SB 336 Creates a legal process for insurance companies to contest policy coverage issues without breaching certain agreements to their insureds
Sponsor: Rupp
LR Number: 1777S.01I Fiscal Note: 1777-01
Committee: Small Business, Insurance and Industry
Last Action: 2/24/2009 - Hearing Conducted S Small Business, Insurance and Industry Committee Journal Page:
Title: Calendar Position:
Effective Date: August 28, 2009

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Current Bill Summary


SB 336 - Under the terms of this act, if a lawsuit is filed in which an insurance company might be obligated to make payment under an insurance policy, the insurance company may contest the applicability of its coverages to the facts of the lawsuit at hand by:

(1) Denying coverage to the insured in a clear and unequivocal communication; or

(2) Notifying the insured that it contests the applicability of the policy's coverages to the facts pled in the lawsuit and that the insured may select legal counsel to defend the action at the insurer's expense until the issue of coverage is resolved.

If the insurance company elects to deny coverage by notifying the insured, then the insurer may proceed to defend the lawsuit in any manner (including entering into an agreement with the adverse party to allow a judgment to be taken in the case). This action shall not constitute a breach of any agreement to cooperate provision contained in the insurance policy.

If the insurance company elects to notify the insured that it contests the applicability of coverage to the facts at hand, the insurance company must then file a declaratory judgment action within 45 days after receiving notice of the lawsuit against its insured. The declaratory judgement action shall be filed to determine whether the insurance policy provides coverage to the facts pled in the lawsuit against the insured. The insurance company must agree to pay for the insured's reasonable legal fees for defending the declaratory judgment action.

If the insurance company files a declaratory judgment action to contest the policy's coverage, the insured may not settle the lawsuit or otherwise make other types of agreements with the adverse party unless specifically authorized by the insurance company in writing.

The institution of a declaratory judgment action under the act to contest coverage shall not constitute a breach of its insurance policy, either present or anticipatory.

STEPHEN WITTE