Some Advice Before Pushing That Nuclear Button . . .


“Wouldn’t you prefer a good game of chess?”
Joshua, WarGames

I know what you’re feeling. You have a significant business loss you think should be covered by your commercial insurance policy. Given the amount you spent on premium at renewal, you’re thinking it had better be covered. You’ve notified the carrier, waited patiently for the investigation to be completed . . . but you still don’t have an answer.

“Enough!” you exclaim after a couple months of waiting, “I’m getting a lawyer!” So you do a Google search and find numerous lawyers willing to represent your business to recover those insurance proceeds, some of which will even do so on a contingency basis. “Perfect!” you say, “We’ll be able to keep litigation costs to a minimum!”

Your new aggressive lawyer sends a demand letter to the insurer, threatening a lawsuit complete with bad faith claims if insurance proceeds are not received within 30 days. The insurer balks so your lawyer files a lawsuit on Day 31 seeking everything but the kitchen sink, including claims for punitive damages to make an example of that no-good insurer. At a minimum, just the possibility of being hit with punitive damages should cause the insurer to curl up into the fetal position and finally pay up, right? “Eeeexcellent!” you cackle in your best Montgomery Burns impression. Just a matter of time now.

And then it happens . . . after two years of litigation you lose the lawsuit and in turn your coverage, after a judge sides with the insurer. Failing to take all pre-lawsuit opportunities to resolve the claim amicably may have lost you the opportunity for coverage. What could you have done differently to avoid this outcome?


There may be understandable reasons for the insurer’s delay. For example, property insurers were hit particularly hard in mid/late 2017 due to natural disasters such as Hurricanes Harvey, Irma and Maria, as well as wildfires in Western states. Resources, such as claims adjusters, have to be triaged and deployed to those major losses at the expense of smaller claims, comparatively speaking. Notwithstanding, it’s perfectly acceptable to ask the insurer “WTF?!!?” Even better, hire a lawyer to assist you with resolving your claim amicably, as a professionally-worded “WTF?!!?” from counsel typically results in quicker engagement by the adjuster.

Continued patience, thoughtful strategy and focus on the ultimate goal—i.e., maximizing insurance recoveries—should take precedence over immediately pushing the nuclear button. Going straight to aggressive overtures and threats will simply result in the claims adjuster handing the matter over to the legal department for further handling. This is especially the case when the nuclear phrase “bad faith” is made, and even more so when that phrase is uttered by your lawyer.

Don't get me wrong, there is a time and place for such hostility, but not until after exhausting every amicable pathway available, and only if you have a solid basis for asserting such a claim (hint: now is not the time to lose credibility). And consider that the insurer’s in-house coverage lawyers may be more inclined to find opportunities to deny coverage outright than the previous claims adjuster, who at the time was interested in negotiating the claim. I know, because I’ve been that coverage lawyer inside the insurance company.

Know Your SOL, or You’ll Be SOL

While tapping into your rejuvenated patience, keep in mind there will be a statute of limitations effectively barring lawsuits filed after that deadline. These statutes can vary, not only by state but also by nature of claim asserted (e.g., contract vs. tort). Make sure to look at your policy, since there will likely be a provision further limiting such deadlines. In fact, many policies require a lawsuit against the insurer to be filed within one year of the inception of loss. Beware, that one-year period could begin to run from the date of the event of loss itself, not the date you discovered that loss.

If a delay by the insurer is running up on one of these deadlines, make sure to ask the insurer for an agreement to toll or extend them while the parties are amicably attempting to resolve the claim. There should be no problem getting this agreement, and absolutely do not wait until after the deadline to take action or else it’s over! Your coverage attorney should be well-versed in tolling agreements and capable to negotiating these with the insurer.

Assuming you have a tolling agreement in place, or otherwise still have several months to spare, it’s time to learn more about the insurer’s investigation, reasonably cooperating as required under the policy. Research cases which could be favorable or adverse to your position and evaluate the respective merits of each other’s positions. Listen and don’t be so quick to go on the offensive. Definitely don’t concede any positions from the insurer that could have adverse consequences later, especially in writing (hint: those will likely become exhibits if a lawsuit is filed). You should also review and consider potential litigation strategies and outcomes . . . just don’t let your insurer know that you are doing so!

By Failing to Prepare, You are Preparing to Fail

At some point, you will get the insurer’s final settlement position. Armed with this information, think about the following:

· Is the insurer willing to pay something now? If so, how much?

· How much will it cost to sue the insurer from a fees and costs standpoint through   different stages of litigation (e.g., motion to dismiss, motion for summary     judgment, trial, appeal)?

· What are the chances you could lose at each stage?

· What are the chances you could win, including chances of prevailing on a   dispositive motion?

· Assuming a win, what is the likely amount of recovery (hint: you are more likely   to win contract damages than bad faith tort damages)?

Consider the drain litigation could have on management time and resources, especially during the onerous discovery stage. Consider also the possibility of gaining a reputation as a litigious insured and burning bridges with insurers who tag you as a “problematic risk,” which could harm you upon renewal.

Balancing and evaluating the responses to these inquiries against the settlement opportunity in front of you enables sound business decision-making. And it is certainly less risky than just throwing up your arms, pushing the red button and then hoping you’re not part of the fallout radius. At the end of the analysis, you may find that the insurer has already offered you a best-case scenario from a net standpoint.

The decision to go nuclear should always remain the very last option, and only after all other options have failed and you fully understand the business consequences of doing so. As always, we’re here to help.