Most insurance policies contain some form of "cooperation" provision. These provisions exist in both first-party insurance policies (e.g. property policies) and third-party policies (liability policies). When an insured files a first-party claim or tenders a third-party liability claim to its insurance company, the insurance company will often ask for the insured to "cooperate." Generally speaking, the insured must acquiesce to the reasonable requests for cooperation from the insurance company. That being said, there are situations where the insured should tread lightly.

On occasion, I've had clients who have received a demand letter from someone threatening a lawsuit. The claim was tendered to the insurance company. The insurance company indicated that it had no duty to defend until an actual lawsuit was filed. Despite the fact that no defense was being provided, the insurance company also asked for a "recorded statement." According to the insurance company, the insured was obligated to participate based on the duty to cooperate. The insurer intended to ask questions about fault of the insured and its liability exposure. The problems with this are twofold. First, in most states the insurer is prohibited from using information outside of the complaint to determine whether it has a defense obligation. By securing a statement pre-lawsuit, the insurer may discover a coverage defense it would not otherwise have found. Second, a pre-lawsuit recorded statement may well be discoverable by the putative plaintiff when a lawsuit is filed. Those statements may contain material that implicates the insured's liability.

When an insured is asked to cooperate, it is important to understand both the obligations of the insured and the risks that the cooperation may implicate. An insured may be wise to seek legal counsel to understand its rights and responsibilities. If not, the insured might find itself in the worst of both worlds, liability with no insurance coverage.

As always, please feel free to contact us if you have any questions.