Being hit with a lawsuit is stressful enough, but discovering your liability insurance provider is refusing to defend you can feel like a devastating blow. In Utah, like many other states, insurance companies have a duty to defend their policyholders against covered claims. When they fail to do so, it can constitute “bad faith,” leaving you vulnerable and potentially facing significant financial repercussions.
So, what exactly does this mean, and what are your options if you find yourself in this unfortunate situation in Utah?
The Duty to Defend: A Cornerstone of Liability Insurance
In Utah, a liability insurance policy typically includes a “duty to defend.” This means that if a lawsuit is filed against you alleging claims that could potentially be covered by your policy, your insurance company is obligated to provide you with a legal defense. This duty is generally broader than the duty to indemnify (pay for damages) and can be triggered even if some of the claims in the lawsuit are not ultimately covered.
The insurance company’s duty to defend usually arises when the allegations in the complaint, read liberally, fall within the scope of the policy’s coverage. If there’s any doubt, Utah courts tend to favor the insured, meaning the insurer generally has a duty to defend until it can be clearly established that there is no possibility of coverage.
What Constitutes Bad Faith in This Context?
An insurance company acts in “bad faith” when it breaches its duty of good faith and fair dealing. In the context of a failure to defend, this can include:
- Refusing to defend without a proper investigation: The insurer must conduct a reasonable and timely investigation to determine if the duty to defend is triggered.
- Unreasonably denying coverage: If the policy clearly covers the claims, but the insurer denies coverage without a legitimate reason.
- Failing to appoint counsel: Not providing an attorney to represent you in the lawsuit.
- Delaying defense: Undue delays in providing a defense, which can harm your ability to respond effectively to the lawsuit.
- Imposing unreasonable conditions: Attempting to force you to accept an unfair settlement or waive certain rights in exchange for a defense.
Your Options When Your Insurer Fails to Defend
If your liability insurer in Utah refuses to defend you in a lawsuit, you have several crucial options:
- Demand a Defense in Writing: The first step is to formally demand that your insurer uphold its duty to defend. Send a detailed letter (certified mail with return receipt requested is best) explaining why you believe they have a duty to defend, referencing your policy, and attaching a copy of the lawsuit. This creates a clear record of your request.
- Defend Yourself (Under Protest) and Seek Reimbursement: If your insurer still refuses, you may need to hire your own attorney to defend the lawsuit. It’s vital to do this “under protest,” explicitly notifying your insurance company that you are doing so because they have breached their duty and that you intend to seek reimbursement for all defense costs. Keep meticulous records of all legal expenses.
- File a Declaratory Judgment Action: You can file a lawsuit against your insurance company seeking a “declaratory judgment” from a court. This asks the court to declare that your insurance company does, in fact, owe you a duty to defend under your policy. If the court agrees, the insurer will then be compelled to defend you and reimburse your past defense costs.
- Pursue a Bad Faith Claim: If the insurer’s refusal to defend was unreasonable and caused you harm, you may have a separate bad faith claim against them. This type of claim can seek not only the costs of your defense and any judgment against you, but potentially also damages for emotional distress, economic losses, and even punitive damages in cases of egregious conduct.
- Enter into a “Stipulated Judgment” Agreement: In some situations, if the insurer refuses to defend, you might be able to enter into an agreement with the plaintiff in the underlying lawsuit. This often involves stipulating to a judgment against you in exchange for an assignment of your rights against the insurance company. This can be a complex strategy and should only be pursued with experienced legal counsel.
Important Considerations:
- Don’t ignore the lawsuit: Even if your insurer refuses to defend, you must still respond to the lawsuit to avoid a default judgment against you.
- Preserve all communications: Keep records of all letters, emails, and phone calls with your insurance company.
- Seek legal counsel immediately: Navigating these complex insurance and legal issues requires the expertise of an attorney experienced in bad faith insurance claims.
Conclusion
A liability insurer’s refusal to defend you in a lawsuit in Utah can be a daunting experience, but you are not without options. Understanding your rights and taking prompt, strategic action is crucial to protecting your interests. Don’t hesitate to seek experienced legal guidance to ensure your rights are upheld.
Need Help with a Bad Faith Insurance Claim in Utah?
If your liability insurance provider has denied your defense in a lawsuit, you need an advocate who understands Utah’s insurance laws. Attorney David Head has experience helping individuals navigate complex bad faith insurance claims. Don’t face your insurer alone.
Contact Attorney David Head today for a consultation.
Phone: 801-691-7511