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You are here: Home / Voices & Views: Insurance Interviews, Op-Eds & Podcasts / InsurOp-Eds / InSurOp-Ed: In Claim Disputes, Disregard Case Law At Your Own Risk

InSurOp-Ed: In Claim Disputes, Disregard Case Law At Your Own Risk

May 10, 2022 by Bill Wilson

Legal Decision


The International Risk Management Institute has several free newsletters. Recently, I received my copy of the IRMI Construction Risk Manager newsletter which featured a court case, Security Nat’l Ins. Co. v. Construction Assoc. of Spokane, No. 2:20-cv-00167, 2022 U.S. Dist. LEXIS 53533 (E.D. Wash. Mar. 24, 2022), that involved whether a general contractor was an additional insured under a subcontractor’s CGL policy.

But the issue I’d like to address in this article is, according to newsletter editor Ann Hickman, CPCU, CRIS, ARM, the court’s holding the insurer “in bad faith for denying a claim without making a reasonable attempt to review the legal precedent cited by the insured’s counsel.” According to Ann, the court held that “insurance companies must take reasonable steps to ensure adjusters are equipped to make appropriate coverage and defense determinations. ‘Such steps could include teaching adjusters to run case searches or, more likely, supplying adjusters with subscriptions to relevant legal newsletters, a resource most attorneys rely on to keep apprised of legal developments,’ the court opinion states.”

I make precisely this point in my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes.” In the book, I devote over 70 pages to 17 legal and contractual principles that can be used to resolve such disputes. One of these principles is what I refer to as “Unconscionable Advantage.”

In my discussion of this principle, I cite the following court case:

“In situations where a layman might give the controlling language of the policy a more restrictive interpretation than the insurer knows the courts have given it and, as a result, the uninformed insured might be inclined to be quiescent about the disregard or non-payment of his claim and not to press it in timely fashion, the company cannot ignore its obligation. It cannot hide behind the insured’s ignorance of the law; it cannot conceal its liability. In these circumstances it has the duty to speak and disclose, and to act in accordance with its contractual undertaking.” — Bowler v. Fidelity & Cas. Co., 53 N.J. 313, 327-328, 250 A.2d 580, 588 (1969)

More specific to the Security National decision referenced in the IRMI newsletter, the Bowler decision expresses how important and valuable governing case law can be to a claim. If the insurer is made aware of case law under identical or significantly similar circumstances where coverage has been found, it is with great risk that it continues to deny the claim. In fact, consider the following case cited in my book [emphasis added]:

“An insurer bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy irrespective of the source of the information.” — Smith v. Travelers Indem. Co., 32 Cal. App. 3d 1010, 1017, 108 Cal. Rptr. 643 (Ct. App. 5th Dist. 1973)

The adjuster and insurer failed to acknowledge the case law cited by the claimant’s attorney. Governing case law is often critical to resolving claim disputes and, as the Security National case illustrates, this does not mean just the case law one party believes supports its opinion.

Finally, as my book in its entirety demonstrates, not only is case law of value, but ANY reputable source of credible, substantive and material authority may be relevant.

Agency Checklists, MA Insurance News, Mass. Insurance News, Bill Wilson, Insurance Commentary

Bill Wilson, CPCU, ARM, AIM, AAM

Founder at InsuranceCommentary.com

One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America.

Copyright 2016-2021 by InsuranceCommentary.com. Reprinted with permission.

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