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Evan Knott

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In a world of uncertainty, few things in life are more guaranteed than liability insurers reflexively rejecting claims for pre-notice defense costs, even where there is no legitimate or principled basis to do so. In a perfect world, insureds would immediately notify their insurers as soon as a claim or suit arises to avoid insurers refusing to pay or credit pre-notice defense costs. But companies operating in the real world for various reasons sometimes investigate and defend claims or suits before formally notifying their insurers.  In that circumstance, insurers should not be permitted to avoid their coverage obligations for so-called “pre-tender” defense costs for each of the following reasons.

Many courts only require notice to the insurer – not “magic words” or a formal “tender” – to trigger an insurer’s defense obligations

Insurers often argue their defense obligations only arise after the insured formally “tenders” or specifically requests a defense of a claim or suit, even though many courts have flatly rejected this premise. E.g., White Mountain Cable Constr. Corp. v. Transamerica Ins. Co., 631 A.2d 907, 910 (N.H. 1993) (“in order for an insured to tender the defense to the insurer, it need only put the insurer on notice of the claim”). Indeed, many courts correctly have held that the insurer’s defense obligations are triggered upon receipt of “actual notice” from any source – even if not directly from the insured seeking coverage. E.g., Cincinnati Cos. v. West Am. Ins. Co., 701 N.E.2d 499, 505 (Ill. 1998) (“the insurer’s duty to defend is triggered by actual notice of the underlying suit”).  Absent specific policy language or legal precedent to the contrary, insureds should not be required to formally “tender” or request a defense to obtain the benefit of its coverage once the insurer is on notice of the claim or suit – particularly where the insurance policy delegates the duty to defend to the policyholder rather than the insurer.Continue Reading Maximizing recovery of pre-notice defense costs: Considerations for policyholders

Businesses with liability insurance coverage governed by Illinois law should be mindful to take advantage of Illinois’ “targeted tender” rule, which provides insureds a unique strategy for maximizing insurance recoveries for claims triggering multiple different policies. This rule recognizes an insured’s right to “target tender” one or more concurrent insurance policies from a group of policies that potentially apply to a claim against the insured, regardless of insurer efforts to offset their insuring obligations through “other insurance” or contribution.  Kajima Constr. Svcs., Inc. v. St. Paul Fire & Marine Ins. Co., 227 Ill.2d 102 (2007); John Burns Constr. Co. v. Indiana Ins. Co., 189 Ill.2d 570 (2000). Once an insured targets its tender to a particular insurer, “[t]hat insurer may not in turn seek equitable contribution from the other insurers who were not designated by the insured,” who may knowingly forgo an insurer’s involvement. John Burns, 189 Ill.2d at 575.

Illinois insureds can “target tender” away from policies with high retentions or deductibles

The “targeted tender” rule thus is particularly powerful for insureds trying to avoid or minimize the amount of risk they must absorb from “fronting” coverage or policies with substantial self-insured retentions or deductibles. For example, assume a construction company is sued in a wrongful death lawsuit after one of its truck drivers hauling heavy equipment to a job site runs over a pedestrian. The underlying complaint alleges liability triggering the construction company’s commercial auto coverage, which provides dollar-one defense coverage outside of policy limits, as well as the company’s professional liability coverage, which is subject to a $2 million retention before any coverage attaches.  After the construction company notifies both insurers of the lawsuit, they agree to split the insured’s defense costs 50/50, but the professional liability insurer refuses to reimburse any of its 50% share of the defense costs until the $2 million retention has been satisfied. Working with knowledgeable coverage counsel, the insured construction company can obtain a fully funded defense of these lawsuits by “targeting” its tender solely to the commercial auto insurer.Continue Reading “Illinois’ ‘targeted tender’ rule – a powerful strategy for insureds to select and deselect triggered policies to maximize coverage

Businesses in the dietary supplement supply chain are taking cover after the New York Attorney General (NYAG) ordered four major retailers to cease and desist the sale and alleged mislabeling of certain herbal supplements. After genetically testing store-brand product samples of Ginko Biloba, St. John’s Wort, Ginseng, Garlic, Echinacea, and Saw Palmetto, the NYAG alleged that the supplements were unrecognizable or contained substances other than those disclosed on their packaging labels. Class action lawsuits already have been filed, and the NYAG directed the targeted retailers to provide it with detailed information regarding the manufacturing, testing, and procurement of the herbal supplements, and announced that it may bring charges for alleged deceptive practices in advertising.
Continue Reading Pursuing Insurance Coverage for Alleged Mislabeling of Dietary and Herbal Supplement Products

On December 19, the U.S. Centers for Disease Control and Prevention (CDC) recommended that U.S. consumers not eat any commercially produced, prepackaged caramel apples and that retailers not sell or serve them as they continue to investigate an outbreak of listeria monocytogenes which has infected at least 28 people from 10 states. The CDC has yet to identify the producer of the contaminated apples. Accordingly, the number of market players in the supply chain who will be affected by this recommendation – from farms through supermarkets – remains unknown.
Continue Reading Another Listeria Outbreak Reminds Food Industry to Revisit Insurance Program