should be based upon the assets you own that could be garnished or attached and levied upon, if a civil judgment is entered against you. If your assets total less than $30,000 and you are not a high wage earning person, you may need only minimum auto liability limits. But if you own a home or rental property, if you are a high wage earner or if you have more than $30,000 in other assets, you may need higher than minimum limits. Your insurance broker should be able to assist you in determining the limits you need.

These terms refer to the order in which insurers must pay for an insured loss: Primary insurance provides coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability. Excess policies are secondary insurance policies. The insurer is generally not required to respond to a claim until the liability limits of the underlying policy have been paid out. Umbrella policies are another type of secondary insurance. An umbrella policy (sometimes called an “excess umbrella”) usually provides higher coverage limits than the underlying policy and may also provide broader coverage, i.e., covering risks not included or expressly excluded in the underlying insurance (hence the name “umbrella”). Thus, a policyholder may purchase a primary policy with a limit of, e.g., $1 million per occurrence or claim, and an excess or umbrella policy with a limit of, e.g., $5 million per occurrence or claim. The net effect is that the policy holder would have $6 million in coverage, with $1 million being primary and $5 million being excess.

Yes, you can fill out a complaint form online at http://www.insurance.ca.gov/01-consumers/ or call the DOI consumer hot line at 1-800-927-4357. But in our experience, the DOI is not equipped to handle complaints about individual claims.

Insurance bad faith is an unreasonable withholding of policy benefits. Not every loss is insured. Not every claim denial is unreasonable. To constitute bad faith, the denial of coverage must be “without substantial justification.” If the insurer is relying upon the advice of its lawyer or another expert, a wrongful denial of coverage usually does not constitute bad faith. However, if an insurer denies coverage wrongfully, without retaining an expert, and fails to conduct a reasonable investigation, its denial of coverage may constitute a breach of contract and bad faith. A breach of contract means you can recover the withheld policy benefits in court. Bad faith means you can recover other damages you have sustained because of the insurance company’s denial of coverage, such as damage to your credit and damages for emotional distress. A finding of bad faith also entitles the policyholder to an award of reasonable attorney fees incurred in obtaining policy benefits.

Most homeowners policies that include replacement cost coverage provide for a two-stage payout of benefits. In the first step, the insurance company will pay the actual cash value of the loss, usually measured as replacement cost less depreciation. If the policyholder then replaces the destroyed property, he or she can recover the depreciation hold back. For example, assume a fire destroys ten year old drapes in a home. The insurance company may determine the cost to replace the drapes, deduct 40% for depreciation and pay the policyholder 60% of the replacement cost. If the policyholder then replaces the drapes, he or she can submit a receipt to the insurer and claim the previously withheld 40%.

In California, a person sued generally has 30 days from the date he or she is served with a summons and complaint to file a responsive pleading. Therefore, if you are served with a summons and complaint, it is important to immediately 1) calendar when your responsive pleading is due (if you do not file a responsive pleading within 30 days of service, your default and a default judgment could be entered against you and 2) provide a complete copy of the summons and complaint to your insurance broker and ask him or her to tender it to your insurance company. Then keep track of your time to file a responsive pleading. If two weeks passes with no response from your insurance, contact your broker again. If your insurance company denies coverage, you will have to hire a lawyer to file a responsive pleading on your behalf and defend the action.

Liability insurance policies often contain a “deductible” or a “self-insured retention” (SIR) requiring the policyholder to bear a portion of a loss otherwise covered by the policy. The term “deductible” refers to that portion of the loss for which the insured is responsible. Often, it is a specific sum that the insured must pay before the insurer owes its duty to indemnify the insured for a covered loss. The amount of the deductible, if any, will ordinarily be set forth on the declarations page or in an endorsement to the policy.

Unless the policy otherwise provides (e.g., a “burning limits” policy that reduces coverage by the amount of defense costs), the deductible relates to the damages for which the insured is indemnified, not to defense costs. The insurer is fully responsible for defense costs regardless of the amount of the deductible so long as there is a potential for coverage under the policy.

The term “self-insured retention” (or “retained limit”) refers to a specific sum or percentage of loss that is the policyholder’s initial responsibility and must be satisfied before there is any coverage under the policy.

The difference between them is that the policy limits apply on top of a self-insured retention (e.g., if the policy limit is $500,000 and there is a $50,000 SIR, after the SIR is paid by the policyholder he or she has the full $500,000 coverage). A deductible, however, reduces policy limits (e.g., if there is a $500,000 policy limit and a $50,000 deductible, the policyholder has only $450,000 coverage).

Generally, insurance brokers have a duty to provide the insurance requested by the policyholder, unless they assume the risk of counselling the policyholder on the type and limits of insurance needed. Therefore, if you told your broker you want minimum liability limits on your auto policy and your broker obtained a minimum limits policy, you will not have a claim against your broker, even if it turns out those limits were insufficient. In contrast, Myers Widders, Gibson, Jones & Feingold represented a policyholder who was told by his broker that a replacement policy the broker sold to our client, was “just as good or better” than our client’s old policy. After our client sustained a theft loss at his store, he learned that the replacement policy provided no coverage for theft, whereas, his prior policy covered theft. The broker’s insurance company wound up paying our client for the uninsured theft loss, because the broker knew or should have known that the replacement policy did not provide the same coverage for theft as the prior policy.

Experience! Insurance coverage is a difficult practice area for lawyers. Unlike many areas of law, insurance coverage is always changing, because insurance companies are always changing their policies. There is always a lag of several years between a new policy form and legal decisions construing that form. In the meantime, there is often no “answer” about whether that form applies to a given loss. Rather, there may be only arguments about whether the loss is covered. You want a lawyer knowledgeable about insurance law who can develop and assert the best arguments in favor of coverage. It is difficult for an attorney to practice insurance law and many other types of law at the same time. A lawyer who regularly handles personal injury cases may know something about insurance coverage for auto accidents, but he or she will probably know nothing or very little about insurance coverage for breach of fiduciary claims against officers and directors of a corporation.