Properly Articulating Injury Claims Proves Essential for Coverage

Many people assume that evaluation of potential coverage for a claim begins with the initiation of a lawsuit and analysis of the allegations in the complaint. But if you’re waiting that long to consult coverage counsel, you’re missing out on opportunities to facilitate a smoother path to a defense and even potentially indemnity from the insurer. While there are rare cases in which a plaintiff is particularly vindictive, most of the time they just want to be made whole. At the end of the day, all dollars are green, so it’s in the plaintiff’s best interest to work with their counsel to articulate claims in a way that will trigger coverage and avoid standard exclusions.

Strong candidates for this strategy are the “personal and advertising injury” offenses covered by standard Commercial General Liability (“CGL”) policies. Unlike many other insuring provisions that require an “occurrence,” these “offenses” can be triggered even by intentional acts. Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1032 (2002) (“[T]here is no requirement for personal [and advertising] injury coverage that there be an ‘accidental’ occurrence. All that is required is that the injury arise out of the conduct of the insured’s business.”) Plaintiffs seeking the simplest route to insurance coverage should still be wary of the scienter-based Knowledge of Falsity and Knowing Violation exclusions, but most jurisdictions have ample case law to rebut a denial asserting those exclusions based solely on allegations of intentional conduct. KM Strategic Mgmt., LLC v. Am. Cas. Co. of Reading, PA, 156 F. Supp. 3d 1154, 1170 (C.D. Cal. 2015) (“‘An insurer does not meet its burden of establishing an exclusion’s application by pointing to unproven and disputed allegations in the very complaint it is called upon to defend.’”)

Even after initial pleadings have been filed, both parties can still make efforts to facilitate insurer participation. In states that consider extrinsic evidence, this is most easily done through developing such evidence that shows the potential for amendment of the pleadings. Scottsdale Ins. Co. v. MV Transp., 36 Cal. 4th 643, 654(2005) (“[T]hat the precise causes of action pled by the third party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.”) In CNA Cas. of Cal. v. Seaboard Sur. Co., 176 Cal. App. 3d 598 (1986), the court acknowledged that, at the time of the insurer’s denial, the Complaint featured no express causes of action that would implicate potential coverage. However, it noted that the insurer “had no grounds for concluding that the [underlying] lawsuit was ‘incapable of amendment’ to set forth explicit [covered] causes of action . . . ." Id. at 610.