Many companies and individuals obtain insurance to help them manage risk. The presence of insurance coverage for claims asserted in a legal action can greatly impact litigation strategy and the ultimate resolution of a dispute. Thus, it is important for a defendant against whom claims have been asserted to promptly ascertain whether the claims, and the cost of defending those claims, are covered by insurance. In addition, savvy plaintiff’s counsel should consider, when appropriate, whether asserting claims they know may trigger insurance coverage will increase the likelihood of a successful result being obtained by, for example, increasing the pool of monies available to settle a case or pay a judgment.
Insurance can take many different forms and it is not unusual for businesses to have multiple policies intended to cover different risks. Some of the most common types of insurance maintained by businesses include commercial general liability (CGL); professional liability or “errors and omissions” (E&O); and directors and officers’ liability (D&O). Many of these types of policies provide that the insurer will pay the cost of defending all claims alleged in a single action against a defendant if any claim alleged in the action is potentially covered by the insured’s policy (although often only after a deductible or self-insured retention has been exhausted). The most common type of claim trigger coverage under many business insurance policies is one that alleges “negligence” on the part of the insured.
In most cases, the presence of insurance coverage for claims asserted in a legal action will be something desirable to both plaintiffs and defendants. However, the recent widely publicized lawsuit by Terry Bollea a/k/a Hulk Hogan against Gawker Media, arising from Gawker’s posting an excerpt of a secretly-recorded sex tape of Hogan on its website, is a notable exception. Hogan initially asserted claims against Gawker for, among other things, invasion of privacy and negligent infliction of emotional distress. Hogan later voluntarily withdrew the negligence claim because, as reported in the media, it would have triggered insurance coverage for Gawker. Hogan’s lawsuit was primarily motivated by a desire to inflict financial harm on Gawker; thus, Hogan, and his financial backers who had also been harmed by Gawker, decided that the best way to achieve this end was to prevent Gawker from shifting the monetary liability associated with the defense and liability for the claims to its insurance company. By dismissing the negligence claim, they prevented that from occurring. Ultimately, Hogan was awarded $140 million in damages by the jury (none of which was covered by Gawker’s insurance policy). Faced with a damages award it could not afford to pay, Gawker subsequently filed for bankruptcy.
Although circumstances of the Hogan case are unusual, it serves as a potent reminder of how the presence (or absence) of insurance coverage in a lawsuit can influence strategy and outcome. Both plaintiffs and defendants need to carefully consider the implication of insurance coverage when developing strategies to prosecute or defend legal actions.