Insurance companies often use the words “tendering” a claim. They argue that policyholders must “tender a claim” by using exactly the right words in order to obtain coverage under the insurance policies. Specifically, they argue that until the claim is “tendered,” they do not have a duty to defend the policyholder.
They often define “tender” as notice of the claim against the policyholder, AND being asked by the policyholder to defend it, AND being given the opportunity to take over the control of the policyholder’s defense.
Despite the use of the phrase “tendering the claim”, no insurance policy requires that the policyholder “tender” a claim, a suit, or an occurrence. Insurance policies simply require “notice,” not “tender.” As one court wrote, the adoption of a “tender” requirement as demanded by the insurance companies would do nothing other than provide a “loophole through which the insurer may escape a lawful contractual obligation.” Federated Mut. Ins. Co. v. State Farm Mut. Auto Ins. Co., 282 Ill. App.3d 716, 668 N.E.2d 627 (1996)[1]. If insurance carriers wanted to condition performance of their duties under the insurance policy on a requirement of “tender,” they should have included specific language in their insurance policies. If they did not include “tender” language in their insurance policy, they cannot create a loophole to avoid coverage.
Numerous other courts have held that policyholders do not have to specifically request a defense or indemnity of a claim when they provide notice to their insurance company.[2] See Cincinnati Companies v. West American Insurance Company, 183 Ill.2d 317 (Ill. 1998)[3]; Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127 (Ill. 1999); 14 COUCH ON INSURANCE 3D ¶200.35 (1999)(“In general, a tender of defense occurs once an insurer has been put on notice of a claim against the insured”); White Mountain Cable Constr. Corp. v. Transamerica Ins. Co., 137 N.H. 478 (1993)(“In order to tender the defense, the insured need only put the insurer on notice of the claim”); Sampson v. Transamerica Ins. Co., 636 P.2d 32,44 (Cal. 1981)( the court rejected Transamerica’s argument that it did not refuse to defend the lawsuit because the insured never demanded a defense as “sheer sophistry”); Towne Realty, Inc. v. Zurich Ins. Co., 201 Wis.2d 260 (1996); New NGC, Inc. v. ACE Am. Ins. Co., 105 F. Supp.3d 552 (W.D. N.C. 2015 (the duty to defend arises when the insurer receives notice of the underlying action); Kraus-Anderson Constr. Co. v. Transp. Ins. Co., 2011 Minn. App. Unpub. LEXIS 324 (Minn. App. 2011)[4]; Cobb v. Empire Fire & Marine Ins. Co., 488 So.2d 349, 350 (La.Ct. App. 1986); Widener Univ. v. Fred S. James & Co., 371 Pa. Super. 79 (1988); Huntsman Advance Materials, LLC v. OneBeacon Am. Ins. Co., 2012 U.S. Dist. LEXIS 19053 (D. Idaho. 2012); Ash Grove Cement Co. v. Liberty Mutual Ins. Co., 2011 U.S. Dist. LEXIS 65755 (D. Or. 2011); One Beacon America Ins. Co. v. Fireman’s Fund Ins. Co., 175 Cal. App.4th 183 (Cal. App.2 Dist. 2009)[5]. In Home Insurance Company v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, 658 N.W.2d 522, 532 (Minn. 2003), the court reasoned:
We agree with the supreme courts of Illinois, New Hampshire, and Wisconsin that sound
public policy does not support a rule that requires insureds to expressly request a defense
in order to trigger the duty to defend. Three broad reasons support defining “tender” as
giving the insurer notice and opportunity to defend a covered lawsuit: first, it clarifies
the duties of the parties early in the litigation; second, it acknowledges the greater
knowledge and sophistication of the insurer; and third, it places no significant burden on insurers.
Policyholders who are faced with a failure to “tender” argument from their insurance carrier should push back and object to the argument as one that is not supported by the language in the policy and not supported by a majority of the courts.
[1] “Such a rule [requiring tender] requires an insured to jump through meaningless hoops towards an absurd end: telling the insurer something it already knows. Such a rule injects a degree of gamesmanship into the insurer-insured relationship without providing any valid corresponding benefit. In fact, the only benefit of such a rule is to create a possibility – where none would otherwise exists- for an insurer to escape an obligation it otherwise owes its insured.” Id. at 725. In holding that notice of a claim triggers the duty to defend, the court noted that this rule is the result of a number of considerations: (1) the insurer is usually in a better position than even a sophisticated insured to know the scope of the insurance contract and its duties under it; (2) assurance or protection of the benefits of the insurance contact. The insurer should not be allowed to evade its responsibilities under the policy where the insurer has actual notice of a claim against its insured; and (3) the state has an interest in having an insured adequately represented in the underlying litigation.” Id. at 726-27.
[2] Only a few courts have held that the policyholder must tender the defense to the insurance carrier in addition to the carrier having notice. See Goodstein v. Continental Casualty Company, 509 F.3d 1042, 1056 (9th Cir. 2007) (quoting Unigard Ins. Co. v. Leven, 983 P.2d 1155, 1160 (Wash. App. Ct. 1999); Casualty Indm. Exchange Ins. Co. v. Liberty Nat’l Fire Ins. Co., 902 F. Supp. 1235, 1239 (D. Mont. 1995); Litton Systems, Inc. v. Shaw’s Sales & Serv. Ltd. 119 Ariz. 10 (Ariz. Ct. App. 1978).
[3] In Cincinnati, the court stated its holding as “where the [policyholder] has not knowingly decided against a [carrier’s] involvement, the [carrier’s] duty to defend is triggered by actual notice of the underlying suit.” Id. at 329. The court held actual notice is “notice sufficient to permit the [carrier] to locate and defend the lawsuit.” Id. The court further explained that notice sufficient to permit the carrier to locate and defend the lawsuit mans the carrier “must know both that a cause of action has been filed and that the complaint falls within or potentially within the scope of coverage of one of its policies.” Id.
[4] “We need not conclude that ‘tender’ is a magic word that is always effective to tender defense. The district court found that Kraus-Anderson tendered defense to Evanston on a record including the January 2003 letter purportedly tendering defense, the subsequent communication between Champlin and Bishop, Kraus-Anderson’s repeated requests to receive the benefits of its policy, no evidence that Evanston ever specifically asked Kraus-Anderson whether it wanted a defense, and no evidence that Kraus-Anderson ever denied Evanston an opportunity to defend it. On this record, we cannot conclude that the district court’s finding that Evanston was given an opportunity to defend Kraus-Anderson was clearly erroneous.”
[5] In One Beacon, the court stated “tender should be defined only as giving the insurer notice and an opportunity to defend.” Id. The court gave three reasons in support of its definition of tender: (1) it clarifies the duties of the parties early in the litigation; (2) it acknowledges the greater knowledge and sophistication of the insurer; and (3) it places no significant burden on insurers. Id. The court explained that once notice is given, “it should be the responsibility of the insurer to contact the insured to determine whether the insurer’s assistance in the suit is required.” Id. (Internal quotations and citations omitted). “When notified of the insured’s potential liability under the suit, the insurer can simply ask the insured if the insurer’s involvement is desired, thus eliminating any uncertainty on the question.” Id. (Internal quotation and citation omitted). “This also prevents the creation of potential loopholes for insurers, and protects the bargain struck by the parties in the insurance policy. Id. “The insured paid for the insurer’s promise to defend the insured for covered claims, and the insured’s ignorance regarding the language the insured must use to invoke that coverage should not negate the bargain.” Id. The California court concluded that once an insured provides its insurer with notice of a claim and an opportunity to defend it, it has tendered the defense. Id. at 203.
Despite the use of the phrase “tendering the claim”, no insurance policy requires that the policyholder “tender” a claim, a suit, or an occurrence. Insurance policies simply require “notice,” not “tender.” As one court wrote, the adoption of a “tender” requirement as demanded by the insurance companies would do nothing other than provide a “loophole through which the insurer may escape a lawful contractual obligation.” Federated Mut. Ins. Co. v. State Farm Mut. Auto Ins. Co., 282 Ill. App.3d 716, 668 N.E.2d 627 (1996)[1]. If insurance carriers wanted to condition performance of their duties under the insurance policy on a requirement of “tender,” they should have included specific language in their insurance policies. If they did not include “tender” language in their insurance policy, they cannot create a loophole to avoid coverage.
Numerous other courts have held that policyholders do not have to specifically request a defense or indemnity of a claim when they provide notice to their insurance company.[2] See Cincinnati Companies v. West American Insurance Company, 183 Ill.2d 317 (Ill. 1998)[3]; Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127 (Ill. 1999); 14 COUCH ON INSURANCE 3D ¶200.35 (1999)(“In general, a tender of defense occurs once an insurer has been put on notice of a claim against the insured”); White Mountain Cable Constr. Corp. v. Transamerica Ins. Co., 137 N.H. 478 (1993)(“In order to tender the defense, the insured need only put the insurer on notice of the claim”); Sampson v. Transamerica Ins. Co., 636 P.2d 32,44 (Cal. 1981)( the court rejected Transamerica’s argument that it did not refuse to defend the lawsuit because the insured never demanded a defense as “sheer sophistry”); Towne Realty, Inc. v. Zurich Ins. Co., 201 Wis.2d 260 (1996); New NGC, Inc. v. ACE Am. Ins. Co., 105 F. Supp.3d 552 (W.D. N.C. 2015 (the duty to defend arises when the insurer receives notice of the underlying action); Kraus-Anderson Constr. Co. v. Transp. Ins. Co., 2011 Minn. App. Unpub. LEXIS 324 (Minn. App. 2011)[4]; Cobb v. Empire Fire & Marine Ins. Co., 488 So.2d 349, 350 (La.Ct. App. 1986); Widener Univ. v. Fred S. James & Co., 371 Pa. Super. 79 (1988); Huntsman Advance Materials, LLC v. OneBeacon Am. Ins. Co., 2012 U.S. Dist. LEXIS 19053 (D. Idaho. 2012); Ash Grove Cement Co. v. Liberty Mutual Ins. Co., 2011 U.S. Dist. LEXIS 65755 (D. Or. 2011); One Beacon America Ins. Co. v. Fireman’s Fund Ins. Co., 175 Cal. App.4th 183 (Cal. App.2 Dist. 2009)[5]. In Home Insurance Company v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, 658 N.W.2d 522, 532 (Minn. 2003), the court reasoned:
We agree with the supreme courts of Illinois, New Hampshire, and Wisconsin that sound
public policy does not support a rule that requires insureds to expressly request a defense
in order to trigger the duty to defend. Three broad reasons support defining “tender” as
giving the insurer notice and opportunity to defend a covered lawsuit: first, it clarifies
the duties of the parties early in the litigation; second, it acknowledges the greater
knowledge and sophistication of the insurer; and third, it places no significant burden on insurers.
Policyholders who are faced with a failure to “tender” argument from their insurance carrier should push back and object to the argument as one that is not supported by the language in the policy and not supported by a majority of the courts.
[1] “Such a rule [requiring tender] requires an insured to jump through meaningless hoops towards an absurd end: telling the insurer something it already knows. Such a rule injects a degree of gamesmanship into the insurer-insured relationship without providing any valid corresponding benefit. In fact, the only benefit of such a rule is to create a possibility – where none would otherwise exists- for an insurer to escape an obligation it otherwise owes its insured.” Id. at 725. In holding that notice of a claim triggers the duty to defend, the court noted that this rule is the result of a number of considerations: (1) the insurer is usually in a better position than even a sophisticated insured to know the scope of the insurance contract and its duties under it; (2) assurance or protection of the benefits of the insurance contact. The insurer should not be allowed to evade its responsibilities under the policy where the insurer has actual notice of a claim against its insured; and (3) the state has an interest in having an insured adequately represented in the underlying litigation.” Id. at 726-27.
[2] Only a few courts have held that the policyholder must tender the defense to the insurance carrier in addition to the carrier having notice. See Goodstein v. Continental Casualty Company, 509 F.3d 1042, 1056 (9th Cir. 2007) (quoting Unigard Ins. Co. v. Leven, 983 P.2d 1155, 1160 (Wash. App. Ct. 1999); Casualty Indm. Exchange Ins. Co. v. Liberty Nat’l Fire Ins. Co., 902 F. Supp. 1235, 1239 (D. Mont. 1995); Litton Systems, Inc. v. Shaw’s Sales & Serv. Ltd. 119 Ariz. 10 (Ariz. Ct. App. 1978).
[3] In Cincinnati, the court stated its holding as “where the [policyholder] has not knowingly decided against a [carrier’s] involvement, the [carrier’s] duty to defend is triggered by actual notice of the underlying suit.” Id. at 329. The court held actual notice is “notice sufficient to permit the [carrier] to locate and defend the lawsuit.” Id. The court further explained that notice sufficient to permit the carrier to locate and defend the lawsuit mans the carrier “must know both that a cause of action has been filed and that the complaint falls within or potentially within the scope of coverage of one of its policies.” Id.
[4] “We need not conclude that ‘tender’ is a magic word that is always effective to tender defense. The district court found that Kraus-Anderson tendered defense to Evanston on a record including the January 2003 letter purportedly tendering defense, the subsequent communication between Champlin and Bishop, Kraus-Anderson’s repeated requests to receive the benefits of its policy, no evidence that Evanston ever specifically asked Kraus-Anderson whether it wanted a defense, and no evidence that Kraus-Anderson ever denied Evanston an opportunity to defend it. On this record, we cannot conclude that the district court’s finding that Evanston was given an opportunity to defend Kraus-Anderson was clearly erroneous.”
[5] In One Beacon, the court stated “tender should be defined only as giving the insurer notice and an opportunity to defend.” Id. The court gave three reasons in support of its definition of tender: (1) it clarifies the duties of the parties early in the litigation; (2) it acknowledges the greater knowledge and sophistication of the insurer; and (3) it places no significant burden on insurers. Id. The court explained that once notice is given, “it should be the responsibility of the insurer to contact the insured to determine whether the insurer’s assistance in the suit is required.” Id. (Internal quotations and citations omitted). “When notified of the insured’s potential liability under the suit, the insurer can simply ask the insured if the insurer’s involvement is desired, thus eliminating any uncertainty on the question.” Id. (Internal quotation and citation omitted). “This also prevents the creation of potential loopholes for insurers, and protects the bargain struck by the parties in the insurance policy. Id. “The insured paid for the insurer’s promise to defend the insured for covered claims, and the insured’s ignorance regarding the language the insured must use to invoke that coverage should not negate the bargain.” Id. The California court concluded that once an insured provides its insurer with notice of a claim and an opportunity to defend it, it has tendered the defense. Id. at 203.
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