Corporate litigation is expensive. The expenses come in multiple forms, often the highest of which is lawyers’ fees. Insurance can be a critical resource to defray those fees. In fact, general liability insurance often is termed “litigation insurance” because it provides financial assistance when companies hire lawyers and other professionals to respond to lawsuits against them.
Defense fee coverage contained in those policies is crucial because it pays even if the claim against the company has no merit—the policy pays for the company to hire lawyers to avoid liability for unsupported claims. Thus, the benefit of defense fee coverage never should be overlooked. However, the extent of that coverage is not always understood.
3. “Uncovered parties or claims”. In most states, if a complaint includes a covered claim, the insurer must pay for the policyholder’s entire defense, which may include the defense of uncovered claims. Insurers often argue that if they can prove that defense expenditures have been incurred solely to address an uncovered claim or party, the insurer can avoid paying those expenditures. Policyholders should reject that approach.
Often, defense fees incurred solely to address an uncovered claim or party is covered if they “benefitted” a covered claim or party. For example, a company and its consultant might be sued for alleged misstatements in public documents. The company’s insurance does not cover the consultant. However, it might help the company to reduce its exposure in the litigation to hire counsel for the consultant or, otherwise, coordinate its defense with the consultant’s defense. In that circumstance, the money spent by the company with respect to the consultant’s defense could be covered under the company’s policy.