... Liability insurance companies are generally against extrinsic evidence to decide the duty to defend in their insurance contracts, until some of them are in favor of extrinsic evidence to decide a lawsuit.
In Travelers Prop. Cas. Co. of Am. v. Federal Recovery Serv's, Inc., 156 F. Supp. 3d 1330 (D. Utah 2016), the Court had to determine whether there is a duty to defend under a cyberinsurance policy. The law in Utah is that extrinsic evidence cannot be used to determine whether there is a duty to defend under a liability policy, unless the liability carrier wrote the insurance contract to allow or require extrinsic evidence to determine its duty to defend. Most liability policies were not and are not written to permit extrinsic evidence to determine the duty to defend.
The Court in Federal Recovery Services was faced with claims alleged in the underlying case that the policyholder refused to return electronic data to its customer. As in most cases in most Courts in the United States, the Court in that case determined the duty to defend by resort to the language of the insurance contract compared to the allegations of the claim against the insured.
The Court held that the carrier which issued a CyberFirst liability insurance policy did not have a duty to defend the claims alleged in the underlying case:
The duty to defend here is conditioned on “any claim or ‘suit’ seeking damages for loss to which the insurance provided ... applies.” … [T]he policy language indicates that the duty to defend is determined with reference to what a claim or suit seeks. Therefore, Travelers must defend a suit that alleges liability within the CyberFirst Policy. Thus, consideration of extrinsic evidence is irrelevant in determining Travelers’ duty to defend.
Travelers Prop. Cas. Co. of Am. v. Federal Recovery Serv's, Inc., 156 F. Supp. 3d 1330, 1336-37 (D. Utah 2016) (emphasis added).
Regardless of wishful thinking sometimes expressed by some people to the contrary after claims have been made, wishful thinking which often consists of opinions expressed in particular by some underwriting departments that are responsible for writing the language of liability insurance contracts as well as by some other non-judges, the question of whether a Court can even consider extrinsic evidence to determine a duty to defend may depend on the language in the insurance contract written by the liability carrier.
Please Read The Disclaimer. © by Dennis J. Wall. All Rights Reserved.
Comments