01 Jul Tender That Claim!
Nothing diminishes the entrepreneurial spirit like an unjust lawsuit . . . except, perhaps, for the six-figure legal costs that often come along with hotly-contested litigation. Wouldn’t it be great if someone else paid those hefty legal fee bills?
Here is a rule of thumb that all too many entrepreneurs ignore, to their detriment:
Every time you are sued, promptly tender the defense of the lawsuit to your insurance carrier.
If you invariably follow this rule, the worst thing that can happen is that your claim will be denied. But that would simply put you in the same position as if you had never tendered the claim in the first place. However, if your claim is accepted, it will save you and your company thousands and thousands of dollars in legal fees.
Listed below are some of the reasons businesses give to justify why they don’t submit claims to their insurance carriers — and our responses to these excuses:
Excuse #1:“We won’t be covered.”
You may be right — but you may just as well be wrong. And even if you are right, there is a difference between being covered for your opponent’s damages, and getting the insurance company to pay for your defense. An insurance company’s duty to defend you in court is greater than its duty to “cover” you for (that is, “pay out”) the claim. So, even if you are not “covered” for any damages awarded, you may still get those exorbitant legal fees paid. Keep in mind that O.J. Simpson’s insurance company paid for his defense in the civil wrongful death lawsuit filed against him!
Excuse #2:“We were denied on this kind of claim before.”
Being denied coverage (or legal defense) for a claimonce does not mean you will be denied the next time, because every claim is different. Insurance coverage for a lawsuit does not depend on the category of the claim at issue — coverage is determined by theprecise allegations of the complaint. So, if your carrier denies you coverage for, say, a trademark infringement claim, it is wrong to assume that the next time you are sued for trademark infringement the carrier will deny your claim again. Each complaint is unique and requires an independent analysis of its allegations to determine whether insurance will provide coverage or not.
Excuse #3: “We don’t have insurance for this kind of lawsuit.”
You would be surprised at what is covered, and what the courts have said must be covered by your insurance. Most businesses have some form of Commercial General Liability insurance (commonly referred to as a CGL policy). CGL policies ordinarily obligate the insurer to defend and indemnify the business against bodily injury, property damage, and so-called “advertising” injury. These policies have been interpreted by the courts to provide coverage for lawsuits involving unfair competition claims, false advertising claims, malicious prosecution, defamation, discrimination claims, and more.
Again, insurance coverage does not depend on the “kind” of lawsuit, but the nature of the allegations; and even without coverage, you may get your defense costs paid. So, if even one allegation in a complaint ispotentially covered by insurance, then the duty to defend is triggered, and the insurer must defend against all claims set forth in the complaint. This is an extremely powerful tool that can give your company a hook to get your insurer to pay for your defense. And remember, some plaintiffs’ lawyers actually craft the allegations of their lawsuits in a way that will maximize the chances of insurance coverage. The reality is that you never know whether a particular lawsuit is covered by insurance until the claim has been thoroughly assessed and analyzed – and then tendered.
Excuse #4: “My broker says we are not covered.”
Your broker may be right. But he or she may be wrong. What’s more, it is important to keep in mind that your broker has a relationship with the insurance carrier, as well as with you. There have been instances where brokers have steered their clients away from submitting claims, either carelessly or intentionally. Further, by filing the claim, you are preserving any rights you may have against your insurer for denying coverage, in the event your claim is wrongfully denied. On the other hand, if you never tender the claim, you may be waiving your right to sue for coverage at a later date.
Excuse #5:”Our rates will go through the roof if I submit this claim!”
No one can perfectly predict the cost of a lawsuit or its impact on future premium rates. However, in many instances the legal bills alone will easily add up to hundreds of thousands of dollars. It is extremely important at the start of any litigation to analyze the extent of liability that your company may be facing, and then conduct a cost-benefit analysis, keeping in mind that if no claim is ever filed, you may be waiving your right to coverage in the future.
Our bottom line advice, frankly, is that you should do whatever you can to avoid ending up like Hulk Hogan. Hulk Hogan hired two Florida attorneys to defend his son in a well-publicized auto accident case. After spending $1.5 million in legal fees, he ended up suing his attorneys for not informing him that his auto insurance company would have paid for legal counsel from the outset.
In the end, you have to ask yourself this question:
What do I have to lose by tendering that claim?