Being on the receiving end of a liability demand can be a nightmarish experience for business owners, especially if the demand includes compensation for claims of substantial monetary and other damages. If you have purchased business insurance which includes generous liability protection, you may be both relieved and astonished at just how powerful this form of coverage can be in defending you against such claims. However, what is the correct process for responding to a liability demand? Let’s examine how these demands can affect your business and what steps you need to take to protect yourself.
Step 1:
Find Out Whether Your Insurance Company Will Cover Your Defense
The first step is finding out whether your insurance company offers, not only liability coverage, but also legal defense on your behalf. Liability policies typically include indemnification, or coverage against financial losses up to the limit of your particular plan. But many policies also include a promise to defend. This part of the policy states that the insurer has a duty to engage legal counsel as well as covering legal fees and costs related to any covered claim.
While the duty to defend can provide powerful protection, it’s important to note that it may come with limitations. For instance:
- The civil suit in question must actually be defined as such under the law.
- Does the policy cover contractual/commercial disputes or only torts?
- Intentional injury or damage will not qualify as an “accident” or “occurrence,” thus excluding it from your range of coverage.
- The insurer’s definition of “property damage,” “compensation” or “personal injury” may not match the exact circumstances of your case.
As you can see, not all liability coverage handles the same situations in the same ways. Some liability policies may not include the duty to defend at all. It’s absolutely critical that you study your policy carefully to see how thoroughly you’re covered and whether you might need to engage legal counsel separately.
Step 2:
Make Sure Proper Notice of the Claim Has Been Made
If you’ve received a liability demand and you want your business insurance to cover you, you’re usually required to give notice to your insurer within a certain amount of time of becoming aware of this claim and/or demand. This amount of time will be defined in the insurance policy itself, the law on the subject or a combination of both. By providing your insurer with the necessary information as early as possible, you give everyone involved the opportunity to review all the data, perform an investigation, and figure out what degree of coverage you’re entitled to. In some situations, if a claim is provided beyond the stated deadline, the insurance carrier has no obligation to either defend the claim or provide payment.
You must make your notice or submittal of a claim as required in your insurance policy, using proper forms appropriate for your insurance carrier. As soon as you inform your insurer of a potential liability occurrence, the insurer will need to supply you with these forms. If they fail to do so, you may submit your written claim in your own words.
Step 3:
Read Your Policy and Consult With Your Attorney, Broker and/or Agent
You have the right to understand every detail of your business liability coverage. Make sure you’ve read every word of your policy carefully, checking both the indemnity coverage limits and the clauses covering the insurer’s duty to defend. Then contact legal counsel, your insurance broker or agent, state the details of your dilemma, and schedule an immediate consultation so you can get started in protecting the business against the claim.
© 2019 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
