The non-standard auto insurance sector is historically defined as the highest risk sector of the overall auto insurance industry. Highest risk generally means that an insured falls into one or more of the following categories: a new driver, a driver with previous moving violations, and/or a driver with a rare or unusual type of vehicle. The sector has evolved to include drivers who purchase insurance policies with state mandated minimum limits, typically lower income drivers or recent immigrants to the United States.
Cooperation serves to advance the goals of both the insured and insurer. It permits the insurer to act quickly and accurately assess potential liability and settle meritorious claims before they snowball into massive losses. Conversely, if a fraudulent or unmeritorious claim is brought, the insurer and insured can begin to mount a vigorous defense. The insured can help to mitigate the risk by providing crucial testimony or producing exculpatory evidence. All of these actions further the interests of both
insurer and insured in settling or defeating a given claim.
Although most states embrace the actual prejudice test, none set forth any clear definition of what acts and/or failures to act on the part of the insured amount to the same. Generally speaking, courts have found prejudice from the insured’s breach where the purposes of the cooperation requirement have been defeated. For instance, if the insurer is unable to properly investigate a claim, to prepare an adequate defense,
or to pursue a subrogation action, the insurer may be deemed prejudiced. But if the insurer cannot demonstrate that it utilized its best efforts to gain the insured’s cooperation and, when necessary protect the insured’s interests, the courts will be reluctant to find that the insured’s actions constituted a substantial breach or actual prejudice.
While insurers are certainly entitled to cooperation from the insured in the defense of liability claims, courts are, as we have seen, generally wary of efforts to avoid coverage on this basis. Policyholders purchase insurance for peace of mind. They may lack a sophisticated understanding of the claim and litigation process, but it is reasonable for them to expect that the front line claim professional and attorneys who are retained to represent them will lead them through the process and impress upon them the importance of their role in the adjustment of the claim or defense of the lawsuit.
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