By Wayne Meuleman

(Published in the Idaho Business Review, October 2008)

        When your company is sued, it’s a good idea to promptly submit the claim to your insurance company and request it defend and indemnify you against the claim.  For claims covered by your policy, the insurer is required to hire attorneys to defend you and to protect you from liability up to the limits of liability stated in the policy.  Your insurance policy does not protect you from all types claims and it is not easy to determine whether a claim is covered.  You should require your insurer to review all claims and tell you whether you have coverage.  If the insurer denies coverage, have your own lawyer review that decision.

After you submit a claim, your insurer may take one of three actions:  (a) acknowledge coverage under the policy and accept full responsibility to defend you and pay any liability up to the limits of coverage, (b) accept responsibility to defend you subject to “reservation of rights,” which means the insurer can later withdraw its defense or decline coverage of the claim, or (c) deny coverage and refuse to defend.

If your insurance company tells you that you are covered and that it will defend you in the lawsuit, there is reason to be relieved but that is not the full story.  There are some things you need to know about how insurance companies defend you and whether you have any right to control or influence how the claim is handled.

          When an insurance company agrees to defend your company against a claim, it means that the insurance company will choose the lawyer who will defend you in court.  That sometimes comes as a surprise to some business owners even though the insurance policies almost uniformly give the insurance company the right to select the attorneys who will defend the lawsuit.  Even though the attorney is chosen by the insurance company, the attorney’s obligation is to protect the interests of your company—not to look out for the insurance company’s interest.  To that extent, you can have some influence over how the case is handled.  It does not, however, mean that you have full control over how the case may be resolved.  Most policies give the insurance company the right, without your consent or even over your objection, to settle the claim within the policy limits.

          Some lawsuits make claims that you may believe to be totally without merit, or seek an exorbitant amount as damages, or which you believe, for business reasons, should be “defended to the end.”  In those instances, you may tell the lawyers hired by the insurance company to fight to case all the way through trial no matter the cost.  As the lawsuit progresses, you may feel that everything seems to be going well until, one day, you learn that the lawsuit has been settled by your insurance company.  How can this happen?  You strongly believe that the claimant doesn’t deserve to be paid.  Now you are concerned that the settlement may reflect poorly on your company’s reputation or encourage other similar claims against you.  You also know that the settlement may be a mark against your company when your policy comes up for renewal, and may result in higher premiums next year or even refusal of the insurance company to renew your policy.

          Can you do anything to correct this injustice?  Generally, the answer is “probably not.”  Most commercial general liability policies expressly give the insurance company the right to select the attorney who will defend you and the right to settle the claim as the insurance company sees fit within the policy limits.  Therefore, after the insurance company has settled your claim it is extremely unlikely that you can reverse the settlement.

To avoid this type of unhappy surprise, you must remain actively involved in any claim against your company – even if the insurance company agrees to defend you.  Insist that the attorneys hired by the insurance company treat you as their client, and that they regularly report to you and seek your input through the litigation.  The attorneys are to represent your interests.

If you remain actively involved in any claim against your company, settlement by the insurance company should not come as a surprise and you will be able to influence whether settlement is appropriate.  If you don’t feel that you are being properly represented by the attorney hired by the insurance company, then you should ask your company attorney to assist you in working with the defense attorney and your insurance company.

Wayne V Meuleman is a founding partner of the law firm Meuleman Mollerup LLP, representing businesses with legal concerns involving contracts, real property matters, construction, commercial issues, and litigation.  Contact Mr. Meuleman at 208.342.6066 or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .