In an Underlying Elder Abuse Charge, the Court Denies Insurer’s Motion to Dismiss

When an insured faces two underlying elder abuse claims, it turns to its insurer for coverage under its professional liability policy.
By: | May 1, 2020

Renovate America, Inc. was on the hook for two underlying lawsuits alleging elder abuse.

The suits alleged the administration of the corporation’s Home Energy Renovation Opportunity, or HERO, program was poorly executed, leading to abuse and other harms.

When these underlying suits were first brought to light, Renovate, which held a professional liability insurance policy through Lloyd’s of London, tendered both claims to its insurer immediately.

However, Renovate did not hear back from Lloyd’s within 40 days — which the policy stated was the maximum number of days the insurer had to respond in a timely manner — and was left to choose its own defense counsel and pay for its own defense costs.

To nudge its insurer into a response, Renovate used a broker to facilitate communication. Lloyd’s finally responded via letter, acknowledging the underlying suits had the potential for coverage under the policy. But, Lloyd’s added, the rates of Renovate’s defense counsel raised an issue. It would not pay for full rates, it said.

Combined, Renovate was on the hook for over $1,320,000 in defense costs for the two underlying suits. Lloyd’s informed Renovate that, after applying other deductions, it would only pay for $70,000 on one suit, and nothing for the second.

Renovate contested Lloyd’s proposed deductions, adding that it expected an additional $70,000 for the second underlying suit as well.
But when Lloyd’s did not pay up, even for the first suit, Renovate turned to the courts.

The corporation alleged claims for breach of contract, breach of covenant of good faith and dealing, and sought declaratory relief to recover the costs incurred for its defense of the underlying suits.

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In court, Lloyd’s argued that Renovate failed to obtain Lloyd’s written consent before finding defense counsel outside of the network Lloyd’s would have recommended.

Per the policy, “[a]n Insured shall not retain defense counsel or incur any Defense Costs without the prior written consent of the Insurer such consent not to be unreasonably withheld.”

But Renovate returned that Lloyd’s was required to provide a coverage determination within 40 days.

Because Lloyd’s failed to do so, Renovate alleged it had no other option and that it was “left to entirely fend for itself in the selection of defense counsel.”

Scorecard: Upon review, the court denied Lloyd’s motion to dismiss. Continued litigation is likely to follow to determine coverage.

Takeaway: When dealing with a potential underlying suit, effective communication and timely responses are needed from both parties, not just the insured. &

Autumn Heisler is the digital producer at Risk & Insurance®. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]