All or virtually all contracts of insurance contain language requiring the policyholder to cooperate with the insured in a variety of ways.  Most of these pertain to situations in which the policyholder has made a claim.  Another way to put the essence of this matter is to say that the insured has a duty to cooperate with the insurer under some circumstances, or, what comes to the same, that the insured has an obligation to cooperate with its insurer, under some (often many) circumstances, especially in the the adjustment process.

This post is about the obligation of the policyholder to cooperate with the insurer in claims adjustment situations.  Of course, where ever there is a duty, in the law at least, there is always someone (or something), that has a corresponding right.  Thus, to talk about the insureds’ duty to cooperate is also (at least impliedly) about the insurers’ right to cooperation.  (In passing, a remark should be made having an obligation to a “thing.”  Some people regard their pets as entities that have rights.)This idea is vindicated by the fact that there are crimes for mistreating animals.  Recently in Conroe, Texas,  a dog having been shot by a shot gun blast and thrown into a trash bag caused public outrage all over the state, though–of course–not in the league with Newtown–or even close.  It would be hard to see how this would be happening if people did not conceptualize dogs as having some rights. (See Houston Post, 1/7/12).  At the same time, while animals can be insureds under a number of different types of insurance policies, e.g., health, they are not policyholders, hence they never have a duty to cooperate.

Here are some very brief summaries of the duty to cooperate; by no means are all of these summaries of every different coop clauses.  (In a blog like this one, there is no need to quote the differently formulated clauses.) The policyholder must: provide information in the context of a settlement, permit the insurer to inspect damaged property, take statements from the insured (or its employees, etc.), take statements under oath, permit bodily examinations, permit inspections of some undamaged physical property, permit auditing of books,  review and or receive “financial documents,” etc.  Most of the “duty to cooperate” clauses require that the insurer’s request be reasonable,  and/or be necessary.  Sometimes the policy does not explicitly demand either of these, but if the policy does not do this, trust  the law to require it..  (Imagine a world in which an insurer could demand anything at all in order to satisfy the duty to cooperate and the law refusing to step in.)  The three limitations just mentioned are more or less the same in practice, although they have quite different meanings from a merely conceptual standpoint.

This blog will not so much be an essay, as a list of points and questions.  The questions will sometimes be accompanied with possible answers, sometimes not.  For those readers interested in treatment by encyclopedia Couch on Insurance (Third) Chapter 199 is very helpful, as is the one volume text of Alan Windt, Insurance Claims and Disputes (Fifth).  It is exposition but it also contains practical advice and normative suggestions as to legal theory. Windt’s Insurance Claims and Disputes (Third) Section 3.2.  The latter is known for both exposition and citations, just as Couch, but it is also known for normative arguments. The insurer does not (or refuses to) adopt an appropriate investigative approach which–under the circumstances–would be a more objective method for supporting a proposition; the insurer demands that the insured conform to an investigative approach the insurer has designed (or says that it has).

The word “cooperate” has a meaning.  What is it?  From the point of this Blog, the most helpful entry is to be found in Black’s (8th).  It defines “cooperation clause,” and notes that it is linked to insurance.  Here is its definition: “A policy provision requiring that the insured assist the insurer in investigating and defending a claim.” [Emphasis added.]

“Ordinary Language Dictionaries” are a little different. Here is part of what Merriam-Webster [Online] says: (1): “to act or work with another or others: to act together or in compliance” [emphasis added]; (2): “to associate with another or others for mutual benefit”[.]  It also says that a synonym is “collaborate.”

Wikipedia’s discussion of cooperation tends toward cooperation as opposed to self interest, when there are strings or chains of decisions involved,  but that is not true in one-decision contexts.  Of course, Wikipedia, for all its helpfulness and glories is not really a dictionary.

It is important to notice that the term “cooperate” is ambiguous.  Look at MW (1).  “Cooperate” can mean either acting together, or it can mean acting in compliance.  Here are two examples: (i) “I have do work with the Master because if I do not, I will be whipped 30 times”, and “I do as I am told because if I do not, I will be dishonorably discharged.” Acting in a certain way because a contract requires it is clearly a type of acting-in-compliance.

Webster’s Third does not contain the “compliance” clause, but it does not rule out the idea that one can be required to cooperate either.  Obviously, A can be required to “assist” B and in many ways this is a kind of cooperation.

None of the dictionaries say anything about the extent of help A must provide B in order to be cooperating, especially if that cooperation is required (or if the cooperation is implied by some rule).   Maybe that is more than one would expect in a definition–then again, maybe not.  Think about compensation clauses to be found in “high end” employment situations.

However, another online source, cloudhead by headmine.net aka @shiftctrlesc asserts that “cooperation” and “collaboration” express rather different ideas.  For centuries, it says,  “When collaborating, people work together (co-labor) on a single shared goal[, and w]hen cooperating, people perform together (co-operate) while working on selfish yet common goals.”

Sometimes the questions and the hypos to be discussed overlap, and the they sometimes zigzag here and there, though not always.  Hence, the essay need not always be read in the same order.

Is the term “cooperate” ambiguous?  The answer is obviously “Yes,” as will become more apparent as this essay goes on.  The problem is that it is not ambiguous right out of the gate.  It takes some further looks at, some further analysis of, and some deeper digging into, the ideas built into the term before all the ambiguities appear–and there are many of them.  Of course, if the term “cooperate,” when taken in context, is ambiguous, its meaning is said, by the law, to  favor the insured.

How can an insurer use a breach of the duty to cooperate?   And when will an insurer’s attempt to use a breach fails? There are three obvious ways it can be used. Of course, there may other that are less obvious.

First, it vindicates the view that the duty is a condition, so that a breach–whether material and/or prejudicial or not–relieves the insurer of any further duties and terminates any rights the policyholder might have had.  Courts are hostile to the idea that the duty to cooperate is a condition, irrespective of what the section in which it appears, is entitled.

Second, it can treat the duty to cooperate as one of the promises the insured has made, i.e., that it is a covenant so that its breach will, if prejudice causing, may entitle the insurer to some relief.  Of course, the value of that relief might be $0.00.  A good example of this use would be that the insurer did not breach the contract for non-payment if it has not been provided all the information it requested.  Of course, that request, requirement, or demand would have to have been reasonable and the insurer may have to have sought necessary information for the adjustment. (More of the last sentence later.)

Third it can be used as a defense in a bad faith case.  Under that law, an insurer might be guilty of insurer bad faith if it fails to affirm or deny coverage, either within a reasonable length of time or before a certain number of days have elapsed, after it has received all the information it has requested.  If the demand for information was reasonable, the insurer would prevail, at least on this approach.  The insurer might defend itself by claiming that it has neither affirmed or denied because of a breach of the duty to cooperate by the insured.  Presumably, if the insurer’s request or demand was unreasonable, then an insured’s not producing information would not constitute a breach.  Thus, the idea of a requirement being “valid,” is either ambiguous or it is a matter of fact for a trier of fact to decide.

Let’s start with a simple case.  Does an insurer have the right to be provided photographs of the loss site before the loss? Yes. Certainly some.  Does the insurer have the right to demand that it be provided with all the photographs of the loss site, e.g., a house, except for duplicates, and threaten that the insured will have violated its duty to cooperate, if not all of them are provided?  The answer to this question is perfectly obvious.

Can an insurer require the policyholder to do anything that might possibly help the insurer?  Some of the answers to this are obvious.  “Help” may be the wrong word.  “Assist” has a bit of the same problem.  “Inform” has problems of its own, since insurers sometimes ask for more than that.  I will leave it as “help.”  I will also return to this question.

The insurer may not asked the insured to do anything that might possibly help it.  Notice how powerful the conjunction “might possibly” really is.  Consider these three situations, differently phrased: (i) X actually helps. (ii) X almost helps, (iii) X helps a little bit  (iv) X might help. (v) X might help some. (vi) X’s help is possible.  (vii) X might possibly help.  Doesn’t (vii) permit the insurer to require much more than (vi)?; doesn’t it in turn permits more than (v), and it is “miles” away from (i)?  Where along the way does a breach of the duty to cooperate kick in?

Must an insured understand everything the insurer demands, requires, or “asks” of it–or, which the insurer seeks from  it”?  In other words, would the insured be violating its duty to defend if it does not?  The answer is obvious: “No.”  Must an insured understand every relevant assertion the insurer makes to it or violate the duty to cooperate?  Again the answer is “No.”  There are many variations on this situation of  “No.” The insured has not violated its duty to cooperate. Some of these situations are complicated, just as real life can be.

The insured does not realize that it does not understand the insurer’s question or assertion.
The insured does not realize what the insurer is seeking.  It thinks that the insurer wants X, when it actually wants Y.  (#2 is a variation on #1.)

The insured does not realize that there is a statement which needs reformulation. (This is a variation on #1.)
The insured realized it but said nothing.

The insurer asks for a certain document once; the insurer forgets to provide it; the insurer does not remind the insured (or request it again).

The insurer asks for a group of documents; the insured shows the insurer a sample of the documents sought; the insured proceeds no further; and the insurer does not ask again for those documents.

The insured demands a given group of documents; the insured indicates that they will not be of help; the insurer demands that the insured conduct a test of some sort–a randomized statistical test–to vindicate its position, but the insured refuses.

The insurer does nothing further, or the insurer obtains the entire large archive and that delays the settlement of the claim by months on end and the amount of the insurer’s position is substantially reduced.

Now for much more complicated  questions:

If an insurer demands actions or statements, and the insured does not understand what the insurer has “said,” but realizes that it does not understand what the insurer has said, does the insured breach its duty of cooperation if it fails to notify the insurer that it does not understand (or if it does not ask the insurer the right questions)?  This is a much closer question in lots of situations.

What if the insurer does not (or refuses to) adopt an appropriate investigative approach which–under the circumstances–would be a more objective method for supporting a proposition; the  insurer demands that the insured conform to an investigative approach the insurer has formulated; and the insured does not point out to the insurer the unsoundness of the investigative procedure the insurer is pursuing.  Is this a breach of the duty to cooperate?  The is not a hard question.  Investigation is the duty of the insurer.  The insured is not required to design its investigative program for it.

An insurer, in general terms,  asks for all information which supports a given proposition, and the insured believes that this range of information does not support the proposition the insurer has in mind–the one it is trying to investigate.  Does the insured have a duty to inform the insurer of its error?  The answer is “No.”  Formulating a correct and reliable  investigative procedure is the insurer’s responsibility.  What are the meanings of “support” and “does not support” in this context?  Obviously, there a whole range of strengths of support.

Has an insured “automatically” or “conclusively” violated its duty to cooperate if it makes a mistake?  Consider these:

The insurer demands the production of a large and complex set of documents.  Employee A, perhaps a really senior one, wants the collected “throng” to be reviewed internally before being produced.  She does a little. She passes it to B, but he thought he was supposed to simply file them, so they are not sent along, and at the end of this process, A thinks that the documents have been produced.

Almost the same scenario but there is a third person added.  B thinks he was supposed to pass it along to  C, but she thinks it’s for the store room.

Would the following  items make any difference in answering the preceding question? The insurer does not ask again (at least once), for what it sought.

Suppose the insurer did not think about the matter again,  until it raised the cooperation issue.
Suppose the insurer well understood what had happened, but did not pursue the matter since it regarded it in its self-interest not to do so.

Should an insurer be permitted, under the contract, to compel an insured to help it in investigating the claim to any extent it wishes?  Here are some examples:

Hire and pay someone to explain complex records after the key person has left the company.

Read the policy correctly for our (the insurer’s) use and then blames the insured if it gets the interpretation wrong.  (“You didn’t read the policy so I cannot be guilty of insurer bad faith.  After all, you endorsed my first position.”)

Bring in an employee from another part of the world to explain equipment.

Require secondary back-up information when the primary source of information is sufficient if read carefully.

Same as #4, when better or as good explanations can be obtained from other people and not just aging or old pieces of paper, e.g., industry experts, experienced executives and relevant supply or service companies, etc.

Require insured to produce 50,000 secondary, explanatory documents, when only 20,000 are actually needed.
Require the policyholder to pay for the investigation.

Require the insured to pay for part of the investigation.

Require the designing of the investigation.

Require the policyholder to spend days-on-end explaining unnecessary “things,” e.g., payment schedules, salary raises of times past, sex lives of executives in a property case.  Some insurance may be different, e.g., D&O policies.

Should an insurer be permitted, by relying on the duty to cooperate clause, to take  far too many examinations under oath and the decisions about the claim on these grounds?  (This problem can arise in two ways.  One of them is taking an inordinate number of EUOs from one person, and the other is to take one EUO from far too many people.  Of course both of these can be going on at the same time.)

Require an insured to produce all sorts of documents, even though they are not included in the insurer’s investigative rights? (One unexplored area of this problem is this one.  A policy might require the insured, as a matter of its duty to cooperate, to permit the inspection and copying of all “financial documents.”  What does or does not count as such a document?  Or suppose the wording of the policy explicitly specifies that it has a  right  to “finance documents, but says little else. Would the use of that phrase–“financial records”–have any impact on the extend of  insured’s obligation to cooperate?

Another way to clarify this question is this:  “How much of an insured’s energy can the insurer demand to use?  Does an insurer have a right under the contract to demand that the insured spend all of its time helping the insurer in its investigation?  For obvious reasons, the answer is “No.  An insured has no duty to cooperate to this extent, over any length of time.  See the next question, for guidance and the one after that.

How much of the insured’s time can the insurer demand?  Obviously, the answer to this question is not a fixed quantity. It cannot be all, and it cannot be almost all.  Nor can it be absolutely minuscule.  The amount of time may depend on a variety of different factors: physical size, monetary size of claim, size of insured,  complexity of claim, complexity of that which experiences loss, technology involved, and much more.  The insured never has to replace the insurer’s investigators, and/or their assistants, in adjusting a claim.

Might these time and/or energy requests–if the insured balks or refuses–be used as legitimate threats of denial or–which may come to the same thing–be used in a reservation of rights communique?   The answer is “Probably yes, in the right context, and that includes at least some specific facts about the insurer’s behavior.”  In the wrong context, or constituting unreasonable demands, the story would be quite the opposite.

Does an insurer have a right under the contract to ask the insured to pay its own way in the investigative process?  An insurer may not demand that the insured incur actual expenses for participating in an investigation, unless it is so provided in the policy.  The same is probably not true with respect to the insured’s using its own employees, either to investigate by themselves or to assist the insured in relatively rudimentary ways.  The insured has an obligation to use its own employees to support its claim; this is not a product of the duty to cooperate.  No doubt the insured has some duty to use those employees–the “Truly Informed”–to assist the insurer insofar as the insurer’s investigation is objective or supportive of the insured.  At the same time, one doubts that an insurer probably cannot require and insured to pay for flying one or more of its employees around the world to help them. At least this is true in most investigative contexts.

Can the insurer require that the insured use its personnel to assist the insurer when it is reasonable to believe that the insurer is in search of information that will be used to defeat coverage?  One may be inclined to say “No.” However, there are other dimensions to this problem.  What if the neutral and supportive-of the-insured aspects of the investigation are mixed together with those aspects supporting the insurer’s position?  Furthermore, if reasonable belief on the part of the insured is the weakest requirement here, how reasonable does the belief have to be?

Should an insurer be permitted under the contract to require the insured to provide arguments as well as factual data on behalf of its claim, e.g., arguments of law?  Would it be a breach of the duty to defend for an insured to refuse to do this?   (“We have handed you a proof of law, as you require, but we are not going to go further and argue the case to you for you!”)  Of course, sometimes it is in the interest of the insured to provide arguments.

Can the insurer require the insured to prove its claim by a preponderance of the evidence as it must do in litigation?  The answer is “No.”   When making a claim, an insured does not bear the same sort of burden of proof it has in litigation.  At the same time, it is often prudent for insureds to make the best claim they can in convincing the insurer of coverage, the extent of the loss, and the monetary value of the loss.  The pursuit of self-interest is not the same as having a duty to cooperate.

Does the duty to cooperate require an insured to analyse, evaluate, and respond to an insurer’s investigation processes, findings, evaluations, and arguments based upon its investigation?  The answer is “No.” Usually–even often–it is in the interest of the insured to do exactly that, at least to some extent, if it can do so.  The larger the claim and the more sophisticated the claimant, it is more and more likely that the insured will be able to do exactly that. At the same time, if the insurer has developed a poor and suspect history in adjusting a given claim, then the insured probably should decline to share its views.  In any case, refraining to do this is not a breach of the duty to cooperate.

Is claim investigation part of the insured’s duty or is that the duty of the insurer?  The answer is clear.  It is the insurers duty under the contract to perform the investigation. Is it a duty the insurer shares with the insured, given the duty to cooperate?  The answer is “No,” for what may be a subtle reason. The insured’s duty is too cooperate, not conduct.  The duty is to cooperate, not collaborate.

Aside from objectivity, promptness, reasonableness, fairness and closely related ideas, are there other duties an insure has in performing its claims investigations?  Certainly, there are quite a number.  (1) The insurer must treat the interests of the insured as at least equal to its own.  (2) The insurer must look for coverage in both a vertical and horizontal way.  (“Vertical” means looking into the depths of the claim, while “horizontal” means other injuries or damages related the the one for which a claim was made.  What all does this have to do with the duty to cooperate?  It is clear that an insured does not have any duty to help meet any of its obligations mentioned in this entry.

Does the duty to cooperate require an insured to ask an insurer about whether it–the insurer–is conforming to these obligations?  Or ask about ways in which it is not doing this and should?  Or ask what these obligations are?  The answers are all  “No.”  An insured has the right to believe that its insurer knows what it is doing when investigating a claim.  The same would apply to independent adjusters in several ways.

Should an insurer be permitted to demand that the policyholder think for it?  Should an insurer be permited to demand that the policyholder construct/create reasoning that  it (the insurer) should be providing first to itself and then to the policyholder?

Might this be a way for an insurer to create ways to deny the claim?

Or deny part of it, either by parts or as a whole?

Might this be a way for an insurer to undermine bad faith claims?  (“Wait!  This whole thing was your idea. You gave us the reason to deny the claim. We did exactly that.)

Should an insurer be permitted to delay the payment of a claim because an insured has not met its–the insurer’s–investigation schedule?  Obviously not.

Do all insureds have the same level of obligation to “file” claims and then cooperate?  The answer is clearly “No.”  Should an insurer be permitted to avoid acknowledging that the insured does not know how to file or help investigate its claim?  Again, the answer is “No.”

Should an insurer be permitted to deny a claim on the grounds of inadequate investigative performance by the policyholder? No. This is not–in and of its self–a failure to cooperate. An inadequate performance does not imply concealment or refusal to help.

Lacking the ability to stand is not malingering. Stumbling is not the same as deception. Is it part of the insured’s duty to cooperate to point out deficiencies in the insurers position or performance?  The answer is “No.”  It may be in the interests of the insured to do so.

Is it part of the duty to cooperate for an insured to ask the carrier for directions, advice, criticism, or a grade, e.g., B+?  Again: No, though it may be prudent for an insured to do exactly that. At the same time, it might be a good idea for an insured to do exactly that. (1) If the insured asks for any of these, it becomes more difficult for the insurer to be critical of the insured’s performance. (“I asked and asked, but got no help.”) (2) If the insurer is asked for evaluation but gives no meaningful response, this omission will help support a bad faith case later on.

Might an insurer refuse to explain investigative components and techniques to an insured who does not know how to handle a claim and then claim that the insured had breached the duty to cooperate?  The answer is “No.”  Is it true that an insurer’s even failing to explain is a bad idea for the insurer, since it might undermine or destroy the duty to cooperate?  The answer is “Yes.”  Consider the following examples from a smaller case involving property cases.

Remember to look for jewelry.

Remember to look for photographs of the house before the fire.

Remember to talk to you children, and other relatives, to obtain pictures and everything else you can find.

See if you can find bills for previous repair and restoration?

Think about what else might be helpful.

If you find you computer equipment, hire someone to try and fine what’s there.

There are analogues for large industrial property claims.  The insurer has the same obligations to help the insured think through what might be a good part of an investigation.  (“We need X; we need Y, but we don’t need Z.”)  Does the insurer have a duty to tell the insured why it wants what it wants, if asked? Yes.  Does the insurer have a duty to indicate why it wants X and Y but not Z, if not asked?  Probably not. An insurer’s failure to respond to reasonable and meaningful questions from the insured is a major insurer sin.

One of the crucial duties of an insurer dealing with a claim is to LOOK FOR COVERAGE.   It is the insurer’s responsibility to do this looking.  Is it a violation of the insured’s duty to cooperate for it to refrain from helping the insurer investigate?  The answer is sometimes “No,”  depending on the situation. If the insurer has not asked for help, it would be paradoxical to say that the insured has a duty to help. If the insurer asked if it can go the attic to look for rain impact, it would be a breach of the duty to cooperate for the insured not to consent.  Does the insured have to do much more than that in order for it to discharge its duty to cooperate?  Probably not, and there are dozens of analogies that can be based on this example.

Should an insurer be permitted to say, “Listen,  you have not being doing everything we say.  Therefore, you are not cooperating, and if you don’t shape up, we will deny your claim.”?  Obviously, the answer is “No,”  if the insurer is asking for to much or asked for irrelevant material, and so forth.

What about this one where the insured is speaking to the insurer: “Some of your investigative contributions has involved mistakes. Correct them at once or we’re done.”  Is this a violation of the duty to cooperate, assuming the insured’s observations are correct?  It may be if the insured acts on its threat too quickly, and–for example–does not give the insurer a chance to fix its errors.  This kind of action by an insured will almost certainly trigger a lawsuit. If the insured is wrong, “walking out” would be a terrible idea. In addition, an insured could be part right and part wrong. The insured must be very careful about this one. There are many variations of this question and answers to it.

The whole point of this blog is to point out that the duty to cooperate is a complex idea. An insured can protect itself in a variety of ways, and lawyers who represent insureds should make sure that if a carrier were to attack coverage basically on one or more breaches of cooperation’s, it will be blocked or very limited.  Effective counseling for the insured might–at least sometimes–involve the lawyer devising one legitimate question after another and making sure that they all get asked. A cynic might say that this form of representation is suggesting that the insured present itself as knowing and understanding nothing. That idea is beyond this blog. At the same time, counsel for the insurer might wish to advise the client that reasonable and meaningful questions from the insured to the insurer, require reasonable and prompt responses. In addition, even with questions that are not reasonable, not meaningful, or are repetitive, the carrier should respond somehow. A proper response need not always contain an answer. Of course, the carrier may have questions of its own.  At the same time, it should make it very clear what it wants in the way of cooperation and that it might think harder about the matter than it would, if it just relied upon the form to be found in the Department of Adjustment Form Book.

There is plenty more to talk about.  Is the duty to cooperate really a condition or is it a covenant?  Does the insurer have to be  prejudiced in order to terminate the policy for lack of cooperation?  Are there 50 levels of cooperation?  Are they 50 ways to leave cooperation?  Those will have to wait for the time being.

Originally posted on 01/14/2013 @ 10:21 pm

Michael Sean Quinn, PhD, JD, CPCU, Etc

Michael Sean Quinn, PhD, JD, CPCU, Etc. (530)

One of Texas's leading insurance scholars, Michael Sean Quinn is a past chair of the Insurance Section of the State Bar of Texas and has a broad legal practice.

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