It happened at a settlement conference again just last week. Defense counsel said there was "no insurance" for the defense or indemnity of a professional malpractice claim.

This naturally surprises me.  Some professionals are required to have coverage or disclose its non-existence to their clients.  No such disclosure had been made in this case.

"No insurance policy?"

"She has an insurance policy; there's just no coverage."

"Why did the carrier deny coverage?"

"The carrier said there was no coverage."

"Why?"

"I don't know.  I'm not coverage counsel."

"Is there coverage counsel?"

"No.  I told you there's no coverage.  Let's get back to negotiating the settlement."

After obtaining (via fax) the policy, the demand and the denial, it turned out that there was a good reason for the carrier to deny coverage for the plaintiff's claim.  But the denial letter expressly withheld comment on the existence of coverage for the defendant's principal, who had not failed to make a timely claim for coverage, and who had not yet been sued.

Call me an activist or a "fund raising" mediator if you will, but when there's not enough money to settle a case and the parties continue to wish it could be settled, I start asking questions about sources of available funds.  

And, listen.  Every litigator must be enough of a "coverage lawyer" to evaluate the likelihood that any existing insurance policy might provide defense or indemnity for the law suit you are defending.  

So, if you are a commercial litigator -- or any type of litigator who defends your clients against claims -- you must

• ask your clients for all of their insurance policies, even those that seem unlikely to provide coverage;
• carefully review the precise wording of the policy's insuring agreements, paying particular attention to the language concerning the defense of claims and the deadlines for submitting those claims to the carrier;
• research the case law in the relevant jurisdiction(s) to determine how the courts have interpreted the insuring agreements and other pertinent policy provisions contained in your clients' policies under facts similar to those alleged in the lawsuit you've been asked to defend;
• except for some narrow additional protections provided to insureds, be aware that there is no such thing as "the law" of coverage under any particular type of policy -- all coverage flows directly from the precise language of the insuring agreement;
• remember that in most jurisdictions, that language -- if ambiguous -- will be interpreted in favor of the insured's objectively reasonable expectations -- that means the law of coverage always favors your client's claim for coverage; 
• understand that in most jurisdictions the rule of contra proferendum will require a court to construe any ambiguity in an insurance policy against the insurance carrier, once again meaning that the law of coverage will favor your client's claim for coverage; 
• never accept the carrier's refusal to provide a defense without asking yourself -- or a coverage specialist -- why in the heck you should accept the carrier's word for it when you were born to contradict everything from "good morning" to "let's have lunch";
• never conclude your client doesn't have coverage before tendering the claim; the response to the tender will outline the pertinent policy provisions in stark enough detail -- not to mention 12-point type -- and the denial in sufficiently weasley words to activate your B.S. meter;
• if you finally accept the fact that your client's policy won't cover the defense of the litigation or indemnify your client in the event of a judgment, continue to keep the carrier informed of the litigation's progress in any event, inviting the carrier to attend all mediations and settlement conferences and to respond to all settlement demands;
•  remember that the law of coverage changes on a daily basis; read those coverage decisions sent down by your local appellate courts and subscribe to Mealey's on coverage remembering that a really good reason for a client to sue a lawyer for malpractice is your failure to give it reasonably informed legal advice about the availability of insurance coverage; and,
• retain coverage counsel If the cost of the lawsuit is beyond your client's means or will deprive it of capital necessary to meet its business goals for the next few years. 

UPDATE:  See Perry Itkin's post about the perils of entering into a mediated settlement agreement without knowing your policy limits.  Also note that the result in the case cited by Perry would be different in  California if the provisions governing the enforceability of mediated agreements are not met . . . at least so long as the Supreme Court does what we believe it will in Simmons v. Ghadheri.  Excerpt from Florida Mediator below:

In Leff and Physicians Financial Consultants Corporation v. Ecker, M.D., 972 So.2d 965 [Fla. 3rd DCA 2007], the plaintiff went into the mediation conference without a clear picture of what the insurance policy limits were. Notwithstanding this limited knowledge, plaintiff chose to go ahead with the mediation and entered into an agreement at the end of mediation.

The Defendants filed a motion to enforce the mediated settlement agreement [Guess why! Good guess!]. The Plaintiff argued that a “mutual mistake” allowed him to avoid the parties’ mediated settlement agreement.

Not so fast   . . . .

Continue reading here.  There are two solutions to this problem in any jurisdiction:  (1) know your policy limits; or, (2) make your agreement to settle contingent on verifying them.  

For the seasoned attorneys in the crowd, take a look at Anderson Kill insurance recovery attorney Mark Garbowski's article at the Lexis New Attorney Hub:  Are You Covered While Doing Good?: Make Sure Your Employees Are Insured Even When Doing Pro Bono.

If you have a really really really really big insurance coverage matter, I recommend those seeking insurance coverage to call my own brilliant insurance recovery squad over at Dickstein Shapiro, particularly my beloved husband Stephen N. Goldberg.