Insurance Law: Insured Parties Have A Duty To Participate
Unlike plaintiffs, most defendants have no desire to participate in litigation. There are those that regret having to participate in the process and then there are those who actually refuse to be a part of the process. Despite the tenacious efforts of some to vehemently ignore the lawsuit filed against them, most come to the stark realization that the civil litigation process will not stop simply because they choose not to participate.
This is the very reason that insurance carriers have written into their policies a duty to cooperate in the defense of any suit covered by the policy. A breach of this duty to participate in the defense of the suit could trigger a denial of coverage due to the failure to comply with all the conditions contained within the policy. This policy term allows the insurance carrier to have an opportunity to try and avoid indemnifying an insured for a loss which the insured refuses to help the carrier mitigate. "If insurers could not contract for fair treatment and helpful cooperation from the[ir] insured, they would, at the very least, be severely handicapped in determining how and whether to contest [a] claim, and might, in addition, be particularly susceptible to possible collusion between the participants in the accident." Arton v. Liberty Mutual Insurance Co., 163 Conn. 127, 134 (1972).
However, before an insurer can deny coverage to an insured for a failure to cooperate in the defense of a suit, the insurer must first be able to demonstrate that the failure to cooperate meets the threshold requirement of being a substantial or material failure to participate in the defense of the suit. Curran v. Connecticut Indemnity Co., 127 Conn. 692, 696 (1941). The Curran court also wrote that immaterial and insubstantial failures to cooperate in the defense of a suit fail to meet the threshold test when the event or matter that is the claimed failure to cooperate does not have a demonstrable element of prejudice to the insurer.
Failures that reach the prejudicial level are generally of the nature that prevents the carrier from being able to contest, defend, or prepare for an element of the case. A defendant who repeatedly fails to appear at his deposition and ultimately gets defaulted for that failure to appear might be at risk of facing a denial of coverage from his insurance carrier. However, the carrier must also be able to demonstrate that its insured's failure to appear at his deposition and the resulting default prejudiced the carrier's ability to defend the suit. If liability was already admitted and the insured had little or no facts to offer at the deposition beyond what other witnesses already offered, then that burden might be harder for the carrier to meet.
On the other hand, if the insured is the only witness capable of giving the carrier testimony in support of a liability defense and the insured, while remaining adamant that the accident was not his fault, refuses to be deposed, then the carrier has a far stronger case should it try to deny coverage for a failure to cooperate.
The analysis as to when a carrier can properly deny coverage to an insured for failing to cooperate in the defense of a suit becomes more complicated when the location of the insured is unknown. When the location of the insured in unknown, the Arton court ruled, the carrier must be able to demonstrate that it undertook a diligent effort to locate its insured before denying coverage. In this scenario, the carrier can be faced with a clearly prejudicial failure on behalf of its insured to cooperate in the defense of a suit yet still have to prove the additional requirement that it diligently sought out the location of its insured before the carrier may properly deny coverage. This diligent search for the insured may need to take place during pending litigation or even during the initial claims investigation. The courts have imposed the requirement of due diligence on the insurance carrier for the protection of injured persons and to avoid collusion between the insured and the insurers. Commercial Contractors Corporation v. American Insurance Co., 152 Conn 31, 40 (1964).
In the case of Seaco Insurance Co v. Hyde, 34 Conn. L. Rptr. 669 (2003), the court held that the carrier's attempts to investigate the motor vehicle accident were not diligent enough to grant Seaco's motion for summary judgment in its declaratory judgment action. In its memorandum of decision, the court noted that Seaco waited five months after the accident to take serious efforts to locate the driver of its insured's commercial vehicle who was involved in the accident. The court held that the carrier knew the driver was in Connecticut as a resident alien and that he did not return to work in the days following the very serious accident. It should be noted that the court further questioned whether the failure of the driver to participate was a material breach of participation, as he had already provided a detailed sworn statement to the investigating police officer.
In the Seaco case, the carrier hired an investigator in Connecticut and also in California, Texas and Mexico in an attempt to locate the missing driver. The carrier was also faced with defending a suit without the benefit of the insured driver. Despite both these facts, the carrier was unable to win a motion for summary judgment in its attempt to deny coverage. This case exemplifies how factually specific a coverage denial for failure to cooperate is and the great extent a carrier has to go to be able to prove both a material failure to cooperate and a diligent search for a missing insured.•