Pre-Tender Defense Costs: To Pay or Not to Pay?

Frequently, insureds fail to provide timely notice and tender of defense to their general liability insurers. This can occur for a variety of reasons. First, an insured may not know that a policy covers the claims in the suit against it or, in the case of a company covered by multiple policies over numerous years, that a policy even exists. Second, an insured may knowingly choose to forego notice on the belief that the claim is frivolous, can be easily defended, or that notice will result in higher renewal premiums. Third, an insured that is named as an additional insured under an employer's or subcontractor's policy or is covered by policies issued by multiple insurers may deliberately choose to have only certain insurers represent its interests. When an insured later learns of the existence of a policy, finds the claims cannot be easily defeated, or discovers that it may be held liable, it often turns to its insurers after incurring substantial pre-tender defense costs. Regardless of the reasons for delayed notice, the repercussions for both the insured and the insurer can be significant. The issue is compounded because courts are split as to how pre-tender costs are treated, providing a spectrum of results.