How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS

Agents from Hartford and other insurance companies were shown ways to sell large life insurance policies. This “Welfare Benefit Trust 419 plan or 412i plan should be shown to their profitable small business owners as a cure for paying too much taxes.

A Welfare Benefit Trust 419 plan essentially works like this:

• The business provides a fringe benefit for their employees, such as health insurance and life insurance.
• The benefit is established in the name of a trust and funded with a cash value life insurance policy
• Here is the gravy: the entire amount deposited into the trust (insurance policy) is tax deductible to the company,and
• The owners of the company can withdraw the cash value from the policy in later years tax-free.

Yes, the holy grail of tax avoidance has been achieved: tax deductible up front and tax-free when you withdraw. By the way, if you are not familiar with such investments there is a reason. They are not legal by the tax code. Physician practices, as well as other small and mid-sized businesses, became buyers into these welfare benefit trusts as they were sold as a way for the practice to “protect” a large profit in a certain year from being taxed. They were told it was not uncommon for a single transaction into a welfare benefit trust to be $200,000 to $300,000 dollars or more in a single premium payment, yielding typically a six-figure commission check.

A few years later the gig was up as it became obvious these could not be tax legal. My understanding is that most medical practices that bought these “unrolled” them when the major brokerage firms realized that avarice got the best of them and stopped selling them. In 1995 the IRS warned that they would be coming after these plans. In 2007, the IRS and the Treasury Department issued a formal warning cautioning “about certain Trust Arrangements Sold as Welfare Benefit Funds”. The IRS called these “abusive schemes” and made such a transaction what the IRS lovingly calls a “listed transaction”. Essentially, a listed transaction is a transaction that the IRS has determined to be a tax avoidance transaction. The IRS even keeps these Listed Transactions on their website, listed in chronological order from 1 to 34.
Welfare Benefit Trusts is #33.

Good Welfare Benefit Trusts
First of all, it is important to mention that “there are many legitimate welfare benefit funds that provide benefits” according to the IRS. Internal Revenue Code Sections 419 and 419A spell out the rules allowing employers to make tax-deductible contributions to Welfare Benefit Plans. There is nothing wrong with these plans and no mystery to them. After all, a medical practice or any business for that matter is allowed to deduct the costs of doing business as an expense. This includes employee salary and benefits.

VEBAs (Voluntary Employee Benefits Association) have been around since 1928 and are used by employers to provide health, life, disability, education and other benefits for their employees and are the original Welfare Benefit Trusts. When properly established and executed, a VEBA can be a legitimate employee benefit structure. In 2007 the United Auto Workers, in order to relieve the Big 3 Automakers from carrying the liability for their health plans on their accounting books, formed the world’s largest VEBA with over $45 billion in assets.

Bad Welfare Benefit Trusts
However, the IRS does have a problem with Welfare Benefit Plans or 419 plans that are promoted to small business owners as a scheme to avoid taxes and provide medical and life insurance benefits to key employees that in substance primarily serve the owner(s) of the business. These 419 Welfare Benefit Plan schemes claim that the employer’s contributions are deductible under IRC section 419 as ordinary and necessary business expenses, allowing the business owner to provide a life insurance policy for his favorite employee, himself, and accumulate cash value in a life insurance policy.

Lest there be any confusion or debate, IRC 264(a)(1) states:
(a) General rule
No deduction shall be allowed for -
(1) Premiums on any life insurance policy, or endowment or
annuity contract, if the taxpayer is directly or indirectly a
beneficiary under the policy or contract.

While VEBAs have been used properly, as in the UAW example above, unfortunately they are often a front for an abusive tax shelter. In the 1970’s VEBAs were being used by the wealthy as a popular tool for tax reduction and asset protection. In 1984 Congress passed the Deficit Reduction Act, which limited the use of VEBAs. In the 1990’s however VEBAs were structured to give business owners tax benefits not allowed and got back on the IRS radar. Two state medical societies along with a neonatology group practice became test cases by the IRS that helped close those VEBAs with abusive tax structures and purporting to be employee welfare benefit plans: Southern California Medical Professionals Association VEBA, New Jersey Medical Profession Association VEBA and Neonatology Associates, PA. Although the VEBAs claimed to have favorable determination letters, the actual execution of the plan did not comply with the law, mainly by allowing the employees to hold term policies in the plan that could be converted into universal life policies at the same insurer and use the conversion credit account to spring cash value in the policy. This then allowed policyholders to borrow against the UL policy as a supposedly nontaxable source of retirement income, with the repayment of the loan paid out of the policy’s death benefits. (“Making Welfare Plans Work”, Advisor Today, September 2000 P 110). This of course is not allowed under the tax code.

Those that think that they may be in the clear with their abusive tax shelter because:
1. A large passage of time has occurred since they have owned it
2. They have a favorable determination letter
3. Other honorable businesses/ Medical Societies also have the same tax shelter
4. My insurance agent said it was legal

You may want to read the 98-page ruling by the United States Tax Court filed on July 31, 2000 in the case of the above-mentioned Neonatology and related cases. The long arm of the IRS reached back 9 years to 1991, 1992, 1993 disallowing hundreds of thousands of dollars and assessing deficiencies and huge “accuracy-related” tax penalties. Even the doctors that had died since then were not given a break either; their estates and surviving widows were assessed the deficiencies and penalties.

In 2002 the IRS talked Congress into passing new laws basically killing the use of multiple employer 419 plans. Some TPAs (third party administrators) that had set up the multiple employer plans discovered that they could use single employer 419 welfare benefit trusts and VEBAs because Congress forgot to include them when they passed the negative laws shutting done the multiple employer plans. This forced the IRS to issue notices 2007-83 and 2007-84, Rev. Ruling 2007-65 and make welfare benefit trusts listed tax transactions now on the listed tax transactions list. (“Negative IRS Notices On 419 and VEBA Plans” Roccy M. Defrancesco Nov 1, 2007)

Ugly Welfare Benefit Trusts
I call these “Ugly” because these Welfare Benefit Trusts were sold to small business owners after the 2007 IRS listed transaction warning, and after the multiple IRS notices and revenue rulings. The major brokerage firms by 2004 had stopped selling Welfare Benefit Trusts to protect their own financial interests, realizing these were compliance and lawsuit time bombs. The 2007 IRS listed transaction notice along with multiple other notices however did not seem to stop some smaller broker dealer firms and life insurance agents from promoting these.

I have become aware of the fact that Welfare Benefit Trusts that are in violation of the basics of the tax code (unlimited full deduction of premium, 100% tax free distribution to owner of cash value) are still being sold even today and even affecting existing clients. These Welfare Benefit Trusts go by many different names and the insurance agents selling them are using a number of different insurance companies to fund the plan. These plans involve the sale of an insurance policy usually with a six-digit premium that often pays the insurance agent a six-digit commission, so perhaps I should not be surprised that individuals (physicians?) are still being victimized.

Conversation with IRS Attorney on Welfare Benefit Trusts
I have meet and had many discussions with the IRS about abusive 419 and 412i plans. I discussed with xxxxxx, an IRS attorney that helped draft the listed transaction #33 on the IRS website, on what exactly the IRS considers an abusive Welfare Benefit Plan. She stated that, once you take out the fact that the trust cannot be offering a collective bargaining element which is covered by another IRS code, there were three elements they look for:

1. There has to be a Trust that claims to be providing welfare benefits
2. There is either a cash value policy involved that offers accumulation or a policy in which money is set aside for a future policy in which accumulation occurs, such as a term policy that can then offer a higher accumulated value.
3. The plan cannot deduct in any year more than the benefit provided. For example if the plan just provides a death benefit, the most that can be deducted in a year is only the term cost of that benefit, not the entire premium. If the plan offers medical benefits, then only the cost (what was paid out to the employee) for that benefit can be deducted in that year.

I found it interesting that the IRS is pursuing this broader definition as an abusive plan. xxxxx explained that in the case of a discovered abusive Welfare Benefit Plan, the IRS would disallow the deductions, assert income back to the owner as a distribution of profits, and assess penalties. The courts are clear that you cannot get out of penalties by claiming you are relying on the person that sold you the Welfare Benefit Plan.

What if you currently have a Welfare Benefit Trust for your Practice?
Realizing that someone you trusted has financially devastated you, carelessly misguided you and sold you a bogus tax program in order to pay cash for his new 7 series BMW can be a difficult and rude awakening. After accepting the fact that your Welfare Benefit Plan you have for your practice meets the basic criteria as mentioned in this article as an abusive transaction, I would recommend that you consult an attorney that specializes in pursuing promoters of abusive Welfare Benefit Plans and discuss your options.

You must be proactive. You may be advised to file an IRS form 8886, which is a disclosure form related to prohibited tax shelter transactions. The penalties for failure to file a form 8886 can be stiff. Of course, filing this form will open the Pandora’s Box on your Welfare Benefit Trust to the IRS. Many of these 8886 filings are done incorrectly. An incorrectly filed IRS form is an unfiled IRS form, so please consult a CPA who is experienced in this area. Your attorney that has expertise with Welfare Benefit Trusts will be able to guide you with this. Regarding recourse, most all cases are settled out of court, as the insurance company, the agent, and the agency prefer to avoid the publicity.

The Duty To Defend: What Insurers, Insureds And Their Counsel Need To Know When Faced With A Liability Coverage Dispute - ABA YLD 101 Practice Series

The Duty To Defend: What Insurers, Insureds And Their Counsel Need To Know When Faced With A Liability Coverage Dispute - ABA YLD 101 Practice Series

By Eliot M. Harris

Practically every business and homeowner obtains insurance to protect against losses, i.e., direct damage to property or business caused by an unforeseen event. However, many policyholders do not realize that perhaps the most important aspect of their insurance policy can be the liability section, which protects them from certain damages sought in third-party claims asserted against them. For business owners, this coverage is typically obtained under a commercial general liability ("CGL") policy, which provides protection against certain risks that may arise during the course of conducting business. For homeowners, their liability protection against a lawsuit or other claim is contained in the liability section of their homeowner's policy.

The Insurer's Duties to Indemnify and to Defend
Most policies, regardless of whether it's a CGL or homeowners policy, include at least two liability-related promises by the insurer. The first promise, which is commonly referred to as the duty to indemnify, is the insurer's agreement to pay for the insured's legal liability up to the stated policy limits. The second promise, which is broader than the first promise, is referred to as the promise to defend, and it means that the insurer agrees to hire legal counsel to defend the insured against a covered suit. The duty to defend also includes a promise to cover all legal fees and costs. Therefore, if a policyholder is faced with a covered third-party claim, the insurer has a duty to defend against the claim, in addition to a duty to pay any monetary award entered against the insured for covered claims.

Of course, the practical application of these rules is not so straightforward. The rights and obligations of the insurer and insured in this context are controlled by numerous rules and exceptions, only some of which are explicitly stated in the applicable insurance policy. Disputes over whether a civil lawsuit, or other legal proceeding, triggers an insurer's duty to defend are common. These disputes are unique in that two parties, jointly defending against a third-party lawsuit, are directly adverse to each other in a separate lawsuit regarding which one of them is responsible for covering the costs of the third-party lawsuit, as well as any resulting judgment. Below is an overview of common issues that can arise during such disputes.

Analysis Of Whether The Claim Falls Under The Policy
When determining whether a liability insurer has a duty to defend, the first inquiry is whether a "suit" exists. The term "suit," which became a defined term under most CGL policies in 1986, means a civil proceeding, such as the filing of a complaint. Though most commonly thought of as a civil lawsuit, most liability policies contain a broad definition of "suit" that could be interpreted to include other claims against an insured, such as arbitration demands or other alternative dispute resolution proceedings, as well as administrative challenges and petitions. In certain circumstances, the term "suit" may even include a governmental agency proceeding. For example, governmental agencies sometimes issue a potentially responsible party ("PRP") letter to an entity that it suspects is causing, or at least contributing to, an environmental contamination. While the Courts are mixed so far as to whether this constitutes a "suit," some Courts have found that such a demand falls under the usual meaning of "suit" in the context of a CGL policy. ¹ Conversely, an example of a proceeding that is generally not considered a "suit" is a criminal complaint for trespassing or negligent homicide, which would not trigger a duty to defend as the relief sought is a criminal penalty, not necessarily monetary damages.

Assuming the definition of "suit" is satisfied, the next hurdle is determining whether the "suit" seeks damages caused by an "occurrence," which is typically defined as an "accident," and includes the continuous or repeated exposure to the same harmful condition. The term "accident" generally is defined as a fortuitous circumstance, event, or happening that is neither expected nor intended by the insured. To clarify the definition of "occurrence," insurance policies typically contain a specific exclusion for damages caused by intentional acts. However, many courts have broadly construed the terms "occurrence" and "accident." For example, the Texas Supreme Court recently ruled that unintended construction defects may constitute an "occurrence" or "accident" under a CGL policy even if the act causing the defects was deliberate, so long as the act was also negligent and, "the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly." ²

Conversely, a suit may not involve an "accident" or "occurrence" when the insured intended the injury, or when the resulting damage was the natural and expected result of the insured's actions, regardless of whether the insured was negligent. ³ Under this analysis, the inquiry is focused on whether the insured intended to cause the damage, and not whether the damage resulted from the intentional act.

Another major issue to arise is whether the damages sought in the "suit" are the types of damages covered under the policy. For example, it is common for "property damage" and "personal injury" to be covered under most policies, but issues arise as to the appropriate interpretation of these claims. Also, because most insurance policies provide broad coverage subject to a myriad of limitations and exclusions that restrict coverage to certain circumstances, questions regarding coverage for certain claims, but not others, often cannot be resolved by simply reviewing the policy and the Complaint. This issue is discussed more fully below. Moreover, it is important to have a solid understanding of the specific exclusionary language contained in the policy, as well as sufficient knowledge of how the applicable policy language has been previously interpreted by courts in the relevant jurisdiction, in order to properly determine whether the insurer's duty to defend is triggered by the Complaint.

You also must determine if the "suit" occurred during the effective period of the policy. If the claims arose outside of the policy period, the insurer has no duty to defend. Common issues in this context arise when the policy has been cancelled and/or reinstated repeatedly, either for nonpayment or late payment of policy premiums. Another context where these issues arise is when the claimed damage is progressive and ongoing over a series of years. It is important to review the policy language to determine if the policy covers suits based on when they occur or when the claim is made. For "occurrence-based" policies, there may be coverage for suits brought years after the underlying events occurred, provided that the covered "damage" and events occurred during the policy period. For "claims-made" policies, coverage is only available if the claim is brought or reported during the policy period. ⁴ Therefore, it is important for all policyholders and insurers to understand the policy period and how it applies to the asserted claims to determine if the "suit" falls outside the policy period.

Review Of Materials Beyond The Complaint
The insurer's duty to defend is controlled by the allegations contained in the Complaint. Thus, the first step is a careful reading of the Complaint to determine the nature of the underlying allegations. Most jurisdictions require that even if only one claim in a suit is potentially covered by the policy, the insurer has a duty to defend the entire suit. Therefore, all allegations in the Complaint must be analyzed for potential coverage, even if clearly non-covered claims are included.

Because most jurisdictions allow notice pleadings, which require only a short and plain statement of the facts supporting the relief requested, the allegations in the Complaint sometimes do not, by themselves, provide sufficient information to determine the full extent of the claims being made. Therefore, the next step is looking outside the Complaint when evaluating whether there is a duty to defend. There are two common approaches to this issue, and certain jurisdictions may follow one, or even both, of these approaches depending on the circumstances involved.

Under the "Four Corners" test, ⁵ Courts will look only at the allegations contained in the Complaint initiating the suit to determine if the allegations are covered under the policy. Under this test, a jury will be asked to examine only the allegations in the underlying Complaint, as well as the insurance policy, to determine whether the allegations are covered under the policy. An important rule to remember in this context is that the jury will not usually see the pleadings or discovery from the underlying suit. In addition, the jury will likely be instructed to assume that all of the allegations in the Complaint are true when deciding if the claims are covered under the policy.

The second test allows "extrinsic evidence" to be considered during a coverage evaluation. Evidence outside the Complaint may include evidence obtained during the pre-suit investigation by the insured and/or the coverage investigation by the insurer. Oftentimes, an insurer will attempt to resolve coverage issues prior to the filing of a suit, but the admissibility of evidence obtained during pre-suit investigation will depend on the jurisdiction and the circumstances involved. Some Courts have recently allowed "extrinsic evidence" to evaluate coverage when the case contains readily ascertainable facts, relevant to coverage, that do not overlap with the merits of, or engage the truth or falsity of, any facts alleged in the underlying case. ⁶ Admitting such evidence at trial allows a jury to more closely approximate the insurer's knowledge at the time it decided to accept or deny defense of the underlying suit. Admission of this additional evidence is important not only as it relates to the actual dispute, but also as to any claims of bad faith based on an insurer's denial of coverage. The "extrinsic evidence" test also avoids providing coverage for claims that are clearly not covered under the insurance policy despite the allegations that appear on the face of the Complaint. For example, a Complaint that merely contains the word "negligence" will not change a generally noncovered breach of contract action into a generally covered tort action.

Reimbursement of Defense Costs
An insurer will generally not be able to recover from an insured the cost of defending any claim. Therefore, even after defending the insured, and later proving that the allegations against the insured were not covered by the policy, the insurer still is unlikely to recover from the insured any money already paid for the insured's defense.

This is significant when the cost to defend a claim may equal, or even exceed, the policy limits under the policy. In other words, the insurer may pay over $1 million dollars to defend against a lawsuit where the policy limits are only $500,000. Thus, for the insured, the value of appointed defense counsel could far outweigh the value of indemnity from any monetary award entered against it. Not only does this illustrate the potential value of a liability insurance policy to the insured, it also demonstrates the insurer's potential risks of not diligently conducting a pre-suit coverage investigation to resolve coverage issues before it assumes defense of a suit.

There are exceptions to this general rule, one of which is where a Complaint contains arguably covered allegations and undisputedly non-covered allegations. In this context, insurers have successfully sought reimbursement from an insured for defense costs paid to defend against non-covered allegations. ⁷ It should be noted that reimbursement is unlikely as a practical matter because the burden is on the insurer to demonstrate the specific defense costs allocated to the covered versus non-covered claims. Conversely, there are an increasing number of insureds successfully obtaining reimbursement for "pre-tender" defense costs, i.e., costs the insured incurs before the insurer becomes involved in the defense. ⁸

Termination Of The Duty To Defend
It is a common misconception that the duty to defend lasts only until the limits of the insurance policy have been exhausted. In other words, many people tend to agree that an insurance company can simply tender the policy limits up front to avoid paying the defense costs. One common example of this issue arising is when the policy limits are clearly insufficient to cover the potential liability. For example, if an insured has only $1 million in liability coverage, but is faced with liability for a catastrophic injury or massive environmental cleanup, the settlement or judgment will almost certainly exceed the policy limits; however, the insurer may still have a duty to defend the insured even after it tenders the policy limits to satisfy the claim.

Simply tendering the policy limits without retaining defense counsel runs counter to the concept of separate duties to defend and indemnify. In fact, numerous Courts have repeatedly found this practice in violation of the insurer's duty to defend, and consequently the insurer's duty of good faith. ⁹ Therefore, insurers must be cautious when denying or withdrawing defense of an insured before the underlying action is resolved or there is a showing of no coverage for the claim. ¹⁰

Of course, an insurer is free to deny or withdraw defense of a previously accepted claim. As a practical matter, only a fraction of claims actually result in the payment of damages. Thus, if the damages being sought are clearly not covered by the policy, the insurer has no duty to defend. However, the potential consequences for refusing to defend an insured for even an arguably covered claim can be severe. It must also be noted that any doubt regarding the duty to defend will likely be resolved in favor of the insured. Insurers should be aware that a denial of coverage could cause a breach of the insurance contract, which, as discussed below, can also lead to a bad faith claim against the insurer. 

Bad Faith Claims
Generally, bad faith occurs when the insurer unreasonably breaches the insurance policy, i.e., fails to defend its insured without a reasonable belief that the underlying suit is not covered. However, if a claim is even arguably covered under the policy, the insurer may act in bad faith even if it has a reasonable basis for denying the claim. In a recent case, an insurer was found to have acted in bad faith when it refused to defend a dentist for claims arising from a practical joke during surgery. ¹¹ While performing a dental procedure, the dentist inserted flippers shaped like boar tusks into the patient's mouth and took pictures. After the successful surgery, the patient learned of the photographs and filed suit against the dentist for various claims including outrage, medical negligence, and negligent infliction of emotional distress. The dentist tendered the claim to his professional insurance carrier, who denied coverage finding that the claims were not covered under the policy. The Washington Supreme Court found that the claims were potentially covered as "dental services" and stated the following: "[t]he acts that comprised the practical joke were integrated into and inseparable from the overall [dental] procedure." ¹²

The Woo case also illustrates the severity of the risks for breaching the duty to defend. Because of its bad faith conduct, the insurer had to pay $250,000 to the dentist as reimbursement for the underlying settlement with the patient. In addition, the insurer had to pay the dentist $750,000 as bad faith damages. Therefore, the result of the case is that the insurer was ordered to pay the dentist and his attorneys "a million dollars more than the amount that his traumatized ex-employee was compensated for this cruel 'joke.'" ¹³

When faced with defending against a non-covered claim, the insurer appears to be faced with two choices: (1) accept defense of a dubious claim and pay the defense costs; or (2) deny the claim and risk losing the coverage determination, which would inevitably lead to a bad faith claim. As discussed below, there are alternative options available to the insurer, however.

Reservation of Rights and Declaratory Judgment Actions
An insurer's first option is to disclaim its duty to defend and reserve all of its rights. This must be done at the outset to avoid potential waiver and estoppel effect of its coverage defenses. An effective reservation of rights letter (often referred to as a "ROR" letter) should include all of the insurer's potential coverage defenses, including whether the claim meets the definitions of "suit," "occurrence," and "accident" under the policy, as well as whether the suit seeks appropriate damages, typically "personal injury" or "property damage." The ROR letter should also include a notation regarding the policy limits, and any other applicable limitations or exclusions to coverage. An insurer that fails to assert all potential defenses in the ROR letter may be viewed as having waived these defenses during a subsequent coverage dispute.

To avoid confusion, the ROR letter should clearly state that the insurer is disputing coverage for the claim, but is still providing a defense for the insured subject to any and all policy defenses, regardless of whether they are specifically included in the ROR letter or not. This may prevent waiver and estoppel of any other coverage defenses. It is also important to advise the insured that it has the right to retain its own coverage counsel, and in some states, retain separate defense counsel as well. ¹⁴

Either in lieu of, or in addition to, submitting the ROR letter, the insurer can file a declaratory judgment action. This is a separate lawsuit requesting a determination as to coverage for the underlying suit. Essentially, a declaratory judgment is a court order declaring the rights and liabilities of the parties under the insurance policy. A policyholder may also file a declaratory judgment action.

Filing a declaratory judgment action is not without risks for the insurer, however. There is the potential that if the insurer loses the declaratory judgment action on its merits, the insurer could be held liable not only for defense costs of the underlying lawsuit (assuming the insurer continues to provide defense after commencing the declaratory judgment action), but also for the cost incurred by the insured in the declaratory judgment action. Courts have awarded costs to the insured in the declaratory judgment actions regardless of whether the declaratory judgment action was filed in good faith or was the subject of a legitimate dispute. ¹⁵

In sum, given the potential pitfalls for both insurers and insureds in duty-to-defend disputes, it is critical that both sides research the applicable law in the relevant jurisidiction before taking a position that could affect their rights and responsibilities to each other if a coverage dispute arises. Given the broad coverage afforded under many liability policies, issues involving the duty to defend could potentially arise in almost any area of litigation. Thus, it is important that potential litigants and liability insurers protect their rights from the outset of the underlying litigation, and if necessary, take steps to protect their rights and defenses under the relevant insurance policies.

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1 R.T. Vanderbilt Co. v. Continental Cas. Co., 462, 870 A.2d 1048 (Conn. 2005) (finding that policies providing coverage for "suits" will always be construed to cover Environmental Protection Agency administrative actions initiated by a PRP letter).
2 Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007).
3 Id.
4 Claims-made policies, however, may also cover claims arising from events that occurred prior to the effective date of the policy when they contain what is commonly called "prior acts coverage."
5 This is also referred to as the "Eight Corners" or the "Complaint Allegation" rule.
6 See Ooida Risk Retention Group, Inc v. Williams, No. 08-10381, 2009 WL 2461850 (5th Cir. Aug. 12, 2009).
7 See Buss v. Superior Court, 16 Cal.4th 35 (1997); see also Aerojet-General Corp. v. Transport Indem. Co., 17 Cal.4th 38 (1997).
8 See, e.g., Sherwood Brands, Inc. v. Hartford Acc. & Indem. Co., 698 A.2d 1078, 1083 (Md. 1997).
9 See Viking Ins. Co. v. Hill, 787 P.2d 1385 (Wash. Ct. App. 1990). Other jurisdictions are in accord. See, e.g., Samply v. Integrity Ins. Co., 476 So.2d 79 (Ala. 1985); Conway v. Country Cas. Ins. Co., 442 N.E.2d 245 (Ill. 1982); Delaney v. Vardine Paratransit, Inc., 504 N.Y.S.2d 70 (1986).
10 In some jurisdictions, an insurer may even have a further duty to appeal if there are reasonable grounds for an appeal. See, e.g., Truck Ins. Exch. v. Century Indem. Co., 887 P.2d 455 (Wash. Ct. App. 1995).
11 Woo v. Fireman's Fund Ins. Co., 164 P.3d 454 (Wash. 2007).
12 Id. at 57. The Court also refused to adopt a "reasonable expectations" test, under which an insurer has a duty to defend if the insured would reasonably expect coverage under the policy. Id. at 53, n.5.
13 Id. at 73.
14 See San Diego Federal Credit Union v. Cumis Ins. Society, Inc., 162 Cal.App.3d 385 (1984). Some states view the issuance of a ROR letter as creating a possible conflict of interest between the insurer and the insured. Thus, under these circumstances, the insured may have the right to appoint separate independent counsel to represent the insured.
15 See, e.g., Rubenstein v. Royal Ins. Co. of America, 708 N.E.2d 639 (Mass. 1999).

Lance Wallach
68 Keswick Lane
Plainview, NY 11803
Ph.: (516)938-5007
Fax: (516)938-6330 www.vebaplan.com
National Society of Accountants Speaker of The Year


The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice

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