United States: Welcome To The Land Of Liability: An Insurance Recovery Primer For Non-U.S. Businesses With U.S. Operations

Last Updated: December 23 2012
Article by William G. Passannante and Cort T. Malone

Originally published in The Metropolitan Corporate Counsel, Volume 20, No. 10 (October 2012)

The tort and liability insurance system in the United States often makes non-U.S. business owners feel like strangers in a strange land. It can leave them at a loss for words or uttering words that we cannot print in this publication.

Non-U.S. corporations that have U.S. operations through subsidiaries eventually will face the U.S. tort system. Claims for asbestos, environmental harm, lead exposure and many other long-term exposure or "toxic tort" situations all should be covered by insurance. We provide herein a primer on core insurance concepts for non-U.S. businesses with U.S. operations.

General Liability Insurance Provides Full Coverage For Costs Of Defense

The general liability insurance policy provides litigation insurance in the form of a very broad "duty to defend." Five general propositions of duty to defend law are clear and unquestioned in virtually all jurisdictions:

  1. An insurance company's duty to defend is exceedingly broad.
  2. An insurance company has a duty to defend whenever the allegations of the underlying complaint suggest a reasonable possibility of coverage or the potential for coverage; that's true when even one interpretation of the allegations could arguably result in coverage.
  3. The allegations of the complaint must be liberally construed in determining the duty to defend.
  4. Any doubts about coverage on account of ambiguous, vague or incomplete allegations in the complaint are resolved in the policyholder's favor.
  5. An insurance company cannot avoid its duty to defend unless it meets the heavy burden of proving with certainty that there is no possible legal or factual basis for coverage under any interpretation of the underlying allegations.

Well-settled law regarding an insurance company's defense obligation requires that any insurance company with potential liability for underlying long-term liability claims must provide a complete defense to its policyholder up front and in full, to the extent necessary to make the policyholder whole. Not only can a policyholder seek its outstanding defense costs from any of its insurance companies for potentially covered claims, but the policyholder also is entitled to a defense of the entire action where a complaint is potentially covered – even if the complaint includes uncovered allegations.

Policyholders Are Entitled To A Full Defense, Not A Partial Defense

Once the duty to defend is triggered, the insurance company must pay such costs in full before seeking any contribution from other insurance companies that also may be liable for the policyholder's loss. It is well established that insurance companies have a duty to pay defense costs up front rather than arguing over coverage or allocation issues to the policyholder's detriment.

It is not uncommon for U.S. subsidiaries of non-U.S. businesses to buy insurance policies from several different insurance companies or to have switched companies over time. In such instances, the non-U.S. parent should seek a complete defense from any one of its insurance companies, despite likely arguments that the insurance company should be liable for only a portion of the losses suffered.

Where lawsuits name both a non-U.S. parent corporation and its U.S. subsidiaries, or any combination thereof, insurance companies may seek to limit their obligations based on the inclusion of entities not named as insureds. However, case law demonstrates that so long as a single named insured is faced with at least one potentially covered claim, the insurance company must pay that entity's defense costs in full for the entire action – a complete defense – as promised under the policies.

Right To Select Independent Counsel Where A Liability Insurance Company Creates A Conflict Of Interest

In certain circumstances, an insurance company announces that it reserves its rights to deny coverage but continues to pay for the defense of an action. Where the insurance company denies coverage, or where the insurance company has less at stake than the policyholder with respect to the underlying action, the policyholder probably is entitled to appoint independent counsel loyal to the policyholder and its interests rather than loyal to the competing interests of the insurance company.

Improper Attempts To Reduce Or Eliminate Insurance Coverage Via Allocation

Insurance companies often use the subterfuge of allocation in an attempt to avoid all or most of their responsibility or improperly shift liability to the policyholder. Most jurisdictions reject attempts to avoid liability by improper allocation, though the fights continue every day.

In the early years of long-term products liability, the insurance industry itself acknowledged that each insurance company over a span of policy periods could be fully responsible for the costs of defense and settlement, that is, responsible for all sums as the policies state. Many U.S. jurisdictions have adopted the all-sums view of liability insurance in long-term injury cases.

Allocation defenses play an important role in key issues such as the best method for submitting claims and the choice of jurisdiction if and when litigation becomes necessary.

Insurance Companies Must Pay To Settle Cases Consistent With Defense Counsel's Advice

An insurance company must make settlement decisions in good faith or be in breach of contract. In Fuller-Austin Insulation Company v. Fireman's Fund Insurance Company (Cal. Super. Ct. Aug. 6, 2002), a policyholder debtor brought an action against its primary, excess, and umbrella liability insurance companies for a declaratory judgment on their duties for its asbestos-related liabilities after reorganization. The court held that California cases "have found that an umbrella or excess insurance company has an obligation to participate in settlements when the potential settlement may invade the insurance company's limits of liability, even though the insurance underlying the excess insurance policy is not yet exhausted.... An umbrella or excess insurance company has obligations that pre-exist and are independent of actual exhaustion by payment of the underlying limits. These obligations include the duty to participate in settlement negotiations, the duty to accept a reasonable settlement, the duty of good faith and fair dealing . . ."

An insurance company that fails to participate in settlement negotiations or refuses to consent to reasonable settlement terms can be liable for punitive damages in excess of policy limits.

Five Steps For Non-U.S. Businesses To Take To Protect Insurance For Their U.S. Operations.

1. Think insurance after a loss

Whenever a lawsuit or claim letter arrives in the company law department, or whenever the company suffers a significant financial loss, ask whether it is covered by insurance. In addition to the various types of insurance purchased by the company or any of its predecessors, risk managers and counsel should also analyze other sources of insurance that may potentially cover a claim, e.g., contractual indemnitor or other companies' insurance policies that may list the company as a named insured under a vendor endorsement or pursuant to a contractual coverage endorsement. In environmental matters, a company alleged to have generated waste at a Superfund site should look to not only its own liability insurance but also that of the transporter of the alleged waste and the owner of the site.

2. Give notice of claims

Insurance policies usually contain notice provisions regarding claims against the policyholder. Too often, policyholders get so caught up in defending underlying claims that they delay giving notice to their insurance companies. When you are faced with a claim or loss, notify the insurance company (often through the broker) as soon as possible in accordance with the policy's instructions.

Generally, there are two types of notice provisions: (1) Notice of an event or happening (an "occurrence") that may lead to a claim, and (2) Notice of an actual or potential claim. Notice should be given to every potentially applicable insurance company. If the claim for coverage is related to a product, the policyholder should give notice to every insurance company that sold the policyholder coverage from at least the date the product was first marketed to the date of the "occurrence" or of the actual or potential claim. Have your insurance agent or broker give written notice to all possibly implicated insurance companies. Do not rely on the broker's or agent's word that there is no insurance coverage. Insist – and verify – that the insurance broker or agent immediately forward written notice of the claim to all potentially applicable insurance companies.

The insurance industry has developed standardized forms for giving notice. "Plain vanilla" notice often is best. For first notice of an event that may lead to a claim, all that is required is a copy of the document that the policyholder received alleging its liability. The first notice of claim might also state that additional insurance policies may be involved and request that the insurance company provide a list of all policies that have been sold to the policyholder. Additionally, the notice can request that the insurance company provide a defense or agree to pay for defense costs, provide indemnification for any past or future liabilities, and advise the policyholder of all possible legal and factual bases that would support a finding of insurance coverage.

3. Preserve and locate insurance policies

Old insurance policies are extremely valuable because they tend to provide coverage for any damage or injury that took place during the policy period, no matter when the damage or injury is discovered, and with no aggregate limits. These valuable corporate assets should be searched for, collected and cataloged. If a particular policy cannot be found, secondary sources may be used to demonstrate that the policy was purchased. Insurance archaeologists, companies specializing in locating old insurance policies, are often cost-effective. And keep in mind that, despite repeated insurance company statements to the contrary, insurance companies should have copies of the policies purchased from them.

Copies of current policies also should be collected and cataloged. Make certain that copies of policies issued to corporations and other entities that are acquired by your company through purchase, merger or otherwise are turned over to your company.

4. Pursue insolvent insurance companies

A policyholder should consider taking these actions if its insurance company files for protection under bankruptcy or insolvency law: (1) File a proof of claim as a creditor in the insurance company's bankruptcy or liquidation case and in the cases of any subsidiaries that also have file petitions; (2) file a claim against the state guarantee fund in one or more possible jurisdictions (complying with stated time limits for filing such claims); (3) if the insolvent company was the policyholder's primary insurance company, ask the first layer excess insurance companies to "drop down" and take the place of the primary insurance; and (4) consider whether litigation against other entities (the insurance company's reinsurers, brokers who placed coverage with an unstable insurance company, or managers of the insolvent company) is a viable option. Because of the complexities involved, it is advisable to seek the advice of counsel specializing in insurance insolvencies.

5. Don't accept "no" for an answer

Insurance companies routinely deny claims, even if they have no basis for doing so. There is little downside to challenging a denial of coverage. Make your insurance company spell out the basis for the denial. Read your policy to see if it says what the insurance company says it does; and then read it again to see if any other provisions alter the insurance company's interpretation. The difference between coverage and non-coverage often directly reflects the determination and persistence of the individual policyholder.

Now that we've welcomed you to the land of liability, we hope that this insurance recovery primer helps to protect your U.S. operations from loss.

William G. Passannante is a Shareholder and Co-chair of Anderson Kill's insurance recovery group. Mr. Passannante is a leading lawyer for policyholders in the area of insurance recovery. He has recovered hundreds of millions of dollars for policyholders and has represented policyholders in litigation and trial in major precedent-setting cases. Cort T. Malone is a Shareholder in the Stamford, Connecticut office of Anderson Kill. Mr. Malone's practice focuses on insurance recovery and corporate and commercial litigation.

About Anderson Kill & Olick, P.C.

Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estate, Trusts and Tax Services, Corporate and Securities, Antitrust, Bankruptcy, Real Estate and Construction, Anti-Counterfeiting, Employment and Labor Law, Captives, Intellectual Property, Corporate Tax, Health Reform and International Business. Recognized nationwide by Chambers USA for Client Service and Commercial Awareness, and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes – with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Ventura, CA, Stamford, CT, Washington, DC, Newark, NJ and Philadelphia, PA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Lewis Brisbois Bisgaard & Smith LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Lewis Brisbois Bisgaard & Smith LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions