Cooperation Clause
A policy condition requiring the insured to cooperate with the carrier's investigation, defense, and settlement of claims.
What It Is
The cooperation clause is a standard policy condition that requires the insured to cooperate fully with the carrier's investigation, defense, and settlement of any claim. Cooperation typically includes providing truthful statements, attending depositions and trials, producing documents, submitting to examinations under oath, and not taking actions that prejudice the carrier's ability to handle the claim.
Failure to cooperate can, in some circumstances, be grounds for the carrier to deny coverage. However, courts generally require the carrier to demonstrate that the insured's lack of cooperation was material, meaning it actually prejudiced the carrier's ability to investigate or defend the claim. Minor or inadvertent failures to cooperate typically do not justify coverage denial.
The cooperation clause also typically includes a no-voluntary-payment provision, which prohibits the insured from admitting liability, making payments, or incurring expenses without the carrier's prior consent, except for emergency measures to protect property from further damage. Violating the no-voluntary-payment provision can give the carrier grounds to deny reimbursement for those unauthorized payments.
Why It Matters for Brokers
Brokers must educate clients about the cooperation clause because violations can jeopardize coverage. Common cooperation failures include: the insured admitting fault at the accident scene, settling a claim directly with a claimant without carrier involvement, failing to attend mediations or depositions, and destroying relevant documents. Proactive client education at policy inception prevents these costly mistakes.
Real-World Example
A manufacturing client receives a product liability lawsuit and, without notifying the carrier, hires its own attorney and agrees to a $95,000 settlement. When the client later submits the settlement for reimbursement, the carrier denies coverage citing violation of the cooperation clause and no-voluntary-payment provision. The client is out $95,000 plus $32,000 in attorney fees. Had the broker educated the client about reporting obligations, the carrier would have provided defense and likely settled within the $1M GL limit at its own expense.
Common Mistakes
- 1Not educating clients at policy inception about their obligations under the cooperation clause, particularly the prohibition on voluntary payments and the requirement to report all claims and potential claims promptly.
- 2Allowing clients to engage their own attorneys to handle liability claims without first notifying the carrier, which can trigger cooperation clause issues.
How brokerageaudit.com Handles This
brokerageaudit.com generates a claims reporting guide for each client at policy inception, summarizing cooperation obligations under each policy. The system includes cooperation clause requirements in renewal presentation materials, ensuring clients are reminded annually of their obligations.