Insurer That Acted “Quickly and Diligently” Did Not Breach Duty to Homeowners

November 30, 2011 | Insurance Coverage

After their son allegedly injured a man in a bar fight, the injured man’s lawyer sent a letter to the couple’s lawyer stating that he intended to pursue legal remedies against the couple’s son. The couple’s lawyer forwarded the letter to the insurance company that had issued the couple a homeowners’ insurance policy, and the insurer opened a claim file and assigned a claims investigator, who began to investigate the incident and claim.

Within a matter of weeks, the couple agreed to pay $425,000 to the injured man, who agreed not to pursue criminal or civil claims against their son. The insurer then sought a declaratory judgment that it owed no duty to defend or indemnify the couple.

The court found that the insurer had not breached any duty it may have had to the couple. The court explained that the insurer’s claims investigator had promptly begun investigating the claim, even responding to a demand letter by rejecting an offer to settle for $800,000. After that point, the claims investigator visited the bar where the fight had taken place, attempted to interview many witnesses and speak with attorneys involved in the case, and obtained various reports and transcripts. Moreover, fewer than three weeks after receiving the initial demand letter, the claims investigator issued a reservation of rights letter that explicitly told the couple that the insurer would continue to handle the claim despite some doubt that coverage existed.

The court pointed out that, despite the claims investigator’s “attentiveness and the reassurance of the reservation of rights letter,” the couple went ahead with negotiations and authorized their attorneys to reach a settlement with the injured man.

Because the insurer “acted quickly and diligently to uncover the facts relating to the incident and the value of the claim,” the court concluded that there was no basis for concluding that it had breached any duty to defend that might have existed. Accordingly, it concluded, the insurer was not obligated to reimburse the couple for the amounts they paid to defend, or to “negotiate” the claim. It also did not have any obligation to reimburse the couple for the settlement because it was a “voluntary payment” that was expressly forbidden by the policy. [Vermont Mutual Ins. Co. v. Maguire, No. 10-1542 (1st Cir. Oct. 31, 2011).]

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