"> Navigating the Murky Waters of the Insured's Duty to Cooperate - Fineman, Krekstein, & Harris

Navigating the Murky Waters of the Insured's Duty to Cooperate

Defense Research Institute




The duty to cooperate clause is contained in virtually every homeowner’s insurance policy. Although the language may vary, the duty to cooperate clause is designed to protect the insured’s financial interest and prevent collusion between the insured and the claimant. Creek v. Harder Constr., Inc., No. 77,325, 1998 Kan. App. LEXIS 68, *5 (Kan. Ct. App. June 26, 1998)(citing Watson v. Jones, 227 Kan. 862, 866-67, 610 P.2d 619 (1980)); Clark Equipment Co. v. Arizona Property and Casualty Ins. Guar. Fund, 189 Ariz. 433, 442, 943 P.2d 793, 802 (Ariz. Ct. App. 1997). The clause furthers these purposes by requiring the insured to accept certain responsibilities. For example, an insured will be required to help investigate and defend a third-party claim or provide documents or submit to an examination under oath for a first-party claim. The duty to cooperate clause can also prohibit an insured from settling directly with a third-party claimant. In exchange for the insured’s cooperation, the insurer assumes complete control and direction of the first or third-party claim.

Although the duty is stated in terms of what the insured must do to comply with the policy provisions, the duty to cooperate clause does not provide an insurer with unfettered power to impose its will upon its insured. Courts have imposed safeguards to curtail abuses by insurers. Usually an insurer will be required to establish that the insured’s failure to cooperate prejudiced the insurer before the insurer can disclaim. In addition, courts have examined the insurer’s behavior to make certain that it fulfilled its obligations under the insurance contract.

In this article, we will explore the circumstances under which an insurer can disclaim coverage by asserting a breach of the duty to cooperate. We will also explore how coverage issues impact upon the duty to cooperate clause and muddy the already murky waters.


The level of scrutiny of the insured’s and insurer’s conduct varies depending upon the circumstances surrounding the claim. In our research, we found it useful to analyze the cases in terms of whether they involve first or third-party claims. Where a third-party claim is involved, it is also useful to determine whether the insurer accepted the defense, defended under a reservation of rights or denied coverage.

The differing approaches utilized by the courts in analyzing the duty to cooperate in the first and third-party context has been summarized as follows:

    A distinction may be drawn, …, between a court’s natural reluctance to see an accident victim deprived of his source of payment because a liability carrier claims that its assured has failed to cooperate, and an indemnity carrier denying payment to its insured because the insured has failed to cooperate in discovering a possible arson. The injured claimant is an innocent victim of the insured’s failure to cooperate. A fire insured, however, controls his own fate.

Harary v. Allstate Insurance Co., 988 F. Supp. 93 (E.D.N.Y. 1997) (quoting Dyno-Bite, Inc. v. Travelers Co., 80 A.D.2d 471, 476, 558 N.Y.S.2d 560 (1981)). Where a third-party claim is involved, the courts will normally establish a higher threshold before finding a material breach of the duty to cooperate clause. Before finding a breach, courts will also closely scrutinize the insurer’s conduct before depriving a “innocent” claimant of possible compensation.

In contrast, the courts will hold the insured to a higher standard of conduct in a first-party claim. Utilizing this higher standard for first-party claims, most courts have found that the duty to cooperate will override an insured’s Fifth Amendment rights. One court held that the duty to cooperate will override the attorney-client privilege between an insured and his private counsel.

A coverage dispute will also impact upon the courts’ scrutiny of the insured’s duty to cooperate. An insurer, which defends under a reservation of rights or denies coverage, potentially places an insured’s assets in jeopardy. Under these circumstances, the courts have held that an insured can settle directly with a claimant without violating the duty to cooperate.

In addition to showing a willingness to uphold the duty to cooperate clause, the courts continue to apply the same burden of proof upon an insurer that it would impose upon any other party seeking to establish a breach of contract. Unlike a case involving willful concealment or misrepresentation of material facts which must be proven by clear and convincing evidence, the insured’s failure to cooperate need only be proven by a preponderance of the evidence.


In order to curtail an insurer’s ability to claim that a minor breach of the duty to cooperate clause could result in a forfeiture of the policy, a majority of jurisdictions require an insurer to deny coverage only where the insurer has suffered prejudice as a result of the insured’s breach of his or her duty to cooperate. Darcy v. Hartford Ins. Co., 407 Mass. 481, 488-89, 554 N.E.2d 28, 33 (1990)(citing Clemmer v. Hartford Ins. Co., 22 Cal. 3d 865, 881-82, 587 P.2d 1098 (1978); Rochon v. Preferred Accident Ins. Co., 118 Conn. 190, 198, 171 A. 429 (1934); Brooks Transp. Co. v. Merchants Mut. Casualty Co., 36 Del. 40, 55, 171 A. 207 (1933); American Fire & Casualty Co. v. Vliet, 148 Fla. 568, 571, 4 So. 2d 862 (1941); Farley v. Farmers Ins. Exch., 91 Idaho 37, 40, 415 P.2d 680 (1966). For example, Pennsylvania requires that the prejudice be demonstrated and not presumed. Prudential Property and Casualty Co. v. Erie Ins. Co., 660 F. Supp. 79 (E.D. Pa. 1986). Other states have enacted statutes which set forth the standard. See State Farm Mut. Auto. Ins. Co. v. Davies, 226 Va. 310, 310 S.E.2d 167 (1983); Clark Equip. Co. v. Arizona Property and Casualty Ins. Guar. Fund, 189 Ariz. 433, 943 P.2d 793, 801 n.9 (Ariz. App. 1997).

Even though the focus of the court’s attention is upon the insured’s conduct, the insurer’s behavior will not be ignored. In fact, some states applying the actual prejudice standard will still require the insurer to prove that it exercised due diligence and good faith in attempting to obtain the insured’s cooperation. See National Union Fire Ins. Co. v. Cagle, 68 F.3d 905 (5th Cir. 1995)(Louisiana law applied); Stewart Sleep Ctr. v. Atlantic Mut. Ins. Co., 860 F. Supp. 1514 (M.D. Fla. 1993); Bowyer v. Thomas, 188 W. Virg. 299, 423 S.E.2d 906 (1992).

Even in the rare instance where a jurisdiction does not require the insurer to show that it has been actually prejudiced as a result of the insured’s lack of cooperation, a minor breach of the duty to cooperate clause will not be sufficient to allow an insurer to disclaim coverage. In New York, the courts will require an insurer to show that its efforts were diligent and reasonably calculated to bring about the insured’s cooperation. In addition, the insurer will have to show that the insured’s failure to cooperate was “willful and avowed obstruction.” See Utica Mut. Ins. Co. v. Gruzlewski, 217 A.D.2d 903, 630 N.Y.S.2d 826 (1995).

Regardless of the standard applied, the courts will always examine the insurer’s conduct. If the insurer cannot demonstrate that it utilized its best efforts to gain the insured’s cooperation and, when necessary, protect the insured’s interest, the courts will be reluctant to find that the insured’s actions constituted a substantial breach.


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 actual prejudice. “An examination of case law indicates that courts have failed to develop a broadly recognized, comprehensive definition of the term.” Richard L. Suter, Insurer Prejudice: Analysis of an Expanding Doctrine of Insurance Coverage Law, 46 ME. L. Rev. 221, 22 (1994). Generally speaking, courts have found prejudice from the insured’s breach of a cooperation clause 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 by the insured’s acts and/or omissions in violation of the applicable cooperation clause. Id. at 222-225.

The determination of whether an insurer has been prejudiced by the insured’s breach of a cooperation clause is fact sensitive. In the homeowner’s context, this duty may impose a significant burden on the insured. For example, in Harary, supra., the court granted Allstate’s summary judgment motion based upon the insured’s failure to cooperate, terminating plaintiff’s claim under her Deluxe Homeowners Policy for losses suffered as a result of a fire.

The plaintiff’s policy contained the following cooperation clause, in pertinent part, setting forth the plaintiff’s duty to cooperate with Allstate:

3. What you must do after a Loss In the event of a loss to any property that may be covered by this policy, you must:
(d) Give us all accounting records, bills, invoices and other vouchers, or certified copies, which we may reasonably request to examine, and permit us to make copies.
(f) As often as we reasonably require:
(1) show us the damaged property.
(2) submit to examinations under oath and sign a transcript of same.

Id. at 96. The scope of this clause was mandated by statute in New York. Id. at 102.

Allstate suspected arson and requested that the insured and her husband submit to examinations under oath. The insured testified that she had not filed tax returns in 1991 and 1992. Although Allstate requested, it never received the insured’s 1990 tax return and an estimate of her income in 1991 and 1992. Allstate reiterated its request through the insured’s attorney. The insured never supplied the requested information.

In finding in favor of Allstate, the court explained that the insured’s duty to cooperate required the insured to fully assist in the insurer’s investigation. Partial testimony and promises of supplying evidence in the future failed to satisfy the duty. Id. at 102.

    The company is entitled to obtain, promptly and while the information is still fresh, ‘all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights to enable them to decide upon their obligations, and to protect them against false claims.’

Id. (citations omitted).


The deference the courts give to the duty to cooperate clause is exemplified by their willingness to require a homeowner to submit to an examination under oath despite a homeowner’s assertion of his or her Fifth Amendment rights. Most courts have found that an insured may not refuse on Fifth Amendment grounds to submit to an examination under oath without breaching the cooperation clause in the insurance contract. See Harary v. Allstate Insurance Company, supra.; Abraham v. Farmers Home Mut. Ins. Co., 439 N.W.2d 48 (Minn. Ct. App. 1989); Warrilow v. Superior Court of the State of Arizona, 142 Ariz. 250, 689 P.2d 193 (Ariz. Ct. App. 1984); Mello v. Hingham Mut. Fire Ins. Co., 421 Mass. 333, 656 N.E.2d 1247 (Mass. 1995); State Farm Fire & Casualty Ins. Co. v. Walker, 157 Wis. 2d 459, 459 N.W.2d 605 (Wis. Ct. App. 1990); Aetna Casualty & Surety Co. v. State Farm Mut. Auto. Ins. Co., 771 F. Supp. 704 (W.D. Pa. 1991), aff’d, 961 F.2d 207 (3d Cir. 1992).

In Aetna Casualty & Surety Co. V. State Farm Mut. Auto. Ins. Co., supra., the court clearly stated that an insured’s Fifth Amendment privilege is “trumped” by the insurance policy’s duty to cooperate:

    A person may not be penalized for asserting a Fifth Amendment privilege against self-incrimination, but that does not mean that if a person refuses to make a statement in a civil proceeding that the failure to provide evidence have adverse consequences.

Clearly, these rulings place the insured in a precarious position. Faced with a criminal investigation, the insured can assert his Fifth Amendment privilege and not be placed in jeopardy. Faced with an investigation by his or her insurer, the insured cannot assert his Fifth Amendment right without risking material breach of the duty to cooperate which could ultimately result with the insurer denying coverage.

In Fassi v. American Fire and Casualty Co., 700 So. 2d 51 (Fla. Dist. Ct. App. 1997), the insureds faced this very predicament. The court, in analyzing the insureds’ situation, found not only in favor of the insurance company but also that the insurer had no obligation to specifically state that the claim had been denied because of the insureds’ failure to cooperate.

In Fassi, supra., the insureds’ home was destroyed by fire. Because of the suspicious circumstances surrounding the fire, American Fire and Casualty required the insureds to submit to an examination under oath. The insureds refused advising American Fire and Casualty that they could not submit a sworn proof of loss or an examination under oath because of a potential criminal prosecution.

Despite repeated written requests, the insureds never appeared for their examination under oath. In it final letter to the insureds, American Fire and Casualty requested an explanation for the insureds’ failure to cooperate and notified the insureds that their failure to respond to the letter would result in a denial of their claim. Once again, the insureds failed to respond asserting their Fifth Amendment privilege.

Three months later, the insureds public adjuster advised American Fire and Casualty that the insureds would be willing to sit for an examination under oath. The company responded that the claim had been denied and that the insureds’ attempt to cure their breach was too late. The insureds sued alleging that their agreement to submit to an examination under oath cured any alleged breach of the duty to cooperate. They also argued that they agreed to cooperate before their claim had actually been denied. The court, in granting American Fire and Casualty’s motion for summary judgment, stated that the company did not have to send a letter actually stating the claim was denied. It found that the company’s letter advising the insureds that their failure to explain their refusal to cooperate would result in a denial of coverage was sufficient.

In Allstate Ins. Co. v. Longwell, 735 F. Supp. 1187 (S.D.N.Y. 1990), the court found that an insured’s failure to answer certain questions at an examination under oath resulted in a material breach of the duty to cooperate. Mr. Longwell, the insured, executed a sworn statement of loss and submitted to an examination under oath. Because Allstate believed that Mr. Longwell had falsified his sworn statement of loss it asked him certain questions concerning some items of personal property and his proof of loss. Mr. Longwell refused to answer those questions asserting his Fifth Amendment privilege due to a criminal prosecution pending against him for allegedly inflating his loss claim.

Several months later, Allstate denied Longwell’s claim and instituted a declaratory judgment action. In its declaratory judgment action, Allstate asserted that it could void the policy because Longwell failed to answer material questions at his examination under oath and also refused to sign the transcript of the examination under oath. In opposing the motion for summary judgment, Longwell asserted that his offer to appear and complete his examination under oath and sign the transcript some nine months later cured his alleged breach. The court granted Allstate’s motion for summary judgment finding that Longwell’s refusal to answer certain questions at his examination under oath were material and that his belated offer could not cure the breach.

A related issue concerns the effect of a criminal conviction on an insured’s subsequent testimony in a related civil action. In Paradise Mutual Ins. Co. v. Abel, 774 F. Supp. 924 (E.D. Pa. 1991), the court considered whether an insured’s failure to admit to arson and refusal to implicate the personal injury plaintiff in the scheme violated the cooperation clause in the insured’s homeowners policy. The insured had been charged with arson while a personal injury claim was pending against him involving the same fire. The insured asserted his Fifth Amendment privilege at his first deposition. He was subsequently convicted of arson and scheduled for deposition. The insured refused to testify at two scheduled depositions and was then ordered to testify. At the deposition, the insured maintained his innocence and denied any involvement in setting the fire, despite his arson conviction.

The insurance company brought a declaratory judgment action against the insured for his failure to cooperate, contending that the insured’s failure to admit to the arson and to implicate the personal injury plaintiff in the scheme violated the cooperation clause. The court disagreed finding that:

    [The insured] has not materially breached his duty to cooperate nor substantially prejudiced defense of the claims. The insurance company understandably finds difficult his denial of implication in the fire for which he was convicted of arson. I placed this matter in civil suspense until the appeals in the criminal case were concluded, following which [the insured] continued to maintain his innocence, as he did at the criminal trial. It is the underlying facts which pose difficulty for the insurance company’s defense of the case, not lack of cooperation by the insured.

Id. at 926.

New Jersey is one of the few states which has held that the insured’s assertion of the Fifth Amendment privilege against self-incrimination does not violate the insured’s duty to cooperate with the insurance company. In Yannitsadis v. Mission National Ins. Co., No. 84-4025, 1986 U.S. Dist. LEXIS 29572 (D.N.J. Feb. 6, 1986), the court explained that the general rule as explained above puts the insured in an untenable situation:

    [T]he insured is caught in an inexorable “Catch-22” situation: under the terms of his statutorily prescribed fire insurance policy, according to defendants’ version of it, the insured must submit to oral examination by the insurer, or forfeit his coverage; at the same time, however, should he so submit, the New Jersey arson reporting law provides that incriminating material not only may, but must be turned over to prosecutorial authorities by the insurer. In order effectively to exercise his fifth amendment privilege, the insured must therefore refuse to submit to oral examination, and forfeit his coverage. . . . [T]he assessment of this sort of penalty on an individual’s exercise of his privilege against self-incrimination is not acceptable under the fifth amendment.

Id. at *24-25. The court found that insurance policies are contracts of adhesion and, therefore, that the insureds had not truly contracted to submit to oral examination. Moreover, the court stressed that the state’s arson reporting law effectively made the state and the insurer partners in the business of obtaining information regarding possible arsons. Given the state’s involvement and the non-consensual nature of the policy, the court found that the insured’s assertion of the Fifth Amendment privilege was appropriate. Therefore, the court declined to find that the insureds had forfeited coverage absent a showing of prejudice by the insurers.

Clearly, the courts have expressed a willingness to require an insured to fully cooperate with his or her insurance company in investigating a first-party claim. In distinguishing between the insured’s Fifth Amendment rights in a criminal prosecution and the insured’s duty to cooperate in the civil context, the courts have established the supremacy of the duty to cooperate clause. Even the New Jersey court which came out so strongly in favor of the insured’s exercise of his Fifth Amendment rights in Yannitsadis hinted that if the insurer had been able to show prejudice, the duty to cooperate clause could have required the insured to submit to an examination under oath.


The purpose for prohibiting the insured from settling a claim and/or expending money on cases without the insurer’s prior permission and giving the insurer complete control and direction of the defense of a claim is to prevent collusion between the insured and the claimant. However, “‘[w]here the insurer refuses to defend and thereby chooses not to exercise its right to control and direct the defense, the clause fails of its essential purpose and the insured has no choice but to undertake the defense itself.'” Sherwin-Williams Co. v. Certain Underwriters at Lloyd’s London, 813 F. Supp. 576, 590 (N.D. Ohio 1993)(citation omitted).

An insurer which reserves the right to deny coverage also generally loses the right to control the litigation. For example, in S.G. v. St. Paul Fire & Marine Ins. Co., 460 N.W.2d 639 (Minn. Ct. App. 1990), St. Paul agreed to investigate claims made against S.G. under a full reservation of rights. Before the claimants filed suit against S.G., S.G.’s personal attorney notified St. Paul that S.G. would settle the claims for a specific amount of money and seek reimbursement from the company. After notifying St. Paul, S.G. settled the claims and St. Paul refused to indemnify S.G. arguing that it had no duty to do so, in part, because S.G. settled the claims without prior authorization.


S.G. v. St. Paul

      , the court explained that:

[a] settlement by the insured without the insurer’s involvement is binding on the insurer only if:

(1) the insured did not violate its contractual duty to cooperate with the insurer;

(2) the settlement is not the product of fraud or collusion; and

(3) the settlement is reasonable and prudent.

Id. at 643 (citing Miller v. Shugart, 316 N.W.2d 729, 723-33 (Minn. 1982)). S.G. was found not to have violated the duty to cooperate by settling with the claimants because an insurer disputing coverage cannot compel the insured to forego a settlement which is in the insured’s best interests. A settlement made before the insurer acknowledges coverage is not a violation of the duty to cooperate. Id. (citing Miller, 316 N.W.2d at 734). See also United Services Automobile Assoc. v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987)(holding that cooperation clause prohibition against settling without the insurer’s consent forbids an insured from settling only claims for which the insurer unconditionally assumes liability under the policy).

The loss of control of third-party litigation has a profound implication on the homeowner insurer. The courts have almost uniformly found that an insurer defending under a reservation of rights falls squarely within this category. Despite providing a full defense, the insurer, defending under a reservation of rights, has potentially placed the insured’s personal assets in jeopardy. Consequently, there is the possibility that a third-party claimant may not have the opportunity to be compensated by the homeowner’s insurer, placing the carrier and its insured in conflict. Under these circumstances, the courts have found that the insured’s actions in settling directly with a third-party does not breach the duty to cooperate.

It should not be overlooked that the courts will not relieve an insured of his or her duty to fully cooperate in the investigation and defense of the claim even where the insured is being defended under a reservation of rights. See, S.G. v. St. Paul Fire & Marine, Ins. Co., supra., at 460. An insured who refuses to provide a statement, attend a deposition and complete discovery will still be found to have breached the duty to cooperate if those actions prejudiced the insurer’s ability to adequately defend the insured. In S.G., supr., the insured fulfilled his duty by keeping the insurer fully informed of all developments in including providing the insurer with documents to demonstrate the reasonableness of the proposed settlement. Moreover, he fully cooperated in the insurer’s investigation. The insured even reached an agreement with the claimants to provide additional information to the insurer after the settlement with S.G.

Where an insurer does settle directly with a claimant, after being informed that the insurer will either defend under a reservation of rights or deny coverage, an insurer is not without weapons to attack the settlement. However, the focus of the insurer’s challenge has changed. It can no longer assert that the insured has failed to cooperate. Rather, it now must attack the fairness of the settlement and/or whether the settlement amount is reasonable. See Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982) (citing Coblentz v. American Hawkeye Sec. Ins. Co., 216 N.W.2d 406 (Iowa 1974).

Whether the burden of proof shifts, depends upon whether an insurer defended under a reservation of rights or disclaimed any duty to defend. Under Minnesota law, the burden of proof is on the claimant to show that the settlement is reasonable and prudent where the insured has been provided with a defense under a reservation of rights. As stated by the court in Miller, supra., “[t]he test as to whether the settlement is reasonable and prudent is what a reasonably prudent person in the position of the defendant would have settled for on the merits of plaintiff’s claim.” Id. at 735. The burden of proof may shift to the insurer to show the settlement was unreasonable in circumstances where the insured enters into a settlement with a plaintiff in the course of a trial while defending itself after being abandoned by the insurer. Id. at 735-36.

Where the insured determines that it is in his or her best interest to settle directly with the claimant and notifies the insurer of his or her intention, the insurer should not stay on the sideline if it opposes the settlement. However, the insurer must be cautious in choosing its method to become involved. The insurer cannot require counsel it retained to represent the insured to inform the court and the parties of its objection to the settlement. A clear conflict would exist because that counsel has been retained to represent the insured. The better practice is for the insurer to retain its own coverage counsel to notify the parties and court of its objection and, if it has not already done so, institute a declaratory judgment action. See Cay Divers v. Raven, 812 F.2d 866 (3d Cir. 1987).


Recently, the Illinois Supreme Court ruled in Waste Management v. International Surplus Lines Ins. Co., 144 Ill.2d 178, 579 N.E.2d 322 (1991), that the insured’s duty to cooperate is so compelling that it required the insured to release documents ordinarily protected by the attorney-client privilege. Although this issue appears to have only arisen in the environmental area, it is also possible it could affect the insurer and insured in the homeowner’s arena.

In Waste Management, the Illinois Supreme Court held that the insured’s duty to cooperate negated any expectation of confidentiality the insured might have had regarding documents generated in two underlying actions. In Waste Management, the insureds were sued for personal injuries and property damage which arose from the disposal of toxic wastes at the insureds’ landfill. After having paid their own defense costs and obtaining the insurers’ agreement not to contest the reasonableness of a negotiated settlement, the insureds settled the action. However, coverage was denied when the insureds sought indemnification from the insurers. The denial was based on the insureds’ failure to provide timely notice of a related action which the insurers found to be a breach of the cooperation clause of the insureds’ policy.

The insureds and the insurers then sued each other. During discovery, the insureds refused to produce certain documents from the related action claiming attorney-client privilege. Id. at 325. In ruling that insureds were required to produce the attorney-client documents, the Waste Management Court held that:

      The cooperation clause … imposes upon the insured the duty to assist insurers in the conduct of suits and in enforcing any right to contribution or indemnity against persons potentially liable to insureds. Further, the policy provides that insurers are entitled to conduct any claim, in the name of the insureds, for indemnity and damages against persons, and that the insureds “shall give all such information and assistance as the insurers may reasonably require.”

Here, the cooperation clause imposes a broad duty of cooperation and is without limitation or qualification. It represents the contractual obligations imposed upon and accepted by insureds at the time they entered into the agreement with the insurers. In light of the plain language of the cooperation clause in particular, and language of the policy as a whole, it cannot seriously be contended that insureds would not be required to disclose contents of any communications they had with defense counsel representing them on a claim for which insurers had the ultimate duty to satisfy.

Id. at 327-28 (emphasis added). The court required disclosure even though the insurers had no relationship with the insureds’ counsel in the related action. In fact, the insureds retained the previous counsel independent of its insurers. The court rejected the insureds’ argument that they had a reasonable expectation of privacy under those circumstances.

In contrast, many courts have refused to adopt the rules set forth in Waste Management. Rockwell International Corp. v. Superior Court of Los Angeles County, 26 Cal. App. 4th 1255 (1994); Bituminous Casualty Corp. v. Tonka Corp., 140 F.R.D. 381, 386 (D. Minn. 1992); Remmington Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408 (D. Del. 1992)(applying Connecticut law); Pittston Co. v. Allianz Ins. Co., 143 F.R.D. 66 (D.N.J. 1992); and North River Ins. Co. v. Philadelphia Reinsurance Corp., 797 F. Supp. 363 (D.N.J. 1992). In rejecting the Waste Management rule, the Rockwell court noted the following problems with the Waste Management analysis.

      (1) the plain language of the cooperation clause required the insured’s cooperation without providing that communications between the insured and the insured’s attorney should occur without an expectation of privacy;

(2) at the time the standard cooperation clause was drafted, it was not intended to operate as a waiver of the attorney-client privilege;

(3) California legislation provided that where a conflict exists because an insurer has reserved its rights, the insured is entitled to independent counsel and a confidential relationship with that counsel.

Id. at 1261-64.

Although it appears to be in the minority, the Waste Management decision clearly shows the willingness of the courts to uphold the duty to cooperate clause. It is a powerful tool in the insurer’s arsenal to help it determine coverage. In fact, it is so powerful, that under certain circumstances, it can pierce the attorney-client privilege.


Like any aggrieved party, an insurer may sue its insured for breach of contract where the insured breached the cooperation clause and that breach caused the insurer to suffer damages. In addition to establishing the breach, the insurer will have the burden to prove damages. In Safeguard Mut. Ins. Co. v. Jenkins, 63 D. & C.2d 543 (Phila. Cty. 1974), the insurance company claimed that a verdict in the amount of $25,000 was entered against the insured because of the insured’s failure to cooperate. Eventually, the insurance company satisfied the verdict by paying the claimant $18,500. The insurance company then sued its insured to recover the amount of the settlement arguing that the insured’s breached caused the damage. In response, the insured filed preliminary objections asking the court to dismiss the lawsuit contending that the insurer’s complaint failed to state a cause of action. Specifically, the insured argued that the insurer had no obligation to satisfy the judgment. Rather, the insurer could have disclaimed coverage. Once the insurer satisfied the judgment, the insured contended that the insurer had no cause of action. The trial court dismissed the insured’s preliminary objections holding that the insurer had stated a cause of action for breach of contract.

Although there are few, if any, states besides Pennsylvania which have case law supporting the insurer’s potential remedy of filing suit against the insured for breach of contract, this option should not be disregarded. Moreover, the logic of the decision can be applied to any insured who breaches the duty to cooperate during the course of litigation. For example, an insurer may be “damaged” when an insured fails to appear for a deposition and monetary sanctions are imposed. In addition, legal fees and costs could have been incurred in defending the motion to compel. Under the Safeguard Mutual rule, the insurer can seek to be compensated for these costs which it incurred because of the insured’s breach.


It is possible for the insurance company to engage in conduct which results in the company’s waiver or estoppel of its right to raise the defense to liability that the insured breached the policy’s cooperation clause. The general principal is that “an insurer cannot play ‘fast and loose’ with the insured by assuming absolute control of the defense of litigation, and then, if unsuccessful, deny liability upon the ground of some defect in the policy.” Cameron, 336 Pa. 229, 7 A.2d 293, 295 (1938).

      “‘[I]f a liability insurer, with knowledge of a ground of forfeiture or noncoverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground of forfeiture or noncoverage.’ [Cit.] ‘

The general rule of estoppel is . . . limited by the principle that a liability insurer may avoid the operation of the rule by giving the insured timely notice that, notwithstanding its defense of the action against him, it has not waived the defenses available to it against the insured. Such notice, to be effective, must fairly inform the insured of the insurer’s position, and must be timely

    . . . .'[Cit.]”

Jacore Systems, Inc. v. Central Mutual Ins. Co., 194 Ga. App. 512, 513, 390 S.E.2d 876, 877-78 (1990)(quoting State Farm Ins. Co. v. Anderson, 104 Ga. App. 815, 818, 123 S.E.2d 191 (1961))(emphasis added).

Under most circumstances a prompt, clear and informative reservation of rights will operate to avoid any waiver or estoppel. Normally, the burden will shift to the insured to object to the contents of the reservation of rights letter or else the insured will be presumed to have consented to the terms of the defense. Whether the time, content, etc. of a reservation of rights letter can avoid a waiver or estoppel argument must be determined on a jurisdiction-by-jurisdiction basis. Moreover, prompt initiation of a declaratory judgment action also serves to avoid waiver or estoppel. Apex Mut. Ins. Co. V. Christner, 99 Ill App.2d 153, 240 N.Ed 742 (1968).

The insurer’s active participation in the defense of a matter while the insured fails to cooperate cannot be treated as a waiver. Id. at 296. By way of example, in Spears v. Dawson, 10 D. & C.3d 703 (Allegheny Cty. 1979), the court found that the insurer did not waive its right to deny coverage even though it continued to provide a defense when it was apparent that the insured would not be attending the arbitration hearing. The court explained that the company could not have denied coverage based on a breach of the cooperation clause until the insured actually failed to appear at the arbitration. Furthermore, the insured was not prejudiced by the company’s decision to defend, because had the insurance company not done so, the arbitration would have proceeded without a defense. The court explained that:

any insured — including an insured who fails to appear as a witness in breach of the cooperation clause — should receive the best defense that an insurance company can provide together with every reasonable opportunity to cure the breach of the duty to cooperate.

    Therefore, the case law should encourage an insurance company to continue defending an insured who fails to cooperate as long as reasonably possible and should discourage withdrawal as soon as a breach of the duty to cooperate occurs.

Id. at 707 (emphasis added).


There is no simple answer to the riddle of whether an insured has fulfilled his or her duty to cooperate. Not surprisingly, the courts are reluctant to hold that an insured has forfeited his or her right to coverage. In finding a forfeiture, the court might ultimately be punishing two parties – the insured and the injured party. Consequently, the vast majority of jurisdictions strictly scrutinize these issues on a case-by-case basis.

Although the primary focus of these inquiries might ostensibly be the insured’s actions, the courts are very clear that they will also closely examine the insurer’s conduct. The level of scrutiny will also vary whether the dispute involved a first or third-party claim. Regardless, any insurer attempting to disclaim coverage based upon a breach of the duty to cooperate must make certain that it cannot be accused of having “unclean hands”. If the insurer cannot demonstrate that it fulfilled all of its obligations, its indiscretion, no matter how insignificant, might be sufficient to tip the scales in favor of coverage.