Once the liability insurer admits that the policyholder faces an underlying “claim,” its duty to defend is activated if the claim is covered.1
1 In a Federal Court case in California, Millenium Labs, Inc. v. Allied World Assur. Co., No. 12cv2280-BAS (KSC), 2014 WL 6632765 (S.D. Cal. Filed November 21, 2014), a United States Magistrate Judge refused to permit the defendant to amend several responses to requests for admission to which it responded 10 months beforehand. The liability insurance company in that case (which the Judge called “AWAC” in her opinion) had previously admitted on multiple occasions that when its policyholder was served with subpoenas by the U.S. Department of Justice, “the DOJ investigation was a ‘claim’”. Here are the Court’s stated bases for its decision in this case, which are laid out here in numbered list form:
- “Even before the complaint was filed, AWAC admitted the DOJ investigation was a ‘claim.’” AWAC’s claim representative allegedly called the policyholder and said so.
- Depositions of the claim rep and of the policyholder’s general counsel seemed to support this fact, “and AWAC does not deny it.”
- “After hiring outside coverage counsel, AWAC admitted that the DOJ investigation was a ‘claim.’” AWAC’s lawyer wrote a letter referring to one of the subpoenas as a potential “’Claim under the Policy.’”
- At the beginning of discovery after the policyholder filed a lawsuit to obtain payment as quickly as possible of its defense costs, the policyholder served the requests for admission to which AWAC served its responses in question, admitting that the subpoenas and investigation by the DOJ were a “’claim.’”
- Thereafter, AWAC opposed its policyholder’s motion for summary judgment, for example, by admitting that it was admitting “’only that the DOJ Investigation constitutes a Claim under the Policy.’”
- AWAC also served requests for production on its plaintiff policyholder in that case. In response, the policyholder “produced at least 1.1 million documents (and likely more)”. Three months or more after the policyholder’s production, AWAC’s claim rep was deposed and referred to the DOJ subpoenas as a “’claim.’”
- “For two years, AWAC repeatedly asserted that the DOJ investigation was a ‘claim.’ Now, for the first time, AWAC seeks to reverse its position, withdraw its admissions, and assert that the DOJ investigation was, in fact, not a ‘claim.’”
“Accordingly, AWAC’s request to amend its RFA responses is DENIED.”
Reprinted with the permission of Thomson Reuters and the author from the manuscript of the author's 2015 Supplement chapters, and in particular Section 3:52, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.