AIC Litigation & Legal Proceedings Flashcards

What is the primary purpose of a reservation of rights letter in claims litigation?

Answer: To notify the insured that coverage may not apply while the insurer continues to investigate

A reservation of rights letter allows the insurer to investigate or defend a claim while preserving the right to deny coverage later if a policy exclusion applies.

In the context of claims litigation, what does 'subrogation' allow an insurer to do?

Answer: Pursue recovery from a negligent third party after paying a claim

Subrogation gives the insurer the legal right to step into the insured's shoes and seek reimbursement from the party responsible for the loss.

What is the 'duty to defend' as it applies to liability insurance claims?

Answer: The insurer's obligation to provide a legal defense for covered claims even if the claim may be groundless

The duty to defend requires the insurer to defend the insured against lawsuits alleging covered losses, regardless of whether the suit ultimately has merit.

During litigation, what is the purpose of an Examination Under Oath (EUO)?

Answer: To allow the insurer to formally question the insured about the claim under oath

An EUO is a formal, sworn proceeding where the insurer questions the claimant or insured to gather facts and assess the validity of the claim.

What does 'bad faith' mean in the context of insurance claims handling?

Answer: An insurer's unreasonable denial or delay of a valid claim without a legitimate basis

Bad faith occurs when an insurer unreasonably refuses to pay, delays payment, or fails to properly investigate a valid claim, exposing the insurer to extra-contractual damages.

What is an 'excess judgment' in insurance litigation?

Answer: A court verdict that exceeds the insured's policy limits

An excess judgment is a court award that surpasses the insured's policy limits, potentially exposing both the insured and insurer to personal liability claims.