Insurer’s Declination of Coverage

Orange County insurance litigation attorneyIn this article, an Orange County insurance litigation attorney outlines the consequences to an insurance company when they refuse coverage to or rescind coverage from an insured.


Insurance companies are put to considerable inconvenience if they refuse coverage, which is why it does not happen very often. By denying coverage, they invite legal proceedings that can tie their personnel up for what can develop into extended periods of time. The company then becomes significantly less able to serve their clients and can incur additional liability.

Legal Proceedings

In the case of a lawsuit, there are three possible outcomes when an insurer denies coverage. The decision may be deemed “wrong and unreasonable,” “reasonable but wrong” or “correct” when the case goes to trial. All carry consequences for the insurer.

“Wrong and Unreasonable”

In this situation, the insurance company has issued a denial or withdrawal of coverage that the court has found to be both unfair and erroneous. A “wrong and unreasonable” determination by the court results in liabilities for the insurer that are not only contractual but can also be punitive in nature.

“Reasonable but Wrong”

This decision indicates that while the court did not consider the denial unfair, it was determined to have been made in error. The financial consequences to the insurance company are more than what it would have cost had coverage been granted. Further, a “reasonable but wrong” decision can adversely affect the amount of money that it will cost the insurer to achieve a resolution.


In this scenario, the court has upheld the withdrawal or denial of coverage. However, the insurer had to go through an expensive litigation process in order to be proved right. These costs are not recouped. Unlike the insured, who faces no loss if a lawsuit is filed, the insurance company must absorb the expenses generated by litigation on a charge of bad faith. A “cost of defense” resolution is a preferable alternative as it makes the best use of the insurer’s money. The insured is the real winner. He gets paid and no premium was ever exacted from him.

Legal Fees

Finally, if you and your Orange County insurance lawyer win the case, the court can make the insurance company liable for the legal fees.

Take the Right Steps

If you feel that an insurer has treated you unfairly, contact your Orange County insurance litigation attorney by calling Daily Aljian LLP at 949-861-2524 today.