Duty To Cooperate With Insurers Investigation

Insurance lawyers understand that an insured has an obligation to cooperate with the insurance company investigation of a claim.  This topic is briefly discussed in an article published by the State Bar of Texas, Insurance Section Journal.  The article is titled, Texas Law And The Restatement Of The Law Of Liability Insurance: An Initial Comparison Of Blackletter Principles.

In most situations when an insured has a claim, he calls the insurance company, the insurance comes out, takes a statement, and a few days later the claim is resolved.  But, that is not how it always occurs.

The law in Texas, is that an insured has a duty to cooperate with its insurance company in the defense of claims for which the insurer has a duty to defend.  This was made clear in the 1993, opinion from the Texas Supreme Court styled, State Farm Fire & Cas. Co. V. S.S.  These clauses, called cooperation clauses, are intended to guarantee to the insurance companies the right to prepare adequately their defense on questions of substantive liability.  This was stated in the 1971, 5th Circuit opinion styled, Martin v. Travelers Indem. Co.  The Restatement essentially recognizes this same duty and says:

§ 29. The Insured’s Duty to Cooperate

When an insured seeks liability insurance coverage from an insurer, the insured has a duty to cooperate with the insurer.  The duty to cooperate includes the obligation to provide reasonable assistance to the insurer:

(1) In the investigation and settlement of the legal action for which the insured seeks coverage;

(2) If the insurer is providing a defense, in the insurer’s defense of the action; and

(3) If the insurer has the right to associate in the defense of the action, in the insurer’s exercise of the right to associate.

It is noteworthy that the Restatement and Texas law agree on the consequences of breaching the duty to cooperate.  The Restatement says:

§ 30. Consequences of the Breach of the Duty to Cooperate

(1) An insured’s breach of the duty to cooperate relieves an insurer of its obligations under an insurance policy only if the insurer demonstrates that the failure caused or will cause prejudice to the insurer.

(2) If an insured’s collusion with a claimant is discovered before prejudice has occurred, the prejudice requirement is satisfied if the insurer demonstrates that the collusion would have caused prejudice to the insurer had it not been discovered.

There are many cases in Texas law that provides an insured’s breach of a cooperation provision relieves an insurer of liability on the policy.

It is important that both the Restatement and Texas law require a prejudice showing.  In other words, to breach its duty to cooperate, an insured’s conduct must materially prejudice the insurer’s ability to defend the lawsuit on the insured’s behalf.  Also notable, is that an insurer who first wrongfully refuses to defend an insured is precluded from insisting on the insured’s compliance with other policy conditions.  This was made clear in the 1988, Texas Supreme Court opinion styled, Employers Cas. Co. v. Block.