Commercial Insurance Update – I’ve Been Sued!

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August 2001

I’ve Been Sued! What should I do? What happens next?

Courtesy of Golden Eagle Insurance Corporation

What do I need to do?

-Call your broker or notify your insurance company as soon as possible.

– Identify who was served with the lawsuit, and the date(s) of service.

– Do not give statements or discuss the case with anyone other than your insurance agent, a representative of your insurance company, or your attorney.

– Secure all evidence, records, and documents that may be needed for the defense of your case.

– Identify witnesses and employees who have knowledge of the incident.

– Provide full cooperation to your insurance company’s claims staff and to your defense counsel.

What happens now?

Summons and Complaint

The litigation process begins when the plaintiff, or his/her attorney, files a complaint (lawsuit) with the court. In the complaint, the plaintiff states causes of action which set forth the allegations against the defendant(s), the injury or damage suffered, as well as the amount of monetary damages or other relief sought.

The plaintiff then serves the complaint on the defendant(s) along with a summons. A summons is a legal notice to the defendant that a lawsuit has been filed and that a judgment will be entered against the defendant if he/she fails to answer the complaint within the statutory time limit. For example, in the California State court, the defendant has 30 days in which to file an answer to the complaint.

An answer is a written pleading filed by the defendant(s) addressing the facts alleged in the complaint. The defendant(s) may also file a cross-complaint, which is a claim against the other party, who may or may not be a current party to the lawsuit.

Failure to file an answer with the court could result in a default judgment whereby the party loses the right to a defense, and may also be liable for the plaintiff’s claimed damages and expenses.

If you are served with a summons and complaint, you must immediately notify your insurance agent or insurance company. Failure to promptly notify the insurance carrier of a lawsuit may result in the forfeit of an insured’s rights under the policy.

Not all claims are covered under the policy of insurance. Consequently, there are some situations in which there is no duty to defend or indemnify an insured for an uncovered claim, or there is a duty to defend a claim subject to a reservation of rights.Coverage issues must be discussed with the examiner handling the claim.


During the discovery phase of the litigation process, each party has the opportunity to gather information regarding the opposing party’s case. Some of the major discovery tools in a civil case are:

– Interrogatories: Interrogatories are written questions served on a party that must be answered and filed with the court within a specified time frame. Your attorney can assist you in completing the responses.

– Deposition: A deposition is a statement made under oath by a party or witness in response to oral questions. The deposition proceeding is transcribed by a court reporter. Your defense counsel will assist you prior to and during the deposition.

– Request for Production and Inspection One party in the litigation asks another party to produce documents and records.

– Request for Admission One party asks the other party to admit to a fact or to verify the authenticity of an evidentiary document.

– Independent Medical Exam (IME) A physical or psychological examination of the plaintiff by a doctor hired by the defense.

Alternative Dispute Resolution (ADR)

The trend today is toward resolving cases prior to incurring the time and expense associated with litigation. Arbitration, mediation, and settlement conferences serve as good tools for resolving cases.

Although your attendance may not be mandatory, you are always welcome to participate in the ADR process.

– Mediation The parties meet with a neutral intermediary who attempts to assist in resolving the case. Mediation is voluntary and not binding. The parties normally share the cost of mediation.

– Arbitration Parties present their cases to an impartial third party or panel for a decision. The parties may agree before the arbitration to make the decision/award binding. If the arbitration is not binding, either party may reject the decision/award. Arbitrations can be voluntary or court ordered.

– Mandatory Settlement Conference The parties meet at the courthouse with the judge to attempt to settle the case. Participation is mandatory, but the judge cannot force the parties to settle the matter against their will.


If the case cannot be resolved through ADR, it will proceed to trial. Most cases are tried in front of a judge and jury. However, the parties can agree to a bench trial, which is a trial in front of a judge, without a jury. Each side has an opportunity to make an opening statement to summarize what they will attempt to establish during the trial.

The plaintiff puts on her/his case first by calling witnesses and presenting evidence to support the claims against the defendant(s). Counsel for the defendant has an opportunity to cross-examine the witness after the plaintiff’s attorney has completed his/her questioning.

After the plaintiff rests his/her case, the counsel for the defendant has the opportunity to present a case on behalf of the defendant to refute the plaintiff’s claims. The plaintiff can cross-examine the defense witnesses. After the defense has rested its case, the plaintiff has the opportunity to present rebuttal evidence before each side makes its closing argument.

After the closing arguments, the judge delivers the jury instructions to advise the jury of the law, its applicability, and the plaintiff’s burden of proof. The jury then deliberates the case until a verdict is reached, or until it becomes clear that they will not be able to reach a verdict.

In California, at least three-fourths of the jury has to agree upon the verdict in a civil case. If it is a bench trial, the judge renders the decision. After a judgment is entered, the losing side may decide to appeal the trial court ruling. However, in most cases, the parties do not pursue an appeal. Your attorney can discuss appeal issues with you if you are faced with that situation.

A Final Comment

Litigation is a horribly time-consuming, expensive, frustrating process. It should be used as a last resort only. Prior to litigation, it is recommended that you make every possible effort to resolve the conflict.


“Legalese” in Claims Handling

Legal Terms

Many people hear terms that are used by insurance and legal professionals, but may not understand how they all fit together. The following is a brief overview of the process and some of the terms involved.

A claim is usually a letter or phone call by someone who thinks a firm or individual owes them money for something that was done wrong. This could include a claim for faulty workmanship, personal injury or damage to a third person’s property.

Claims should be immediately reported to a firm’s risk manager and on to the insurance company.

A lawsuit or complaint is an official legal document that initiates legal proceedings in court. It is filed by the injured party (the Plaintiff). The Plaintiff is supposed to set forth his/her version of facts and legal theories that justify her/his entitlement to money from the firm or individual. These theories are called “allegations.”

An Answer or Demurrer is the first formal response made by the firm or individual either challenging the legal theories that appear on the Complaint (a demurrer), or formally denying the theories and facts alleged in the complaint. The Answer sets up affirmative theories indicating why the Plaintiff should not recover anything from the lawsuit. The firm or individual is now called the Defendant, and usually has 30 days to file the response from the date that it was served with the lawsuit. (The entire claims process just described must occur within this 30-day time frame.) If there is more than one firm or individual alleged to have done something wrong, these are called “Codefendants.”

Discovery is the process by which both sides (Plaintiff and Defendants) conduct formal investigations into the allegations made in the complaint. Questions asked in writing among the parties to the lawsuit are called Interrogatories. A demand that the other party admits certain facts in writing is called a Request for Admissions. Defense counsel is in charge of working with the designated person at the Defendant firm to answer these questions or object to them. However, the information must come from the firm and be verified, which means that an officer of the firm must swear, under penalty of perjury, that the information is true and correct.

Usually, the Defendant has only 30 days to answer these types of questions. Questions asked in person, either of the parties or witnesses, is called a Deposition. A defense attorney will work with the Defendants to prepare and protect them from answering improper questions during a deposition.

These questions are asked in the presence of attorneys for all parties, and all questions and answers are transcribed by a court reporter. Case Management Orders (CMOs) are used in complex lawsuits, primarily in construction defect cases. These orders are negotiated by both parties and approved by the court. The CMO attempts to set up a procedure that is efficient to conduct discovery and mediation efforts outside the formal environment of the court room, but still under the jurisdiction of a neutral third party, generally called a Special Master. The Special Master tries to control the litigation to make sure that the parties work together efficiently. The Special Master then reports to the judge in charge of the case as to the progress and cooperation of the parties in resolving the dispute.

Mediation is a process in which the parties get together with a neutral third party (usually a retired or active judge) and a compromise of the claim is attempted. This is one of the techniques of Alternative Dispute Resolution (ADR) which seeks to resolve cases before expensive trials and discovery take place. This process is not binding upon the parties, which means that no one can force either side to settle the case. Mediation can take place at any time during the court process, and defense counsel represents the Defendant in these negotiations.

Arbitration is a process in which all sides agree to have their dispute heard by a neutral third party, generally a retired or active judge. The parties can agree to have the matter non-binding, which means that the losing party does not have to abide by the findings of the arbitrators. The parties can agree to have the arbitration binding, which means that the results can be entered as a final judgment. Many contracts have binding arbitration clauses that take the dispute resolution process out of the court system. Defense counsel represents the Defendant’s interest in an arbitration procedure.

A Mandatory Settlement Conference (MSC) is generally a mediation process held shortly before trial, in which the judge in charge of the case conducts efforts to resolve the dispute without going to trial. Since this process involves the trial judge, in many cases, the parties tend to take this procedure more seriously than mediation. Defense counsel represents the Defendant at these procedures, although a representative from the Defendant firm and its insurance company usually must be present as well.

Settlements are compromises made by the parties. Both parties agree to a resolution which can include a dismissal of the lawsuit or a payment of money, usually in an amount that is more than what the Defendant wanted to pay, and generally less than what the Plaintiff believes the case to be worth. Most cases are settled in part because of the high costs of litigating cases, and because neither side wants to take the risk of losing. In most settlements, a written agreement sets forth the terms of the settlement. In most cases, there is a specific portion of the settlement that says that neither side admits that the other side had a good case. An insurance company, within its obligations under the law and its policy, generally has complete control over whether or not a case should be settled. However, the insured’s opinion is also important in making this decision.

Trials are more familiar but are generally rare. In California, more than 90% of civil matters are resolved prior to trial. During a trial, both sides present facts and legal theories to a jury or judge, who then renders a binding decision to which side wins. If one side does not believe that the results of the trial were in accordance with the law, they may file an Appeal, first to the Court of Appeals and then to the California Supreme Court.

Disclaimer: This article is written from an insurance perspective and is meant to be used for informational purposes only. It is not the intent of this article to provide legal advice, or advice for any specific fact, situation or circumstance. Contact legal counsel for specific advice.