By Frank Kowalkowski
The Daily Record Newswire
In a perfect world, business-to-business deals would go off without a hitch, and consumers would be satisfied with their purchases.
Unfortunately, the world we live in is far from perfect, which leads to dissatisfied customers, lawsuits and insurance coverage disputes.
As a result, every business owner should have a plan for how to react to a claim filed against the company. This includes dealing with the claim and the potential insurance issues relating to that claim.
In fact, once a claim is made against a company, insurance issues are the first thing that should be considered. More often than not, a lawsuit regarding allegedly defective construction will include a dispute over whether the builder’s insurance company is obligated to pay the claim or defend the builder by paying for an attorney.
When dealing with such insurance issues, businesses should ask the following questions:
What is the difference between an insurance company defending a lawsuit and providing coverage for the actual claim?If the thing a business is being sued for is covered, the insurance company will pay the plaintiff for whatever damages they prove. Defending the lawsuit requires the insurance company hire an attorney to respond to the lawsuit and represent the defendant in court. Insurance companies only have a duty to defend a claim if it is covered under the insured’s policy. But sometimes early in a lawsuit, it is not clear if some or all of the plaintiff’s claims are the type for which there would be coverage. In those cases, the insurance company usually has to pay for a lawyer and other defense costs until it is determined there is not coverage.
Does a company need its own attorney before it submits the claim?Given that so many lawsuits dealing with defective construction lead to disputes with the insurance company, companies should consult with their attorneys as soon as possible. Whenever a sound legal argument can be raised by one’s insurance company to avoid having to provide defense or pay for a claim, it will be asserted. Companies should seek legal help to make sure they are not accidentally doing something that helps their insurance company deny the claim.
If the claim is covered, can companies choose their own attorney to defend them? It depends on how the insurance company responds. If the insurer agrees it has a duty to defend the insured company and pay for all the damages the plaintiff is asking for, the answer is probably no. Under that scenario, the insurance company has the right to control the defense per the policy language. If the insurer agrees to defend the insured but reserves the right to later argue there is no coverage, the insured may have the right to have its own attorney.
If the insurance company denies coverage, is there anything a company can or should do?Companies should not automatically accept an insurance company’s decision that there is no coverage and therefore no duty to defend. They should have the matter reviewed by an attorney to consider if a claim against the carrier is warranted. It is also important to note that companies are ahead of the game if at a minimum they get the insurance company to pay for their attorney fees.
Facing a lawsuit can be one of the scariest situations a business will face. But understanding what is covered will make the process of defending a lawsuit a little less stressful.
Frank Kowalkowski, a shareholder with Davis & Kuelthau S.C, Green Bay, specializes in construction law, including contract formation, construction liens and construction litigation.
