What Is a Cooperation Clause?
A cooperation clause is a passage in an insurance contract that requires the policyholder to work with the insurer if a policy claim occurs. Under this agreement, the policyholder must participate in and contribute to any investigation of the insurance claim. This claim activity is different to a standard claim, where the insured is not directly involved with unearthing pertinent information. This clause is also known as an assistance and cooperation provision on the policy.
The cooperation clause helps the insurance company obtain additional information about the nature of the circumstances behind the claim. In some cases, the insured party may have detailed information about events before, during and after the occurrence of a covered event. Further, the agreement is useful in speeding up the processing of claim paperwork, as information is quickly available from the policyholder and frequently leads to a speedy resolution.
If an insured party refuses to cooperate, it may lead to the denial of future coverage.
Cooperation Clause Explained
In general, an insurer will underwrite policies for thousands of individuals across a wide geographic area. Since they cover vast regions, the company is unlikely to know the exact day-to-day activities of the insured. They are even less likely to know the minute-to-minute details of what transpired in the moments, or days, leading up to the covered event.
This mystery may put the insurance company at a disadvantage, as it attempts to piece together information that will help it determine if the claim is a valid one. Lack of transparency is the primary reason insurance policies contain provisions such as the cooperation clause. Under this agreement, the policyholder is legally compelled to provide information about events and actions taken before, during and after the covered incident.
Requirements for Policyholders
While the insured must assist the insurer in investigations, it does not necessarily mean the policyholder will need to appear in court or complete extensive research and information gathering. Depending on the policy and the amount of claim, the insured may wind up only speaking with the insurer over the phone, through emails, or via a video conference to present their information on the events and their actions. In most cases, a verbal recounting is all that is necessary. However, the policyholder may also need to verify specific items which may include keeping copies of receipts or any other written communication.
Some cooperation clauses may include additional detailed language. These details may specify the level of cooperation that the insured must provide during an investigation and length of time they may need to help. It should go without saying that the policyholder must be entirely truthful in all of their statements.
The Need for Cooperation Clauses
Cooperation clauses are considered essential components of an insurance policy contract. Of course, the insurer requires all available information so that they do not cover a fraudulent claim for coverage. When insurers pay falsely submitted requests, the cost of underwriting coverage for all member of the community will increase. Fraudulent claims skew the actuarial risk used to determine the premiums for all insurance applicants.
If the insured decides not to cooperate, they could forfeit their ability to claim for coverage. Also, should a court determine that the insured is withholding information or is not acting in good faith, they may allow the insurer to claim for breach of contract. In some cases, the untruthful policyholder may find themselves paying court costs on top of losing their insurance coverage.
- A cooperation clause in an insurance contract requires the policyholder to help the insurer if a claim occurs.
- The policyholder must participate in the investigation of the claim by providing detailed information.
- The clause helps insurers gain access to information that might otherwise be difficult to uncover and, therefore, more easily determine whether a claim should be paid out.
- The policyholder is rarely required to appear in person to provide information and can instead do so over the phone, through emails, or via a video conference.
Real World Example
In a case recently reported by Business Insurance, the inclusion of a cooperation clause proved crucial to establish attorney immunity and resulted in the dismissal of a lawsuit.
In the case, a family filed and won a lawsuit against Dorel Juvenile Group Inc. regarding a malfunctioning car seat that resulted in the severe injury of their child. The jury found in the parent's favor and awarded millions in damages.
Dorel was self-insured for up to $6 million and had an excess policy issued by Ironshore Inc. to provide an additional $25 million in coverage. Ironshore's contract with Dorel had an assistance and cooperation clause that stated Ironshore was allowed to associate with Dorel in defense of any claim. In turn, Dorel had to cooperate if Ironshore exercised their right and required Dorel to provide any litigation-related information Ironshore requested quickly.
Dorel also hired outside counsel, Schiff Hardin, during the parent's suit. Ironside did not retain an outside counsel, but Schiff Hardin still shared information with them. The case concluded, and a jury ruled in favor of the injured family, awarding millions in both compensatory damages and exemplary damages.
After the verdict, Ironside hired counsel for the first time and through mediation, negotiated with the family for a settlement that met Ironshore's terms. The firm then sued Schiff Hardin, claiming among other things, that it had engaged in negligent misrepresentation going against the terms of the Dorel assistance and cooperation clause.
Schiff Hardin requested the case dismissed by attorney immunity, but a district court ruled against the firm, refusing to grant the dismissal. However, the 5th U.S. Circuit Court of Appeals in New Orleans overturned the lower court's ruling and did dismiss the case, saying attorney immunity did apply to Schiff Hardin.