USA Law and Practice Contributed by: Christina Culver, Rhonda Thompson and L. Michael Brooks, Thompson, Coe, Cousins & Irons, LLP
Thompson, Coe, Cousins & Irons, LLP 4400 Post Oak Parkway Suite 1000 Houston, TX 77027 Texas USA
Tel: 713-403-8210 Fax: 713-403-8299
Email: tcoe@thompsoncoe.com Web: www.thompsoncoe.com
1. Key Drivers and Resolution of Insurance Disputes
recovery of attorney fees, and high interest rates (up to 18%) for insureds who can prove that insurers unrea- sonably delayed or denied payment of a covered ben- efit. The availability of such extra-contractual dam- ages and penalties varies widely from state to state, and has dramatically incentivised expansive insurance litigation in some states with harsher penalties. 1.2 Role of Policy Wording and Drafting Policy language is a significant factor in many US- based coverage disputes. Generally, policy interpreta- tion is a legal question for a judge, rather than a factual question for a jury. Most US jurisdictions apply con- tract-interpretation rules to insurance policies, con- structing policy terms based on their plain meaning, unless they are specifically defined in the policy. Inter- pretive standards, or “canons”, of construction are used to aid in assessing the plain meaning of policy language. Ambiguous terms are construed to favour coverage, and unlike in other contracts, in some juris- dictions courts may not consider extrinsic evidence of parties’ intent to interpret ambiguous terms, but will instead adopt the insured’s reasonable interpretation over the insurer’s. Policy forms – declarations, coverage booklets or pri- mary coverage forms, and endorsement – are gener- ally construed together if possible. If there is an incon- sistency that cannot be harmonised by reading the policy forms together, courts will generally construe endorsements as the latest expression of intent, espe- cially when endorsements are specifically contracted for or added after the primary documents are in place.
1.1 Common Triggers of Insurance Disputes Insurance disputes in the United States are fre- quently based on a combination of coverage and claims-handling issues. Broadly speaking, coverage interpretation and policy ambiguity questions tend to predominate in commercial-lines coverage, especially general liability, commercial property, and business interruption issues where claims are generally more complex than in personal-lines risks, such as auto- mobile and homeowners’ coverage. In personal-lines claims, where policy text tends to be simpler and its interpretation more routine, claims-handling issues tend to predominate. One of the most significant factors animating insur- ance litigation is the availability of extra-contractual or “bad-faith” remedies. Because insurance law in the United States is mainly governed at the state level, the available remedies vary, sometimes widely, among the 50 states. In most states, insureds have to prove insurers unreasonably delayed or denied payment of a covered benefit, sometimes requiring additional proof that the insurers acted with knowledge or reckless disregard of the unreasonableness of their conduct or position in first-party claims. Extra-contractual recovery can include consequential damages beyond the policy limits and emotional distress for individual insureds. A growing number of state legislatures have enacted laws that create additional penalties, such as damage multipliers (double or even treble damages),
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