As I discussed my post “The Duty to Defend in Florida”, liability insurance policies have two distinct requirements. The duty to defend a policyholder against whom a claim has been brought and a duty to indemnify that policyholder for any damages awarded in that action. The duty to defend the policyholder against a claim is a broad duty. As I previously noted, an insurer is generally required to assume responsibility for the defense if the alleged facts and legal theories are the type that the policy could cover.
If liability is imposed on the policyholder, the next analysis to take place is whether the liability insurer has a duty to indemnify the policyholder and reimburse the damages awarded. Unlike the duty to defend, the duty to indemnity is narrow and determined by the underlying facts adduced at trial or developed through discovery. Regardless of the facts alleged or the legal theories advanced, if the true facts and circumstances show that the policyholder’s liability stems from a claim that is not covered by the policy, there is no duty for the insurer to pay the amounts ultimately owed.
In a situation where liability stems from a claim that is not covered by the policy, it is important to remember that an insurer is not obligated to indemnify the policyholder regardless of how the claims are resolved. Indeed a settlement of the action at mediation or through negotiations does not, by itself, obligate the insurer to pay for a non-covered claim. Instead, the insurer’s obligation to pay the settlement is measured by the facts existing at the time that the settlement is reached.
Associations are often the target of litigation, whether it be an injured visitor or any unhappy unit owner. It is important for everyone involved to be cognizant of potential litigation and what options may apply. When dealing with a potential claim, keep these tips in mind:
1. Contact your association’s general counsel immediately upon learning of a potential claim;
2. Speak with your agent or broker to find out what types of policies your association has and which ones may provide coverage;
3. Inform your agent or broker about the potential claims and ask him to notify your liability insurance carriers of the issues. Failing to notify the carrier promptly of a potential claim may relieve them of any obligation to defend or indemnify the association;
4. If the insurer intends to retain counsel to represent your association, find out more about the attorney they are choosing. Ask how much experience they have in handling issues such as yours and how many cases they have successfully litigated on behalf of condominium associations;
5. If you are not comfortable with an attorney selected by your insurance company, speak with the adjuster or representative handling your claim. Tell them of your concerns and discuss other options;
6. Stay informed throughout the litigation. Ask the attorney to provide periodic updates to the board on the status of the claim and any major events.
7. Discuss potential settlement with your attorney early and often. Some claims can be resolved quickly and for small amounts of money. Talk with your attorney about the other party’s expectations and demands to see if a mutually agreeable settlement can be reached.
8. When you are contemplating a settlement, get confirmation that your liability carrier will be paying the bill. Before signing anything, make sure your insurer confirms coverage not only for the defense, but for the indemnification as well.