Insurance Probably Covers That: Tendering Claims to Your Insurer

All registered contractors in Washington State are required to carry a general liability insurance policy.  Even though contractors carry a general liability policy, many don’t take advantage of the policy because they don’t know whether a particular claim may be covered or they simply forget that their general liability insurance policy may cover the claim.  This can be a costly mistake for contractors because of the benefits that insurance coverage provides.  A contractor’s general liability policy not only must pay for a covered claim (the “duty to indemnify”), but the insurer must also provide a legal defense to a contractor that has been sued for a claim that may be covered by the contractor’s policy. 

This “duty to defend,” as it is called in the insurance industry, is one of the primary benefits of a contractor’s general insurance policy.  This means that the insurer must pay for the attorneys’ fees and costs incurred in the defense of the contractor in the lawsuit.  Washington State is very favorable to policy holders (contractors) because it applies a liberal standard in determining whether an insurer has a duty to defend a contractor.  A recent case issued by the Washington State Court of Appeals is a reminder of the broad defense obligations of an insurer.

In Wellman & Zuck, Inc. v. Hartford Ins. Co., the Court of Appeals described an insurer’s duty to defend a contractor as follows: 

An insurance company’s duty to defend, which is broader than the duty to indemnify, “arises at the time an action is first brought, and is based on the potential for liability.” A lawsuit triggers the duty to defend if the complaint against an insured alleges facts that could, if proven, impose liability upon the insured within the policy’s coverage. … [T]he duty to defend must be determined from the complaint. “An insurer is not relieved of its duty to defend unless the claim alleged in the complaint is ‘clearly not covered by the policy.'”  Therefore, if the insurance policy conceivably covers the allegations in the complaint, an insurer must defend the lawsuit.  We liberally construe an ambiguous complaint in the insured’s favor.

As is clear from this quote from the Wellman & Zuck case, Washington State courts are going to require an insurer to defend if there is complaint (lawsuit) against a contractor that could, in any way, be covered under the policy.  Although the contractor in the Wellman & Zuck case ultimately was not able to obtain coverage (because there were no allegations of defects in the contractor’s work), if there are allegations of defective work against a contractor, the contractor’s insurer is likely required to provide a legal defense to the claims alleged against the contractor.  Moreover, there are harsh penalties that can be assessed against an insurer that improperly refuses to defend when it was required to do so.

The lesson to contractors is that if you have been sued for any reason, especially if you have been sued for alleged defective work, you should review your insurance policy to see if the claim may be covered.  It is also advisable that you contact an attorney to assist in reviewing the policy to determine whether the claim may be covered and to properly “tender” (or provide written notice) the claim to the insurer. 

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