Insurance Coverage Disputes

When pursuing an insurance claim, nothing is more frustrating than receiving a letter from the insurer stating that coverage is not being provided. Our attorneys frequently handle disputes over whether a particular loss is covered under an insurance policy. These disputes are frequently litigated under the provisions of the unfair insurance practices statute (Mass. General Laws, ch. 176D). The following is a primer on the parts of an insurance policy and what insurance coverage means for an insured.

The Policy Contract 

An insurance policy is a contract between the insurer and insured, so either party’s failure to follow the policy’s terms can lead to a claim for breach of contract. In Massachusetts, all drivers are required to carry auto insurance and all auto insurers must use the same standard policy contract. Homeowner’s insurance is not mandatory in Massachusetts, but most mortgage companies require borrowers to carry certain amounts of coverage. While homeowner’s insurance policies in Massachusetts must contain certain provisions required by statute, the policy contract is not standardized like auto insurance policies are.  Accordingly, homeowner’s insurers have their own policy variations. Regardless of the type of insurance—auto, home, liability, life, etc.—the policy contract typically contains the following parts:

• Declarations page–Also known as the “coverage selections page,” this portion of the policy (which is often longer than one page) summarizes important information regarding your particular policy, including the coverage period, insured individuals, and coverage limits for each policy part.  For auto insurance policies, the declarations page will identify each covered vehicle and customary operators. An insurer will send the insured a new declarations page each time that the policy renews or is changed for any reason (i.e. a new vehicle or driver is added or principal place of garaging is changed).
• Definitions–Any well-drafted contract includes a section defining certain terms used in the agreement, in order to avoid ambiguity. Insurance policies are no different. Resolution of many coverage disputes depends upon reference to the definitions section and how a particular definition affects the policy provision at issue.
• Insuring agreement–This is typically the lengthiest part of the policy, and describes the scope of coverage for each portion of the policy. 
• Exclusions–This portion of the policy lists what the policy does not cover. For example, the standard Massachusetts auto insurance policy excludes coverage if the insured was operating a vehicle while intoxicated. Additionally, both homeowner’s and auto insurance policies exclude coverage for intentional damage and wear and tear. 
• Conditions–This section lists certain rights and obligations for both the insurer and the insured. For example, insurance policies typically state in the conditions section that coverage will not be provided unless the insured provides accurate information to the insurer and cooperates with any coverage investigation.
• Endorsements–Insurers and insureds have the option of adding endorsements, which act as amendments to the base policy contract. Endorsements can expand or limit coverage, so it’s important to understand which endorsements are included with your policy.

What Does Coverage Mean?

If coverage attaches under the policy contract, the extent of an insurer’s obligations depends upon whether the claim at issue is a first-party claim or a third-party claim. A claim asserted by a policyholder against their insurer is referred to as a first-party insurance claim. A claim asserted against an insurance policy by someone other than a policyholder is known as a third-party insurance claim. For example, if a fire causes damage to a policyholder’s home, his or her insurance claim for funds to repair the damage would be a first-party claim. If the fire were caused by the insured’s negligence and injured a house guest, the guest’s claim to recover damages resulting from those injuries would be a third-party claim. 

Both first-party and third-party claimants enjoy the protections of Massachusetts Gen. Laws, ch. 176D (the unfair insurance practices statute), and both types of claimants are entitled to file a lawsuit in order to assert their rights. A first-party claimant does so by filing a lawsuit against the insurer, and coverage is largely governed by the terms of the policy contract. A third-party claimant most often does so by filing a lawsuit against the policyholder. In that case, if coverage applies or may apply, the insurer is obligated to provide the policyholder with an attorney to defend his or her interests. 

Reservation of Rights

Most insurance claims are either clearly covered by the subject policy or clearly excluded from coverage. On many other occasions, however, the existence of coverage for a third-party claim is unclear or disputed. For that reason, insurers sometimes provide a defense to insureds under a “reservation of rights," which means that the insurer is not acknowledging at the outset of litigation that the claim is covered by the policy. Under Massachusetts law, an insurer’s duty to defend an insured is broader than its duty to provide indemnification. An insurer is obligated to provide a defense if any of the claims asserted in a plaintiff’s lawsuit against the insured could possibly fall within the insurance policy’s coverage.  An insurer’s duty to indemnify, on the other hand, refers to the insurer’s obligation to pay, up to the coverage limits, for any settlement or judgment which is covered by the policy. An insurer is only obligated to provide indemnification when the facts proven at trial concern matters covered by the policy.

An insurer’s provision of a defense under a reservation of rights effectively means that the insurer is charged with representing the insured’s interests in litigation, while reserving the option to later conclude that there is no insurance coverage to pay a judgment. This creates an inherent conflict of interest in defense counsel’s representation of the insured. Under Massachusetts law, however, an insured is not forced to accept this arrangement. The insured has the option of either requiring that the insurer: 1.) relinquish its reservation of rights; or 2.) relinquish its defense and reimburse the insured for his or her defense costs.

If you’ve received a reservation of rights letter from your insurance company, please contact our office as soon as possible to discuss your rights and options.

Our Experience and Success:

Pursuing and litigating an insurance coverage dispute requires thorough knowledge of commonly found policy provisions and the case law interpreting and applying them. Our past successes include:

• Obtaining coverage for extensive water damage resulting from a frozen/burst pipe. The insurer had initially denied coverage on the basis that the insureds had triggered a coverage exclusion by failing to maintain heat in the premises.
• Obtaining coverage for a residential sewer line backup, which caused significant water damage and cleanup costs. The insurer had initially denied coverage on the basis that the policy excluded coverage for water damage from sewer or drain backup.
• Obtaining a defense and indemnification for an insured’s alleged removal of trees from a neighbor’s property. The insurer had initially denied coverage on the basis that the removal was intentional, thereby triggering a coverage exclusion.
• On behalf of an insurer, obtaining declaratory judgment supporting partial denial of coverage due to insured’s failure to report changed customary operators and place of garaging.