REPORT EARLY, REPORT OFTEN
You have just learned that you have been sued. What is the next thing that you need to do after you have notified your lawyer?
If there is any possibility of insurance coverage, you need to notify your insurance carrier immediately. And if you are not sure if there is coverage or not, notify them anyway. In some states, the failure to report within the policy deadline (and there generally is one in your insurance policy) may be a partial or even full defense to insurance coverage. Your policy also will provide an address for that notice. Give notice there, not just to your agent.
Once you report the suit, you will receive a letter from your carrier either agreeing that there is coverage, reserving their right to determine coverage later but providing a defense, or denying coverage in full. When you receive that letter, you should let your company’s lawyer know.
While the receipt of a lawsuit is an easy case for reporting, the duty to report extends to having knowledge of the basis for a claim. It can be difficult to determine exactly when you have enough information to know that there is a possible claim that will be asserted against the company. From the standpoint of preserving coverage, it is generally better to err on the side of reporting a possible claim rather than waiting to see if things mature. In some situations, the insurance company will want to begin an investigation before the claim ripens to suit. An easy example is a car wreck. Folks know to report it to the carrier as soon as practical. A more difficult example might be some indication that there might be a products liability claim, employee related claim, or something else that you are either just finding out about or is just beginning to ripen into a claim. Your company’s lawyer can provide guidance in these situations.
Under many types of insurance coverage, the insurer provides a defense as a portion of the coverage. How that defense is going to be handled and whether or not it is necessary to have separate counsel for your company other than insurance counsel is something you should talk over with your company’s general counsel. You need to make sure your interests are being adequately protected and that you are receiving the full benefit of your insurance coverage. In some situations, it may even be necessary to take an adverse position to your insurance carrier in order to make sure you receive the full benefit under your policy.