Source: http://dutytodefend.com/answer-sheet-to-coverage-questionnaire-ml/
Timestamp: 2019-04-22 08:38:58+00:00

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This Annotated Coverage Questionnaire may assist users to assess responses received from an insurer to a Coverage Questionnaire. Each question from the Coverage Questionnaire is repeated below, followed by authorities supporting correct or preferred responses. Authorities in parentheses refer to articles that may be found at DutytoDefend.com through the Table of Contents.
The Coverage Questionnaire should be used in coordination with an Ethical Compliance Questionnaire, dependent counsel’s responses to the Ethical Compliance Questionnaire and the Annotated Ethical Compliance Questionnaire.
“Yes” is the preferred answer, because it usually ends the risk that any coverage contest will create a disqualifying conflict of interest between the insurer and the policyholder. Waiver is the voluntary relinquishment of a known right. (Estoppel, Waiver, and Forfeiture.) While a waiver may be inferred from and insurer’s conduct, such as failing to promptly assert a reservation of rights (Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 754 (Miller)), the best evidence of a waiver is a simple, written statement by the insurer. Courts have allowed insurers to reserve their rights after very long delays, impliedly finding no waiver or estoppel by the delay. (A 40 Day Regulatory Deadline to Deny Liability Insurance Coverage Is Poorly Enforced). Obtaining an insurer’s express waiver is a fast, cheap, and easy procedure to resolve a coverage contest – much better than costly, stressful, and wasteful coverage litigation.
While the insurer is free to deny coverage for compensatory damages if punitive damages are awarded, doing so may require the insurer to pay for independent counsel to conduct the policyholder’s defense.
Will you solicit and accept an offer to settle within my policy limit?
While insurers have an implied duty to settle a lawsuit against its policyholder when it received a proper offer to settle within policy limits, insurers do not have a duty to initiate a settlement offer within policy limits. “An insured’s claim for ‘wrongful refusal to settle’ cannot be based on his or her insurer’s failure to initiate settlement overtures with the injured third party, but instead requires proof the third party made a reasonable offer to settle the claims against the insured for an amount within the policy limits. We conclude there is no substantial evidence [the underlying plaintiff] ever offered to settle her claims against [the policyholder] for an amount within [the policyholder]’s policy limits. (Graciano v. Mercury General Corp. (2014) 231 Cal.App.4th 414, 427 (citations and ellipses omitted, emphasis original).) However, dependent counsel has a duty of undivided loyalty to the policyholder (Duty of Undivided Loyalty) and arguably owes a duty to protect the interests of the policyholder to initiate a settlement offer within policy limits. This question is also addressed in the Ethical Questionnaire.
“Yes” is the correct answer if 40 days have passed. An insurer must “immediately, but in no event more than fifteen (15) calendar days . . . begin any necessary investigation of the claim.” (Cal. Code Regs. § 2695.5(e)(3).) The insurer “shall immediately, but in no event more than forty (40) calendar days, accept or deny the claim, in whole or in part . . . in writing and provide a statement listing all factual and legal bases for each reason given for [a] denial [including reference to each] specific policy provision” (Cal. Code Regs. § 2695.7(b) (ellipses omitted).) Establishing that the insurer’s investigation is completed may help to prevent the insurer from expanding the scope of its reservation of rights in the future.
Have you completed an investigation of my claims for defense and indemnification?
A notice of claim is actually three claims: 1) a third party claim by the plaintiff for payment of damages; 2) a first party claim by the policyholder for a defense against the plaintiff’s damage claim; and 3) a first party claim by the policyholder for a indemnification for a judgment awarding the plaintiff damages. “‘Investigation’ means all activities of an insurer or its claims agent related to the determination of coverage, liabilities, or nature and extent of damages afforded by an insurance policy and other obligations or duties arising from an insurance policy.” (Cal. Code Regs. § 2695.(2)(k) (ellipsis omitted).) As a practical matter, most insurers determine coverage before starting to evaluate the plaintiff’s damage claim, but frequently the “investigation” consists of nothing more that comparing the language of a complaint to the language of a policy.
“Yes” is the correct answer. An insurer must attempt “in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.” (Ins. Code § 790.03(h)(5).) The insurer may not properly delay resolution by asserting a false defense and the policyholder should not cooperate with the insurer to do so. “[A]s stated some years ago by Judge Cardozo, a cooperation clause may not be expanded to require the assured ‘to combine with the insurer to present a sham defense.’” (Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322, 329.) A desire for prompt resolution of a liability dispute may create an incentive for the policyholder to properly confess genuine liability rather than drag out protracted litigation.
my claims for defense and indemnification?
Similarly to the previous question, the correct answer is “yes”. The insurer and the policyholder should attempt to resolve all coverage contests. This question should invite settlement negotiations.
Generally, a liability insurer that agrees to defend has a contractual “right” to control its policyholder’s defense, so long as no conflict of interest exists. Most liability policies state that the insurer has the “right to defend” and many policies state that the insurer may select counsel to conduct the defense. However, an insurer exercises this contractual right, dependent counsel chosen by the insurer still must satisfy separate ethical obligations to the policyholder, including that dependent counsel cannot accept or continue representation of dual clients who have conflicting interests without analyzing potential conflicts, making written disclosure to and obtaining informed written consent from the policyholder and the insurer.
Thus the policyholder’s right to select and direct independent counsel at the insurer’s expense does not derive from the insurance policy contract. Instead it derives from the ethical prohibition imposed on dependent counsel. “The obligation of an insurer to provide independent Cumis counsel for an insured is premised on the ethical inability of an attorney to represent conflicting interests.” (United Pac. Ins. Co. v. Hall (1988) 199 Cal. App.3d 551, 556.) “The Cumis opinion was based heavily on the canons of ethics and the possibly conflicting choices confronting an attorney” (Blanchard v. State Farm Fire & Casualty Co. (1991) 2 Cal.App.4th 345, 350; see also, Golden Eagle Ins. Co. v. Foremost Ins. Co. (1993) 20 Cal. App.4th 1372, 1394; Mosier v. S. Cal. Physicians Ins. Exch. (1998) 63 Cal. App.4th 1022, 1042 (Mosier).
Will you pay for independent counsel to defend me?
Will you pay independent counsel invoices within 40 days?
Will you pay the hourly rate charged by independent counsel to defend me?
Are all claimed damages covered for indemnity?
“Yes” is the preferred answer. One of the “qualifiers” for coverage is the nature of the damage claimed by the plaintiff. For example, physical injury to tangible property may be covered while “intellectual property” damage may not. (Anatomy of a Liability Insurance Policy). It is important to determine if the insurer denies coverage because of the nature of the relief that the plaintiff seeks, and may be another point on which the policyholder and the plaintiff may choose to cooperate.
Is all of my alleged wrongful conduct covered for indemnity?
“Yes” is the preferred answer. A “Yes” is the preferred answer. Another one of the “qualifiers” for coverage is the nature of the policyholder’s alleged conduct or activity. For example, an auto accident is likely to be covered, but a resulting road rage fist fight may not be covered because of “intentional” conduct by the policyholder. (Anatomy of a Liability Insurance Policy). It is important to determine if the insurer denies coverage because of the nature of the relief that the plaintiff seeks, and may be another point on which the policyholder and the plaintiff may choose to cooperate, including pleading. (Plead Into Coverage Properly).
Is all of each claimant’s allege loss caused by an occurrence, offense, or wrongful act that is covered for indemnity?
“Yes” is the preferred answer for an “occurrence” policy. A common form of liability coverage requires that covered damage be caused by an “occurrence”, usually defined as an “accident”. To resolve a coverage contest, it is important to establish whether the insurer seeks to disclaim coverage because there is no “occurrence”. A “claims made” policy usually covers a “wrongful act” rather than an “occurrence”, addressed in the next question. (Anatomy of a Liability Insurance Policy). Professional liability, D&O and some EPL policies often use this form. To resolve a coverage contest, it is important to establish whether the insurer seeks to disclaim coverage because there is no “wrongful act”. (Anatomy of a Liability Insurance Policy).
A liability policy makes two primary promises: 1) to defend against claims that are potentially covered; and 2) to indemnify for a judgment that is actually covered. (Duty to Defend). The scope of any coverage contest will be defined by those claims alleged by a plaintiff that an insurer asserts are not covered by its policy. It is important to require the insurer to identify all such claims early. If the insurer later seeks to expand the scope of its coverage challenge, the policyholder may resist such expansion by alleging waiver, estoppel, and a failure to adequately investigate.
Do you agree unconditionally that the provisions of each policy impose upon you a duty to defend me and do you waive all rights to assert that you have no duty to defend me?
Both “Yes” and “No” answers have advantages. “Yes” puts an issue to bed. “No” may entitle independent counsel to be paid full rates, monthly. This tactical question intentionally mirrors the language of Civil Code § 2860(a): “the insurer shall provide independent counsel to represent the insured” if two prerequisites are satisfied, one of which is that “the provisions of a policy of insurance impose a duty to defend upon an insurer.” “[I]n the absence of a stipulation or unconditional agreement between the insurer and insured, unless and until there has been a judicial determination of an insurer’s duty to defend . . . the provisions of Civil Code section 2860 are inapplicable.” (Handy v. First Interstate Bank (1993) 13 Cal.App.4th 917, 926 (Handy) (emphasis added); Civil Code § 2860 – Limited Application).
Some insurers may answer “no” because they choose to reserve the right to later prove that they had no duty to defend in the first place, even though they pay for a defense in the interim. However, insurers that answer “no”, may be obligated to pay independent counsel at full rates (How Much Must an Insurer Pay Independent Counsel?) and every 30-40 days. (How Often Must an Insurer Pay Independent Counsel?).
Do you agree unconditionally that a conflict of interest exists which creates a duty on your part to provide independent counsel to me and waive all rights to assert that you have no duty to provide independent counsel to me?
After an insurer has been notified of a claim, it is required to make a series of important decisions, including whether to concede full coverage, deny all coverage, reserve its rights to later deny coverage, hire dependent counsel to conduct the policyholder’s defense, pay independent counsel to control the policyholder’s defense, file a declaratory relief action to resolve a coverage contest, seek reimbursement of defense costs, and seek reimbursement of settlement costs. To resolve a coverage contest, the policyholder should ask the insurer to disclose each of these decisions.
Have you denied each claimant’s claim against me in whole or in part?
Have you denied my claims for defense and indemnification in whole in or part?
“Yes” is the correct answer after 40 days. “Upon receiving proof of claim, every insurer . . . shall immediately, but in no event more than forty (40) calendar days later, accept or deny the claim, in whole or in part.” (Cal. Code Regs. § 2695.7(b).) A “no” answer suggests a violation of regulations, but a “yes” answer alone does not provide much guidance. The insurer is asked to explain its answers below. By the time a plaintiff has filed a lawsuit, typically the insurer has denied the claim in whole. But the insurer’s explanation of why it has denied the claim should arm the policyholder to respond appropriately.
Have you communicated to me in writing all grounds now known to you upon which you may deny coverage?
“Yes” is the correct answer. Where an insurer denies [a policyholder’s claim for defense and indemnity], in whole or in part, it shall do so in writing and shall provide a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such denial [and if] based on a specific policy provision, provide an explanation of the application of the provision.” (Cal. Code Regs. § 2695.7(b) (ellipses omitted).) A failure to do so may waive coverage defenses. (Miller, supra, 100 Cal.App.3d 754). Because insurers must conduct a thorough investigation before a claim, a “no” answer may imply a regulator violation. A “yes” answer may arm the policyholder to resist attempts by an insurer to expand the scope of its reservation of rights after 40 days unless it can show that information upon which it later reserves rights was unavailable to the insurer in its initial investigation. It is no uncommon for coverage lawyers hired by an insurer to try to improperly spruce up the insurer’s reservation of rights long after the regulatory deadline has passed.
Are all grounds of your reservation of rights based on coverage disputes that have nothing to do with the issues being litigated in the lawsuit?
“Yes” is the preferred answer to trigger the insurer’s obligation to pay independent counsel. However, this is a deceptively complex question. More than half of the states apply a simple and rigid “per se” rule that an insurer who reserves its rights to later deny coverage must always pay for independent counsel (50 State Survey). California modifies the “per se” rule to require a liability insurer to pay for independent counsel selected and directed by the policyholder if its reservation of rights raises grounds to deny coverage that are “related” to issues in the liability lawsuit. (Cumis Test). Because many insurers fail to “adopt and implement reasonable [substantive] standards for the prompt investigation and processing of claims” (Ins. Code § 790.03(h)(3)), some insurers will not understand this question. If the insurer answers “”yes”, it may be required to pay for independent counsel. If the insurer answers “no” it may refuse to pay independent counsel – that in turn may trigger a procedural step to seek a court decision to resolve whether a disqualifying conflict of interest exists. (Top Ten Procedural Options to Resolve Conflicts of Interest.) If the insurer explains that it does not understand the question, it may have violated regulations.
Will you expressly waive any grounds upon which you may deny coverage?
“Yes” is the preferred answer. While not required to do so, the insurer may choose to narrow the scope of a coverage contest by eliminating one of more ground of conflict.
Do you unconditionally waive all rights to recover allocation or reimbursement of costs of defense, pursuant to contract or Buss vs. Superior Court?
Do you unconditionally waive all rights to recover allocation or reimbursement of costs of settlement, pursuant to contract or Blue Ridge vs. Jacobsen?
“Yes” is the preferred answer, but the insurer need not make this decision until the time of settlement. Under California law, an insurer may settle a liability dispute over the objection of its policyholder and later sue its own policyholder to get back its costs of settlement, but it must specifically reserve this right at the time of settlement (Blue Ridge Settlement Cost Reimbursement). However, there are many good choices a policyholder may make in response. (Blue Ridge Settlement Reimbursement – Response Options).
Have you been prejudiced by late notice of suit?
Rules of Professional Conduct, Rule 3-310 requires dependent counsel to analyze potential conflicts of interest, make written disclosure to and obtain the informed written consent of both policyholder and the insurer before accepting or continuing representation of the policyholder or accepting compensation from the insurer. (Duty to Comply with Rule 3-310).
It is important to policyholders seeking to require an insurer to pay for independent counsel to flesh out the facts underlying the relationship between the insurer and dependent counsel.
Do you have an attorney-client relationship with dependent counsel?
“Yes” is the correct answer. California law recognizes the dual client relationship (“[T]he attorney has two clients.” (American Mut. Liab. Ins. Co. v. Superior Court (Nork) (1974) 38 Cal.App.3d 579, 592); The insurer and its lawyer may have “an attorney-client relationship as a matter of law.” (Berger, Kahn, supra, 79 Cal.App.4th at 127)) in a tripartite relationship. (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1406-07 (Gafcon).) Policyholders should be highly suspicious of dependent counsel and insurers who deny this relationship. However, because the existence of an attorney client relationship depends on the facts (Attorney Client Relationship), it is essential to ferret out admissible of the underlying facts present in dependent counsel’s relationship with the insurer.
Also if the insurer and dependent counsel claim that the policyholder is dependent counsel’s only client, the policyholder alone should be able to direct dependent counsel.
Did you hire dependent counsel to discharge your promise to defend me in the lawsuit?
It is important to establish that the insurer hired dependent counsel in the capacity as a lawyer to help define the relationship between the insurer and dependent counsel.
Did you hire dependent counsel to protect your interests in the lawsuit?
Did you hire dependent counsel to protect me in the lawsuit?
“Yes” is the correct answer. “In California, it is settled that absent a conflict of interest, an attorney retained by an insurance company to defend its insured under the insurer’s contractual obligation to do so represents and owes a fiduciary duty to the insured. [T]he defense attorney’s fiduciary duty runs to the insured.” (Gafcon, supra, 98 Cal.App.4th at 1406 (ellipses omitted).) However, when the insurer is paying for independent counsel, some dependent counsel consider themselves to be mere “monitoring” counsel, representing the insurer only, not representing the policyholder.
Have you communicated any litigation guidelines to dependent counsel?
Do you expect to direct dependent counsel’s conduct of my defense?
Do you expect dependent counsel to obtain your approval to do anything or to incur any expense regarding my defense?
Again, “No” is the correct answer, but “Hell, yes” is the probably answer. Most insurers exercise control over dependent counsel by requiring prior approval for certain kinds of legal work and of requiring prior approval of all big ticket expenses. Exercise of such control may prejudice the interests of the policyholder and create ethical conflicts for dependent counsel.
Do you expect dependent counsel to disclose to you any confidential information relating to coverage?
Does dependent counsel represent you in any separate matter?
“No” is the preferred answer. Rules 3-310(C)(3) provides that a lawyer “shall not, without the informed written consent of each client . . . [r]epresent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.” Some dependent counsel firms do liability defense work and also do coverage work for the same insurers. Such dependent counsel may be particularly well equipped to visit prejudice upon a policyholder and may be disqualified because they represent the insurer in some matter not even related to the plaintiff’s liability dispute.
Could you be affected substantially by resolution of the lawsuit?
A liability insurance policy is a contract of indemnity by which the insurer contractually agrees to be bound by the outcome of a judgment against its policyholder even though the insurer is not a party to the lawsuit. “Upon an indemnity against liability . . ., the [policyholder] is entitled to recover [from the insurer] upon becoming liable [to an injured plaintiff by entry of judgment],” (Civil Code § 2778(1).) Thus, a liability insurer will always be “affected substantially by resolution of the lawsuit” because it will be bound by the findings of liability and damages in the lawsuit.
As an entity that may incur the costs of defense, settlement, or judgment, a liability insurer is always an entity that would be affected substantially by resolution of the matter and dependent counsel cannot believably disclaim knowledge that the insurer would be affected substantially by resolution of the matter. Almost humorously, some insurers may claim that they will not be affected “substantially” because the amount of money at risk in plaintiff’s claim is small. The correct interpretation of Rule 3-310 is that without regard to absolute value, the insurer “would be affected substantially by resolution of the matter” because it is paying for the defense and may pay for a settlement or judgment.
All liability insurance policies answer questions such as Who, What, Where, and When. Liability policies specify several “conditions” that the policyholder must satisfy in order to perfect coverage (Anatomy of a Liability Insurance Policy). The following series of questions should be non-controversial, but it is best to put these issues to rest at an early stage.
“Yes” is the preferred answer. Many insurers delegate claims handling to other entities, either for corporate efficiency or to attempt to avoid bad faith liability by putting a layer of corporate protection between the insurer and proper claims handling. It is important to find out with whom the policyholder is dealing. It is also important to identify the proper entities to sue.
“Yes” is the preferred answer. Most liability policies identify a “named” insured on the declarations page of the policy, have endorsements identifying additional insureds, and define certain categories of persons who qualify as an “insured” to whom the insurer owes duties. It is best to verify that the insurer recognizes all defendants in a plaintiff’s lawsuit as insureds. (Anatomy of a Liability Insurance Policy).
“Yes” is the preferred answer. All liability policies ask the question “when?” “Occurrence” policies cover accidents that happen during the policy period as stated on the declarations page. “Claims made” policies cover claims of which the policyholder and/or the insurer are notified during the policy period. (Anatomy of a Liability Insurance Policy). It is important to establish whether the “when” question is critical to coverage and is a point on which the policyholder and the plaintiff may choose to cooperate. (Cooperation: A Strategic Choice).
“Yes” is the preferred answer. Most liability policies require that the liability producing event occur within the defined coverage territory, but most policies define that territory as anywhere in the world. (Anatomy of a Liability Insurance Policy). Some auto policies exclude loss in Mexico. However, it very rare that “where” become a coverage problem.
“Yes” is the preferred answer. If the policyholder has not paid the premium, a policy may not be in force when a liability producing event occurs. This can be a very serious issue, as juries tend not to sympathize with those who simply fail to pay their bills. However, as an example, insurers that require a policyholder to “remit” payment by a certain date may invite controversy whether the policyholder must put the check in the mail by that date or whether the insurer must receive the check by that date.
“No” is the preferred answer. Most liability policies have cooperation, no voluntary payment, and no action clauses that must be satisfied to perfect coverage. (Control of Settlement). Satisfying these provisions usually occurs after the defense of a plaintiff’s lawsuit has commenced. It is best to eliminate these provisions as coverage defenses at an early stage.
Also, the Cumis Test is that an insurer must provide independent counsel to defend the policyholder unless all grounds to deny coverage have “nothing to do with” the subject matter of the liability dispute, such as violations of policy conditions. (Cumis Attorney Disqualification Test – When Does the Right to Independent Counsel Vest?) If the insurer admits that it does not challenge coverage on any ground of violating a policy condition, the fact may support a claim that the insurer must pay for Cumis counsel.
[k]nowingly committ[ed] or perform[ed] with such frequency as to indicate a general business practice.” The statute then specifies a series of unfair practices and regulations flesh out behavioral requirements of a liability insurer. Terms of an insurance policy impose enforceable duties on an insurer. Case law also specifies an array of duties owed by an insurer to its policyholder.
Always provide ethical dependent counsel to defend the insured?
While liability insurance companies promise to defend their policyholders in lawsuit, insurers cannot lawfully discharge this duty itself, since insurers are not licensed to practice law.
Compel your insured to surrender control of the lawsuit you agree to defend?
Disclose to the insured that when coverage is disputed, your interests and the interests of the insured are always divergent?
Permit the policyholder to conduct the defense if he, she, or it chooses to do so?
Disclose to and assist the insured to get all benefits that might reasonably be payable under a policy?
Analyze whether your reservation of rights creates a conflict of interest which creates a duty on your part to provide independent counsel to the insured?
Provide independent counsel to the insured unless your reservation of rights is limited to coverage disputes that have nothing to do with the issues being litigated in the lawsuit?
Hire dependent counsel to conduct the defense?
Require dependent counsel to comply with Rule 3-310?
Disclose to the insured that you and dependent counsel have an obligation to explain to the insured the full implications of joint representation?
Always offer to pay for independent counsel unless your reservation of rights is limited to coverage disputes that have nothing to do with the lawsuit?
Pay for independent counsel unless dependent counsel complies with Rule 3-310 or the insured waives the right to independent counsel?
Your written standards for the prompt investigation and processing of claims?
“Every insurer shall conduct and diligently pursue a thorough, fair and objective investigation.” (Cal. Code Regs § 2695.7(d).) See INVESTIGATION above.
All writings describing the terms of your engagement of dependent counsel including the number of times you hired dependent counsel the total you have paid to dependent counsel for each of the last three years?
Most insurers establish a “panel” of approved defense counsel to whom claims agents are authorized to assign the defense of policyholders. Often an insurer’s website may include information as to how lawyers may seek to qualify as “panel counsel”. Upon being approved, usually the insurer will establish the terms of employment for all cases that may later be assigned.
Information regarding specific cases may be immune from disclosure because of confidentiality, but gross information such as the number of assignments should not be protected. Often the law firm will assign file numbers to each case, which number has code that identifies the insurer and includes a sequential number identifying the number of cases assigned by that insurer.
Information regarding specific cases and confidential financial information may be immune from disclosure because of confidentiality, but gross information about total revenue may not be protected.
The names and contact information for all attorneys retained by you in the ordinary course of business in the defense of similar actions in the community where the claim alleged in the lawsuit arose or is being defended?
“The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended. This subdivision does not invalidate other different or additional policy provisions pertaining to attorney’s fees or providing for methods of settlement of disputes concerning those fees.” (Civ. Code § 2860(c).) Some insurers will assert that they pay an hourly rate that is less than the rate actually paid. Contacting all panel counsel may yield the true rates paid and may also yield whether unlawful behavior qualifies as a general business practice, to establish violations of Insurance Code §790.03(h) and Business & Professions Code §17200.

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