Insurers' Obligations to Defunct Insureds: Recent Cases, Arguments From Policyholder and Insurer Perspectives

On an increasingly frequent basis, insureds often insist they are unable to meet the financial obligations specified in their professional liability policies. Some insureds claim they are insolvent, while others have filed for bankruptcy protection. In more extreme situations, insurers discover that their insured is defunct, and not only will financial obligations not be satisfied, but there is no one to assist with the defense of the claim.

Courts have affirmed the favorable standards applied to an insurer's duty to defend--even when a policyholder is out of business. Assuming the basic insuring agreement is potentially triggered, it falls on the insurer to prove that the allegations in the underlying complaint "fall solely and entirely within" an exclusion, with any doubts resolved for the insured. Even a defunct business entity may have insurance coverage that can be a resource to provide a defense or to satisfy all or part of a judgment.

Numerous states permit claimants to bring direct actions against an insurer, sometimes without joining the insured. Under Wisconsin's direct action statute, an insurance policy covering negligence makes the insurer liable up to the policy limits, even without a final judgment against the insured. Similarly, under both New York and California statutory authority, after securing a judgment against the insured, third-party claimants may bring a direct action against the insurer on the policy. So too, in many other states.

Listen as our authoritative panel of insurance practitioners guides insurance counsel for both policyholders and insurers on claims made against insolvent, bankrupt, or defunct insureds. The panel will review recent cases addressing this issue and discuss the contractual, statutory, and common law arguments that counsel can leverage to assert and defend their positions.

1. Policy issues
2. Statutory issues
3. Common law issues
4. Recent cases
5. Best practices
6. Practical considerations

The panel will review these and other notable issues:

• What recent cases address the contractual, statutory, and common law arguments for and against coverage for defunct insureds?
• What standards do courts apply to an insurer's duty to defend when a policyholder is out of business?
• What are the most critical issues and practical considerations when addressing these claims?
• What are the essential coverage issues in these claims?
• What are best practices for determining the cause of loss, the value of the loss, and interpreting the terms of the policy?
• How do courts treat exclusions, concurrent causation, and anti-concurrent causation policy provisions?
• How does the language of typical policies impact coverage for defunct insureds?