How You Can Lose Insurance During Litigation
Being sued can be a difficult and trying time for many people. After being served with legal papers, individuals and companies may wonder how they will be able to defend themselves, and whether they will have to go out-of-pocket to deal with a lawsuit. Fortunately, many people and companies have insurance policies that cover events that are disputed in litigation. An insurance company will typically pay for a lawyer to defend an insured, and will also pay for judgments or settlements for an insured up to a set limit. Nevertheless, there are a number of ways how you can lose insurance during litigation.
Not Assisting in the Defense
Almost all insurance policies have provisions which require insureds to assist in their own defense when an insurance company defends them during litigation. Insureds themselves are in the best position to know facts relevant to a lawsuit, and usually need to furnish materials to their lawyers over the course of a case. Furthermore, insureds usually need to sit for a deposition at one point or another during a lawsuit.
Nevertheless, one way how you can lose insurance during litigation is if a party does not participate in its own defense. If insureds do not respond to repeated requests for information or do not furnish necessary materials, they can lose their insurance coverage. In addition, if parties do not sit for a deposition, this can have serious consequences on a lawsuit and can lead to the loss off insurance coverage. It is important to note that noncompliance must be relatively severe to force an insurance company to drop coverage, since insurance companies can get into trouble if they drop coverage unnecessarily. Nevertheless, parties need to respond to all demands for information and assist in their defense to avoid losing insurance coverage.
Errors or Misrepresentations on Insurance Applications
Another way how you can lose insurance during litigation is if there are errors or misrepresentations on your insurance application. When an insurance company decides to extend you insurance, they rely on the representations made in insurance applications and supporting materials. This information will also determine the amount of policy premiums, since the information on insurance applications may indicate that a party is riskier to insure.
During litigation, an insurance company may discover more information about an insured than they knew when they decide to extend coverage to a party. This is because a carrier generally learns about the operations of an insured, steps they take to minimize risk, and other details about a party that may be difficult to verify when a party submits an insurance application. If the information an insurance company learns about an insured during litigation conflicts with the details on an insurance application, and insurance carrier may discontinue coverage of a party. Furthermore, parties may face other civil and criminal penalties for misstatements and omissions on insurance applications. As a result, it is very important to be truthful on insurance applications and supporting documents to avoid a situation in which an insurance company withdraws coverage of an insured.
Declaratory Judgement Action
Another way how you can lose insurance during litigation is if the insurance company decides to file a declaratory judgment action against a party. A declaratory judgment action is when a party (such as an insurance company) asks a court to determine the rights and responsibilities of that party with respect to other parties to the litigation. Declaratory judgment actions are common when there is a question about whether an insurance company has a duty to defend an insured in a given lawsuit.
Sometimes, when it is a close call between whether an insurance company has a duty to defend an insured, the insurance company will still assign a lawyer to defend an insured in a pending case. This is because the insurer does not want to disclaim coverage too easily, or else they may be perceived to be acting in bad faith. At the same time, they may file a declaratory judgment action to seek a determination about whether the insurance company really has a duty to cover an insured in a given lawsuit. As a result, it is important that insureds defend against declaratory judgment actions filed by insurance companies so they have the best chance at maintaining insurance coverage in the underlying lawsuit.
Failure to Pay Premiums
Another common way how you can lose insurance during litigation is for failing to pay premiums. If an insurance company discovers that an insured has failed to pay insurance premiums as agreed, they can discontinue coverage during a lawsuit. As a result, it is important for parties to pay all insurance expenses when they become due. Some insurance companies allow insureds to pay for an entire year of premiums in advance, which may avoid a situation when a party fails to pay their premiums. In addition, it is sometimes possible to have premium payments paid automatically so parties do not forget to make a payment. These options should be considered so parties do not risk a situation where they lose insurance coverage during litigation.
The Rothman Law Firm is experienced with many insurance law issues, and we can defend insureds in lawsuits covered by insurance or work on declaratory judgment actions filed by insurance companies. If you are looking for a New York and New Jersey attorney experienced with commercial or insurance law issues, please feel free to contact The Rothman Law Firm to request a free consultation.