The complicated, stressful world of law and insurance

Insurance companies are perhaps the biggest consumers of legal services in America.

This is in part due to the fact that the two primary duties an insurer owes to its insured under a liability policy, be it a homeowner liability, commercial liability, professional liability or a motor vehicle liability policy, are the duty to indemnify and the duty to defend.

What that means is when an insurer insures liability, and suit is brought against the insured for a covered claim, the insurer, in addition to paying the claim up to the policy limits, has a duty to provide a defense to the suit against its insured at the insurance company's expense.

As a result we have law firm upon law firm whose primary practice is defending civil lawsuits against their insureds at the request of insurance companies.

The way it generally works is if the insured gets served suit papers on a covered claim, they contact their insurance company for coverage. The insurance company then assigns the case to one of its law firms.

The law firm then reaches out to the insured to let them know that they have been assigned the defense of the claim, and will be the insured's lawyer in the case.

Hence, an attorney-client relationship is formed between a law firm that specializes in defending liability claims at the request of insurance companies and an individual or business that had a policy with that insurance company, and had the misfortune of getting sued on their coverage.

The insured is the law firm's client, and the insurance company pays the bill.

This is part of what an insured gets for its premium dollars if they get sued for a covered liability. It happens every day.

And insurance defense work, defending lawsuits on a volume basis for insurance companies against their insureds, is the bread and butter of many a law firm.

These cases are referred to in the insurance defense world as "third-party claims," where the suit is initiated by a third party, not a party to the insurance policy, against the insured.

This is what makes insurance companies perhaps the biggest consumers of legal services.

Other circumstances in the insurance world also produce vast amounts of work for attorneys, such as first party claims.

This refers to suits by the insured, which is a party to the policy (hence "first-party claims"), directly against the insurance company, where there may be a dispute as to whether a loss suffered by the insured, as distinguished from a claim by third party against the insured, should be covered.

These cases can involve fire losses, theft losses and other disasters to an insured's property where there may be a difference of opinion as to whether and how much an insurance company is on the hook to pay its insured for the loss under the policy.

These disputes can arise as a result of difference of opinion as to whether the policy was in force when the loss occurred; whether the insured committed fraud in procuring the loss, such as the insured setting their own property on fire to collect; or whether the insured committed fraud after the loss by inflating its claimed losses.

These circumstances can all be a defense to a claim by an insured against an insurer, and defense of first-party claims, where the insurance company is sued by its insured, is also a major part of the business of insurance companies that provide work for its law firms.

I cut my teeth many years ago in the insurance defense world, working for a law firm where we worked all day every day on insurance lawsuits.

It was wonderful experience for a young lawyer learning the trade. What I also came to realize after I got out of that world is that insurance litigation, day after day, year after year, can be grueling, hard, stressful work.

And many of my friends and colleagues from those days have spent a career representing insurance companies.

But not me. I was rescued from that life by the opportunity to settle in the suburbs and become a simple country lawyer, helping people and businesses in various types of matters, not insurance companies.

But my early years in the trenches of the insurance defense world provided me great experience and a great appreciation for the practice I enjoy now.

Ken Garten is a Blue Springs attorney. Email him at [email protected].

Ken Garten

Columnist

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