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What Is The Time for Responding to a Defense Tender?

Insurers must acknowledge a notice of claim within 15 working days upon receipt. 054-00-043 Ark. Code. § 7(a).

Insurers must inform the insured of its acceptance or denial of claim within 15 days from receipt of proof of loss.  054-00-043 Ark. Code. § 9(a)(1).

Does Reserving Rights Create a Conflict of Interest? 

When an insurer assumes the duty to defend under a reservation of rights a conflict of interest is created, which allows the insured, under Arkansas law, to name independent counsel of its own choosing. Union Ins. Co. v. Knife Co., 902 F. Supp. 877 (W.D. Ark. 1995)(predicting Arkansas law)(there are no Arkansas appellant addressing issue).

Does a Reservation of Rights Create Additional Duties?

None found.

What Must Be Done If A Conflict of Interest Exists?

Where a conflict of interest exists between the insured and the insurer, the insured may select counsel of its own choosing.  Northland Ins. Co. v. Heck’s Service Co., 620 F.Supp. 107, 108 (E.D. Ark. 1985)(Arkansas law).

Who Is Responsible for Fees of Independent Counsel?

The insurer is responsible for the reasonable fees.  Northland Ins. Co. v. Heck’s Service Co. Inc., 620 F.Supp. 107, 108 (E.D. Ark 1985)(Arkansas law). 

What Are Independent Counsel’s Obligations?

None found.

What Settlement Duties Exist?

None found.

What Actions May Result in a Claim for Bad Faith?

By statute, Ark. Code § 23-79-208(a)(1) provides for a limited private cause of action where an insurer fails to pay the loss within the time specified in the policy after demand is made, and provides that the insurer “shall be liable to pay the holder of the policy or his or her assigns, in addition to the amount of the loss, twelve percent (12 percent) damages upon the amount of the loss, together with all reasonable attorney’s fees for the prosecution and collection of the loss.” Ark. Code § 23-79-208(a)(1).

An insurer may be found acting in bad faith where it displays affirmative misconduct without a good faith defense, and that the misconduct must be dishonest, malicious, or oppressive in an attempt to avoid its liability under an insurance policy.  Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463, 465 (1984).

Bad faith claims can arise in cases where the insurer fails to pay policy benefits, Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463, 465 (1984); or fails to settle a third-party claim under a liability policy.  McCall v. Southern Farm Bureau Cas. Ins. Co., 255 Ark. 401, 501 S.W.2d 223 (1973).

Are Attorney’s Fees Recoverable in Insurer-Insured Dispute?

Yes, under Ark. Code § 23-79-208(a)(1).

Are Punitive Damages Recoverable in Insurer-Insured Dispute?

Yes, both under Ark. Code § 23-79-208(a)(1) and under the bad faith tort theory.  Employers Equitable Life Ins. Co. v. Williams, 665 S.W.2d 873 (Ark. 1984).  But

Alternative Coverage Options

An insurer may file a declaratory action to determine its duty to defend, indemnify and all other coverage issues including facts which would otherwise be resolved in the underlying litigation.  Newcourt Financial, Inc. v. Canal Ins. Co., 15 S.W.3d 328 (Ark. 2000). 

Relevant Statutes

Declaratory Judgment – Ark. Code § 16-111-103(a).

“Courts of record within their respective jurisdictions shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed.  No action or proceeding shall be open to objection on the ground that a declaratory judgment is prayed for. The declaration may be either affirmative or negative in form and effect and declarations shall have the force and effect of a final judgment or decree.”

Damages and attorney’s fees on loss claims – Ark. Code § 23-79-208(a)(1)(provides for private right of action for insured to collect penalty and reasonable attorney’s fees when insurer fails to promptly pay loss). An insurer will be liable under the statute even if the insurer denied coverage in good faith. See, e.g., Home Mut. Fire Ins. Co. v. Jones, 63 Ark. App. 221, 977 S.W.2d 12 (1998).

Arkansas Unfair Trade Practices Act, Ark. Code § 23-66-201 does not provide a private cause of action.

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