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Frequently Asked Questions about Insurance Defense

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Frequently Asked Questions About Insurance Defense

Q: When an insurer is providing a defense under a reservation of rights, is the insurer required to hire separate counsel?

A: In general, an insurer should take steps to shield duty to defend counsel from coverage issues. However, depending on the jurisdiction and circumstances of a particular case, an insurer that provides a defense under a reservation of rights may be required to hire separate counsel.

Q: What are the potential consequences of an insurer's failure to hire separate counsel?

A: If an insurer is required to hire separate counsel because of the laws of a particular jurisdiction, the circumstances of a particular case or both, and the insurer fails to engage separate counsel, allegations of bad faith may result.

Q: How do courts interpret insurance policy language?

A: Insurance policies are contracts, and the interpretation of insurance policies is largely a matter of state contract law. Therefore, the interpretation and nature of an insurance policy can vary by jurisdiction.

Q: When is the duty to defend activated?

A: In general, the duty to defend is not activated until a cause of action arising out of a covered event or occurrence is instituted against the insured. However, depending on the jurisdiction or the types of events covered under the policy, other types of actions may activate the duty to defend.

Q: What are issues that may be resolved by filing a suit for a declaratory judgment?

A: In general, a declaratory judgment suit may determine the insurer's duty to provide a defense and the extent of coverage under a particular policy. However, what issues may be decided by a declaratory judgment action vary by jurisdiction.

Q: Are attorney fees awarded in a declaratory judgment action?

A: In general, attorney fees are not awarded to the prevailing party in a declaratory judgment action. However, the rule varies by jurisdiction and individual circumstances.

Q: What law governs insurance companies?

A: State laws primarily govern U.S. insurance companies. State governments usually have a regulatory agency charged with overseeing insurance companies incorporated or licensed to do business within the state. A commissioner will most likely head this agency.

Q: How do states limit insurance company business practices?

A: States are the primary regulators of insurance company business practices. Their limitations are typically statutory. A state may limit most aspects of the industry, including rate making, marketing, underwriting and the insurance company's ability to cancel a policy.

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