By Mary P. Derner ADC Defense Comment Fall 2018

1. Fall 2018 Defense Comment 9
Continued on page 10
The Importance of Tendering
Your Defense to an Insurer
Mary Derner
Caulfield Law Firm
ursuing liability insurance coverage
for the defense and indemnity
of your client against a claim or
suit should be one of the initial tasks an
attorney undertakes upon receipt of a new
file. The consequences of not tendering,
or a late tender, can be significant for
both the attorney and client. An attorney
may be liable for malpractice for failing
to investigate the possibility of insurance
coverage and failing to tender. Jordache
Enterprises, Inc. v. Brobeck, Phleger &
Harrison, (1998) 18 Cal.4th739. With some
limited exceptions, attorney’s fees and
costs incurred prior to tendering are not
recoverable from an insurer, and a client
may be on the hook for any settlement
or assumption of liability made before
tendering pursuant to the standard “no
voluntary payments” provision included
in liability policies. Insua v. Scottsdale Ins.
Co., (2002) 104 Cal.App.4th 737. Liability
policies require that an insured provide the
insurer with notice of any claim or suit “as
soon as practicable” or “promptly.” Failing
to tender, or a delay in tendering, can be
asserted by an insurer as a breach of the
policyconditionsexcusingtheinsurerfrom
any duty to defend or indemnify. However,
in California an insurer must prove it has
suffered actual prejudice in its defense of a
claimorsuitfromlatenotice,whichinmost
circumstances is difficult for an insurer to
establish.1
Betz v. Clarendon America Ins.
Co., (2207)158 Cal.App.4th 615.
A question arises when the claim or
allegations of a complaint do not appear
to be covered. Should an attorney tender
anyway? In most cases, yes. Tendering is
prudent because facts favoring coverage
may come to light during the investigation
of a claim, new allegations may be added
to a complaint, or discovery may reveal a
potential for coverage. Some attorneys and
clientsareconcernedthattenderingaclaim
or suit that does not appear to be covered
willresultininsurancebeingcancelledorin
higher premiums. That could happen, but
if an insurer denies coverage and makes no
defense or indemnity payments, tendering
is unlikely to have adverse consequences.
Additionally, an insured may be required
to disclose, on an insurance application
for a renewal policy or a policy with a new
insurer, any claim made against it, even if
it has not been tendered to any insurer. As
such, a claim or suit may become known
to an insurer regardless of tendering and
still impact insurability or premium cost.
HOW SHOULD YOU MAKE
THE TENDER?
The mechanics of tendering are fairly
straightforward, but some considerations
should be taken into account. Should the
tender be made to the client’s insurance
brokerortotheinsurerdirectly? Itdepends.
If the claim or suit involves a date certain
within a single policy year and you have the
policy which includes instructions on how
to tender, then tendering directly to the
insurer may be best. Copy the broker on
your tender letter. If you have only limited
information about the client’s insurance
and/or a claim or suit may trigger coverage
under multiple policy years, it may be
prudent to tender to the client’s current and
prior insurance brokers and request that
they tender to all insurers for all potential
applicable policies and policy years.
What information should be included in
a tender letter? To the extent known, a
tender letter should include the names of
the insurer, insured/client and claimant/
plaintiff, policy number(s), policy period(s)
and case caption if suit has been filed.
Enclose a copy of the operative complaint
or cross-complaint if suit has been filed or
threatened, or in the case of a claim, any
demand or correspondence asserting the
basis for the claim. In the tender letter,
it is not necessary to elaborate on the
allegationsofthecomplaintorclaim. Leave
it to the insurer to undertake its coverage
investigation. The exception to this is when
there are facts outside of the complaint
that are favorable for establishing coverage.
In that case, provide this additional
information to the insurer from the outset
to expedite its investigation and coverage
determination. In determining a duty to
defend, an insurer must consider both
the allegations of the complaint and all
extrinsic facts known to the insurer from
any source. Montrose Chem. Corp. of Calif.
v. Sup. Ct., (1993) 6 Cal.4th 287.
WHAT DO YOU SAY,
AND HOW DO YOU SAY IT?
There is no magic language for a tender
letter. Simply make a request that the
insurer defend and indemnify the insured
against the claim or complaint. It is not
necessary, or particularly productive, to
cite to case law on the duty to defend or the
consequences of a wrongful denial. Include
a reasonable deadline for the insurer to
respond depending on the circumstances.

2. 10 Defense Comment Fall 2018
Tender – continued from page 9
Thirty days is somewhat typical, but the
situation may demand a more immediate
response. Advise the insurer of any
impending dates such as the expiration of
a demand or the deadline for responding
to the complaint.
Tendering is not necessarily a onetime deal.
As a claim or suit develops, facts may be
revealed that give rise to a potential for
coverage despite a prior coverage denial.
In that case, the insured has the burden
of informing the insurer of any newly
developed facts indicating a potential for
coverageandseekingreconsiderationofthe
insurer’scoveragedetermination. Theonus
is on the insured to bring these new facts
to the insurer’s attention. An insurer owes
no continuing obligation to investigate
once it has rendered its coverage decision.
Gunderson v. Fire Ins. Exch., (1995) 37 Cal.
App.4th 1106.
It is almost always in the best interests
of the client to tender a claim or suit to a
liability insurer, and an attorney may be
exposed to malpractice liability in failing
to do so. In rare circumstances, such as
where coverage is far-fetched and the client
has overriding business considerations or
a strong desire to control the defense of a
claim or suit, there may be an exception
to the general rule that tendering is best.
In those rare circumstances, document
in writing to the client the reasons for not
tendering, the possible consequences and
the client’s approval of the decision not
to tender.
ENDNOTES
1 This is not the case with “claims-made”
policies where notice in accordance with
policy requirements is critical for coverage
to apply and the insurer need not show any
prejudice from late notice.
Mary
Derner
Mary Derner is Of Counsel
to the Caulfield Law Firm in
El Dorado Hills, where she
specializes in insurance
coverage and bad faith
litigation. She received her
Bachelor’s Degree from the
University of California,
Santa Barbara, and her Juris Doctorate
from the University of California, Hastings
College of the Law.