By Steven Wiley | August 13, 2014 at 03:41 PM EDT | 1 comment
People and businesses purchase liability insurance to protect themselves and their assets against the potential of liability to others. Some types of liability coverage, such as car insurance, may be mandated by law while others, like homeowner's insurance, may be required by a mortgage company in order to qualify for a home loan. Without liability coverage, many people and businesses would not have the resources to defend claims made against them or to pay a verdict against them. Likewise, from the perspective of an injured person, liability insurance may provide them with a source of monetary compensation that may not exist were it not present. Liability insurance is vital not only to our justice system, but also to our economy as a whole.
From the insurer's perspective, the formula is simple--collect the greatest amount possible in premiums while paying out the least possible amount in defense costs, settlements and verdicts. Sometimes, insurers will claim a lack of coverage in order to seek to avoid covering the defense costs and/or liability of an insured. This can lead to a coverage dispute and, potentially, to a bad faith claim against the insurer.
In Virginia, even in situations where coverage is contested, an insurer may have a duty to defend its customer, even if there ultimately is no duty on its part to indemnify (i.e. pay an award against its insured) the customer. In other words, the standard for triggering the duty to defend is lower than the standard for a duty to indemnify. The insurer's duties are governed by the terms of the policy. Virginia law provides that ambiguities in policy language are to be interpreted in a manner so as to grant coverage. In examining the policy language, Virginia courts use the so-called "eight corners rule," meaning that only the allegations made against the insured and the provisions of the insurance policy are examined to determine whether coverage exists.
Virginia law provides for the ability of a policy holder to sue their insurance company under a breach of contract theory if the insurer denies coverage in bad faith. Not every coverage dispute, even if ultimately decided in favor of the insured, will necessarily amount to a successful bad faith claim, as courts will look at various factors surrounding the denial including the reasonableness of the insurer's position and decision-making process. A successful plaintiff in a bad faith claim against an insurer may be entitled to compensation for their damages incurred due to the insurer's failure to act in good faith. Additionally, Virginia statutory law
provides for the recovery of attorney's fees and costs associated with the insurance company's bad faith denial of coverage.
If you find yourself in a position where you have been denied coverage for a claim made against you, please give me a call. I would be happy to discuss your potential rights with you.