Insureds, Prior Knowledge and Insurance Coverage

Posted By Stephen D. Rosenberg In Claim , Coverage Litigation , Coverage for Professional Services , Exclusions , Known Loss Doctrine , Misrepresentations in Insurance Applications , Notice , Professional Liability Policies
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One of the more ambiguous and gray areas in insurance coverage law is the question of when an insured is or should be aware that a claim is on its way. The law recognizes that this can certainly occur at some point before the insured actually is handed suit papers by a process server, but the law is certainly not crystal clear as to when that is. This is a question of particular importance for insureds because various contractual policy terms in a policy and various common law principles read into the insurance relationship can all preclude coverage if that date is deemed to be before the effective date of the insurance in force when the insured actually is served with the suit papers. For instance, many policies contain terms precluding coverage if the insured knew or should have known of the potential claim before a policy took effect and, for that matter as well, failure to disclose an expected claim in applying for a policy can result in the policy being voided for misrepresentation in many jurisdictions.

Of interest on this topic is this article here at Law.com concerning whether attorneys, covered under professional liability policies, are on notice in this manner whenever an unhappy client complains about a case or, if not whenever the client complains, how much complaining is necessary for the insured to be aware that a claim is likely and to lose coverage as a result if and when that client does file suit. A new declaratory judgment action filed in New Jersey seeks to answer that particular question. Of particular interest to me, however, is the fact context in which the complaining arose. It concerned a client unhappy with the terms of a settlement negotiated by the insured attorney. It’s a cliche of mediation, uttered by every mediator trying to push two unhappy parties to reach agreement on a resolution, that “a good settlement is one where both sides are unhappy.” Well, if that’s the case, then does the complaining after the fact mean that the lawyers involved are always thereafter on notice of a potential claim that they have to report to their malpractice insurers? It would be kind of silly to have a legal rule holding that the usual griping that often accompanies settlement has to be reported to the lawyers’ insurers to protect their rights to coverage in those one out of a million times that the complaining eventually morphs into a malpractice suit. Admittedly, this is something of a deliberately far fetched example, but it does point out the practical considerations that have to be factored into the question of how far in advance of the filing of suit the insured’s obligations can attach. Too far in advance, and the legal rule creates an unworkable, burdensome scenario for all involved, including insurers who would have to process multiple and unnecessary notices concerning many events that will never lead to suit; not far enough in advance and insurers lose the protections those policy terms and common law doctrines were intended to provide.

At the Crossroads of Trade Dress Infringement, Restaurants and Insurance Coverage

Posted By Stephen D. Rosenberg In Insurance Coverage Trials , Intellectual Property Litigation , Notice , Voluntary Payments
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There is a very interesting and entertaining article - if you like law, food, restaurants, intellectual property, or any combination of them - in the New York Times this morning, about a seafood restaurant suing a newer, competing restaurant for, basically, replicating - allegedly, as the two restaurants don’t look all that much alike to me in the limited pictures that ran with the article - the older restaurant’s menu and look.

Although the article pitches the issue and the lawsuit as new, I actually participated in litigation of the exact same case, for all intents and purposes, some fifteen or so years ago, involving two Boston area seafood restaurants, and whether the newer one had committed trade dress infringement. The end result? The newer one was really, right down to the style of its menu and pretty much everything else you can think of, cloning the older restaurant, and I know from personal experience that the public was actually confused about whether the new restaurant was affiliated with the older one, because prior to the lawsuit I had always assumed they were affiliated. The newer restaurant settled by agreeing to a number of changes that would clearly differentiate the two restaurants, and both restaurants remain thriving, expanding businesses almost two decades later, an amazing thing given the short shelf life of most restaurants.

And beyond the curiosity factor of the case described in the article, we can actually bring this story back around to the title subjects of this blog, by noting that, in that case years ago, the newer restaurant later litigated with its insurer whether there was insurance coverage for that lawsuit and its costs of retrofitting the restaurant to distinguish it from the other restaurant as part of the settlement. The restaurant lost the suit, not because the policy did not cover it, but because the restaurant defended and settled the case brought against it by the older restaurant before even notifying its insurer about the loss. Under the state of the law in this jurisdiction at that time, the restaurant was found to have forfeited coverage under its policy because its actions breached the notice and no voluntary payments clauses of the policy to the prejudice of the insurer (the outcome of that coverage litigation might arguably be different today under current law in Massachusetts, or at a minimum, the restaurant would have stronger arguments for coverage today despite these facts then it did then). And why did the restaurant delay? Because it didn’t know there might be coverage under its policy for the claim, or just assumed there would not be, illustrating the first rule of being a policyholder: always, always notify your insurer whenever a claim arises, and let the insurer figure out whether or not there is coverage for the claim rather than making your own guess.