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Cooperation: A Policyholder’s Duty…or Downfall?

Posted on: April 12th, 2019

By: Marc Finkel

A policyholder’s duty to cooperate with its insurer is one of the most significant commitments made in the relationship between an insurer and its insured. It goes without saying that the consequences can be dire for an insurer when this commitment is broken. However, a potential remedy is possible when insurers are caught in the predicament of facing surprise exposure due to a policyholder’s failure to cooperate and adequately updating the insurer as to claims in litigation. This is illustrated in the recent case Ironshore Specialty Insurance Co. v. Conemaugh Health System Inc. et al., 2019 U.S. Dist. LEXIS 45690, currently being litigated in the Western District of Pennsylvania.

In that case, Ironshore defeated Conemaugh’s attempt to dismiss an insurance coverage dispute that began when Conemaugh, a large regional health care provider in western Pennsylvania, was found liable for a $19,000,000.00 award in a medical malpractice action. Ironshore, an excess insurer for Conemaugh, routinely requested updates from Conemaugh and Conemaugh’s defense counsel concerning the status of the underlying malpractice action. Ironshore was informed that the underlying matter was potentially “problematic” for Conemaugh, but Ironshore was never informed of the potential for a verdict that would trigger excess coverage under the Ironshore policy. Furthermore, Ironshore was not informed of the trial date or that there had been ongoing pre-verdict settlement discussions which would have required participation from Ironshore.

The underlying medical malpractice action was ultimately settled with a contribution from Ironshore that was subject to a “continued reservation of rights, including its right to recoup.” In denying Conemaugh’s motion to dismiss, the Court found that the Ironshore policy’s Cooperation Clause unambiguously required Conemaugh to “cooperate” with Ironshore by “making available all such information and records as [Ironshore] would reasonably require” upon Ironshore’s election to associate in the “investigation, settlement, or defense” of the underlying claim against Conemaugh. The Court further found that Ironshore’s allegations of receiving inadequate information concerning the status of the underlying claim, despite having made repeated requests for such information from its insured, was enough to allege a breach of the Cooperation Clause, thereby preserving Ironshore’s right to seek a claw back of the share it paid to settle the malpractice action.

In the coverage dispute, Ironshore positioned itself to potentially recover part or all of its contribution to the settlement proceeds from Conemaugh by taking the following steps beginning during the pendency of the underlying litigation: (1) making a clear and express election of its rights to associate; (2) regularly requesting reasonable updates from its insured; and (3) reserving its rights to seek recoupment as part of the underlying settlement agreement. The court recognized these efforts as solid bases for limiting Ironshore’s exposure by virtue of questionable cooperation by its insured.

If you have any questions or would like more information, please contact Marc Finkel at [email protected].

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