Just Having Insurance Isn't Always Enough

Insurance policies are contracts that require the same attention and management as agreements for purchase and sale. Simply having “insurance” is not enough to recover the benefits for all the premiums paid to maintain that coverage. A recent court case involving an injured worker emphasizes the point.

Moreno v. Sentinel Insurance

The case was Moreno v. Sentinel Insurance and was decided by the Fifth Circuit Court of Appeal. It was a seemingly straightforward workplace injury claim: an employee of a painting subcontractor fell from a ladder and was injured. A lawsuit followed against the builder and painting company.

The job contract between the builder and the painting company required that the builder be named as an additional insured on the painter’s insurance policy. The builder independently notified the painting company’s carrier and demanded a defense of the lawsuit under the terms of the job contract. The painter’s carrier responded and defended the claim against the builder.

The painting company did not notify its insurer. Instead, the painting company retained a lawyer and began defending the claim at its own expense. It continued to defend the claim even after its own insurance company reached out asking about the claim due to the builder’s additional-insured notice. At no point did the painting company specifically ask its insurer to defend or indemnify it from the lawsuit’s claims.

A key issue before the Fifth Circuit was whether the insurance company owed an obligation to the painting company on the policy contract when it knew of the claim but never received a specific request for defense. The court said no. At its most basic, the court found that unless an insured directly asks for the benefits in a policy contract, an insurance company does not need to respond, even when it knows about a claim.

Case takeaways

Conditions and caveats to that broad conclusion from the Fifth Circuit can exist. The painting company’s conduct may have played an outsized role in the decision from the court. Despite that, the value in the decision remains: specific management of insurance claims is a key component to effective risk management in response to any loss, be that employment, property, auto or general liability.

Notify of potential losses

Direct, specific notice of a new potential loss must be timely and effectively presented to an insurer. This means knowing what insurance contracts are available and the benefits that should be demanded when submitting a claim. A good broker can help here. It also means complying with claim submission requirements and being able to document that the demand was submitted.

Incomplete is better than nothing

It is also important to remember that early notice does not need to be complete to be effective. Most claims come in with very little information. This should not mean notice on an insurance contract is delayed. Insurance companies are in the business of gathering information to assess risk throughout the life of a claim, and an initially incomplete notice is better than no notice.

Provide supplementary information

No matter how much information is provided with the notice, additional information will come to light as a loss is investigated. Insurers will likely request foundational information at intake and regular updates throughout the life of a loss claim. Active supplement of information and response to carriers can help maximize policy benefits and is very likely a requirement of the policy contract.

Track correspondence

When an insurer responds to notice, keep track of those responses and positions. Where a claim’s circumstances are unclear, an insurer may agree to assist based on a “reservation of rights.” This is a legal position that allows the carrier to help but preserves reimbursement and other rights within the policy if the facts change. Careful review, assessment and response to these positions can help preserve an insured’s rights.

Don’t fear giving notice

Finally, do not fear giving notice because a claim might be denied or there is some uncertainty whether it falls within the policy terms. As mentioned, insurance carriers have teams to investigate notices and issue claim responses. Where a claim is submitted but later denied, a contractual contest may be possible. But where no notice is given, that contest often never gets very far, as our painting contractor found out the hard way.