They pay, you payDavid M. Gersh
If you ever have referred a claim to your commercial general
liability (CGL) insurance carrier for defense of a lawsuit, you
probably received a dense letter quoting and interpreting your
policy and providing coverage analysis. Such a letter will often be
styled as a "reservation of rights" letter whereby the carrier
agrees to provide a defense, subject to certain limitations, and
notifies you coverage for a claim may not apply. It is a common and
certainly understandable reaction to skim or skip the legalese and
simply flip to the last page and read the conclusion to find out
whether the insurer will be providing a defense. But lurking within
those pages may be potentially devastating language that can put
you on the hook for tens of thousands of dollars in attorneys'
fees.
The details
The language at issue may be only a sentence or two buried in
the coverage analysis, such as: "Insurer reserves the right to seek
recovery of defense costs incurred in the defense of the insured in
the event that it is determined that no such defense was owed." In
some states, this reservation is ineffective. In others, it is
enforceable but only if the insured does not respond and object. In
other states, it is enforceable regardless of any objection by the
insured.
It is important you understand the rules that apply to your
policy. Typically, the law governing the policy is the law of the
state in which the policy is issued. In most cases, if a lawsuit is
filed alleging you are responsible for bodily injury or damage to
property other than the work itself, you can forward the claim to
your CGL carrier, who must appoint an attorney to defend the claim
even if uncovered claims—such as damage to the roof—are
included in the lawsuit. The traditional interpretation and
application of the rules governing CGL carriers' duty to defend and
indemnify their insured entitles you to a complete defense against
all claims, including those individual claims for which insurance
would not be available, with the understanding that any sums
awarded to the plaintiff for uncovered losses...
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