Many articles (including this one) and many cases have addressed the duty-to-cooperate section of liability policies.
Every liability policy contains a cooperation clause. A common provision reads as follows.
You and any involved insured must:
- (1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit";
- (2) Authorize us to obtain records and other information;
- (3) Cooperate with us in investigation or settlement of the claim or defense against the "suit"; and
- (4) Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.
This provision is quite broad and subject to many applications. In most jurisdictions, the duty to cooperate is breached only if the insurer can show that the lack of cooperation by the insured has resulted in prejudice.
Common Applications
One of the more common applications is the duty to notify the insurer as soon as practicable and forwarding the suit papers to the insurer. If the insured does not forward the suit papers to the insurer and request a defense, then the insurer has no duty to defend under the policy, even if the insurer is aware of the claim or defends other insureds in the action. National Union Fire Ins. Co. v. Crocker, 246 S.W.3d 603, 608 (Tex. 2008).
The duty to cooperate also extends to the discovery process. Rieschl v. Travelers Ins. Co., 313 N.W.2d 615, 617 (Minn. 1981). Many insurance policies include a provision that requires the insured to submit to an examination under oath. An unexcused noncompliance may be a material breach of the cooperation clause and coverage may be denied. Wright v. Farmers Mut., 266 Neb. 802, 807 (2003). There may be legal excuses for nonperformance. The courts have recognized that death, physical or mental disabilities, or if the person is missing, may constitute a legal excuse for not being able to submit to an examination under oath. The insured is responsible for showing a genuine reason or condition for the noncompliance, otherwise it could act as a bar to recovery. Blackburn v. State Farm Fire & Cas. Co., 174 Ga. App. 157, 159 (1985).
Appearance at trial is also within the ambit of the cooperation clause. The insured has to appear at trial if his testimony is beneficial to the insurer and would otherwise result in prejudice against the insurer. If the insured's testimony would have been in no way beneficial, then nonappearance or failure to appear may be regarded as not causing prejudice. If the insurer is prejudiced by the failure of the insured to appear at trial, the insurer will not be liable for a judgment. Wallace v. Woolfolk, 312 Ill. App. 3d 1178, 1180 (5th Dist. 2000).
The testimony given at trial, depositions or claims made has to be truthful. If the insured intentionally misrepresents materially important information, it can operate as a bar to recovery and even entitle the insurer to recover any money that has already been paid to the insured for the claim. Quintin v. Miller, 417 A.2d 941, 942-943 (Vt. 1980). South Carolina has held that coverage will be barred only for the claims that were misrepresented, but Michigan holds that false claims regarding even a small portion of the loss may result in forfeiture of the entire coverage if the insured is shown to be clearly culpable.
Cooperation clauses often include provisions where the insured has to provide documents and paperwork to the insurer as part of the cooperation. The courts have held that the insurer can only ask for specific, claim-related documents. It cannot roam around documents, but has to be specific as to what the insurer wants to see and why it is relevant and has to explain the relevance of the documents to the insured who is providing the paperwork. Chavis v. State Farm Fire & Cas. Co., 317 N.C. 683, 687 (N.C. 1986). The insured's refusal to provide documents will be considered a breach of the cooperation clause if the insurer can show prejudice because of the lack of documents and their inability to evaluate the claim.
Gilbert Tex. Constr. v. Underwriters at Lloyd's
Recently, it has been suggested that the duty to cooperate may extend into areas not heretofore considered. In Gilbert Tex. Constr., LP v. Underwriters at Lloyd's London, 2010 Tex. LEXIS 407 (Tex. 2010), defense counsel moved for summary judgment on the only covered grounds leaving the insured exposed to causes of action that were uncovered. One of the issues raised was waiver and estoppel, and it was asserted by the insured that it was pressured by the insurer to file the motions for summary judgment and that if it had not, it would have breached the cooperation clause. The court found that Lloyd's was not defending the case, and therefore waiver and estoppel could not apply.
This case has raised a number of questions not heretofore answered.
- Can an insurer require the insured to move for summary judgment on the only covered claims? The answer to this question would appear to be that the case is against the insured, and the insured, despite the existence of the insurance contract, has the authority to make decisions about the defense of the case.
- The greater question is if the insured refuses to follow the instructions of the insurer, is it a breach of the duty to cooperate? There is no clear answer to this question. In large part, it will depend on the jurisdiction and the statutory and common-law duties owed by the insurer to the insured.
- Must defense counsel follow the instructions of the insured? The answer to this question appears to be that the insured is his primary client and he must follow the instructions of the insured.
- Does defense counsel have a duty to point out to the insured the impact of filing a motion for summary judgment on the only claims that are covered by the insurance policy? The answer to this appears to be that defense counsel should advise the insured on the impact of any action taken if it will have a significant impact, financial or otherwise, on the insured.
Conclusion
These questions were not answered by the court because they decided the case on other grounds. However, they raise substantial questions regarding the obligations of the insurer, the insured and defense counsel. For now, while we may have some idea regarding the possible answers to these questions, the actual answers will have to wait for another day.
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