Effective insurance coverage position letters: A well drafted CPL can assist carrier and policyholder alike
No one enjoys being sued. Indeed, immediately after being served with a complaint, many thoughts and questions arise. Does the claim have any merit? How much will this cost me? Do I have an attorney to whom I can turn to competently defend the case?
One additional important question that arises is whether there is insurance coverage for the claim, and will my insurance carrier hire and pay for counsel to defend me? The answers to some of these questions are provided by receipt of a coverage position letter (CPL) from the carrier. Indeed, CPLs are often the first communication received from the carrier after a claim is filed.
CPLs are important tools for insurers to use in communicating with their policyholders when the policyholder is sued. A well drafted CPL has several elements. Broadly stated, the purpose of the CPL is to fairly inform the insured of the carrier’s position on coverage and defense for the claim against the insured. The CPL should thus be written in “plain English,” with the goal being that a non-lawyer or insurance professional should be able to read it and reasonably understand the basis for the insurer’s position.
The CPL should contain a full and fair description of the underlying claims alleged against the insured, as well as a recitation of those policy provisions that create, restrict or exclude coverage for those claims. Generally speaking, the “kitchen sink” approach is not favored – a well drafted CPL should discuss only those provisions that are implicated by the claim against the insured.
If the carrier is agreeing to defend its insured, the CPL should clearly state as much and should also identify the defense lawyer hired, with contact information included. Putting a name and phone number in the letter goes a long way toward easing the natural anxiety associated with litigation.
Of course, when a carrier is denying coverage, or defending its insured while seeking a judicial declaration of no coverage, the CPL serves as notice of the carrier’s adverse position. Thus, the CPL also should fairly inform the insured that its interests may not be entirely aligned with the carrier’s interests and that the insured may have potentially uninsured exposure. In such situations, the CPL should inform the insured that it may take steps to protect itself through retention of separate counsel.
A well drafted CPL creates many advantages for the insurance carrier as well, such as establishing that it is approaching the claim in good faith. A timely CPL will also help a carrier enforce its policy right to control the defense and remind the insured of its duty to cooperate with the carrier.
No one enjoys litigation. But a well drafted CPL can ease some of the initial concerns faced by defendant policyholders while also helping the carrier establish the metes and bounds of its policy.
Todd Smith often speaks on prudent claims handling practices for insurance carriers in Wisconsin, and has lectured on effective use of coverage position letters. You can contact Todd at 608.284.2653 or firstname.lastname@example.org.