Increasingly, America’s civil courts are demanding that insurance defense attorneys be duly diligent in the handling of their client’s evidence of applicable insurance. Where attorneys fail to investigate and present what coverage may be available in their client’s insurance portfolio, they risk court sanction.

Tenth Circuit Upholds Counsel’s Duty to Investigate Coverage

Federal Rule of Civil Procedure 26(a)(1)(A)(iv) requires that parties to civil litigation in possession of insurance policies that may provide coverage be forthcoming even before discovery requests for insurance policies are made. It reads:

“[A] party must, without awaiting a discovery request, provide to the other parties… any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” Fed. R. Civ. P. 26(a)(1)(A)(iv).”

So when Sun River Energy’s trial counsel argued before the District Court that it had born no duty to examine his client’s Director’s & Officer’s Liability insurance policy to see whether it provided coverage for securities violations and present it to opposing counsel, the 10th Circuit Court of Appeals found his argument wanting. In the case styled Sun River Energy v. Nelson decided in September, 2015, the appellate court determined that the District Court had not abused its discretion in sanctioning trial counsel for not disclosing its client’s policy until coverage had lapsed. It ruled that the attorney’s obligation “inherently includes an exercise of legal judgment regarding the possible availability of coverage under the specific terms of any insurance policies held by a party.” Where Sun River’s trial counsel “never took a serious look at whether there was applicable insurance,” the appellate court found that sanctions were in order even without a finding of intentional misrepresentation.

North Carolina Attorney Sanctioned for Failing to Disclose Umbrella Coverage

Not only is it necessary to investigate insurance coverage and present it to opposing counsel in discovery but it is necessary to present all the evidence of insurance in the client’s possession in addition to that policy under which you are providing a defense. In the recent case styled, Inc. Palacino v. Beech Mountain Resort, the U.S. District Court for the Western District of North Carolina found it necessary to sanction an insurance defense attorney for failing to properly discuss and review applicable insurance in her client’s insurance program. There, the attorney had revealed the first $1 million layer of commercial general liability insurance coverage but had failed to make additional inquiry that would have revealed a $10 million umbrella policy above the underlying coverage.

Insurance Archeology a Necessary Part of Defense

Given the growing insurance expertise demanded of insurance defense counsel, the hiring of an insurance archeologist to assist in the preparation of insurance evidence during discovery makes increasing good sense. Defense attorneys can likely protect against sanctions by showing that they were duly diligent in the accumulation and evaluation of applicable insurance documents at trial.