In many personal injury and first party real property damage cases, determining the availability and amount of insurance is more difficult than determining liability or computing the amount of damages. The following excerpt is from an actual adjuster’s file where a policy limits demand was denied based upon a claim of no coverage:

It is coverage counsel’s opinion that the value of the underlying case is in the $5 million range, and with a semi-comatose, 28-year old woman, with serious head injury and specials in the $400,000 plus range at this time, I can’t argue with him, especially when you consider the cost of long-term care, future wage loss, etc.

On the issue of our coverage applying or not, it is counsel’s opinion that our policy is ambiguous, and that we stand a good chance of losing that argument. If it is found that coverage should apply, then our exposure as a company is for the full value of the underlying claim, plus whatever could be awarded in a bad faith action….

It is often the case that clear liability in catastrophic injury cases initially involves primary insurance at minimum levels. The search for additional coverage includes excess or umbrella insurance, other negligent parties, and insurance policies of vicariously liable parties such as employers.

Setting Up Additional Insurance Policy Claims

Employers’ insurance policies are additional insurance policies that shouldn’t be missed in catastrophic injury cases. They are usually commercial general liability policies and they are written much like homeowners policies with specific exclusions relating to automobiles. Additional coverage for employees operating in the course and scope of employment can often be added for a nominal extra premium. The business owner and his employees may be unaware of the insurer’s attempt to exclude auto coverage. If auto coverage is not added many smaller businesses may be incapable of paying catastrophic injury damages.

An assignment of the defendant’s rights against the Commercial General Liability (CGL) carrier in exchange for a covenant not to execute may be the best alternative to protect the victim’s rights. This places the victim in the position of a first party claimant against the insurance policy.

Whenever a claim is made against a policy, the claims department must make an initial determination of coverage. The determination is perfunctory in many routine cases. In cases of questioned liability there is often uncertainty in the claims department about the existence of coverage. This uncertainty may be recorded in the regular adjusting documentation. Memoranda between claims personnel often contain statements showing the insurance company’s own confusion about coverage. These comments may be the best evidence of liability in a subsequent case.

Even if the file contains no written statements, similar evidence can be obtained through deposition. The claims personnel often leave the original company and, if questioned properly, will admit difficulties in interpreting policy provisions. A disgruntled former agent can shed a great deal of light on claims decisions reflected in a file. In the bad faith litigation that inevitably results, the insurance company will attempt to raise objections to the right of assignment, the right to claim ambiguity, the reasonable expectation of its insured, and its duty to explain the policy.

Lee S. Harris is a partner at Goldstein, Gellman, Melbostad, Harris & McSparran based in San Francisco including the North and South Bay Areas. He has represented injury and insurance clients in numerous disaster claims. He has also served as chair of the American Association for Justice, Insurance and Bad Faith Litigation groups and serves on the board of Consumer Attorneys of California.