Insured’s Duty to Cooperate

Principally an insured’s duties to the insurer are covered in three concepts; (a) the duty to give
notice to the insurer; (b) the duty to cooperate; and (c) the duty of good faith and fair dealing.
This installment covers the second of these duties, the duty to cooperate.

There are basic governing concepts that apply to all relationships between insureds and
insurers. For the most part (excepting governmental intervention) these governing concepts
define nature, extent and scope of an insured’s duties to her insurer. These concepts were
covered in the first installment, the duty to give notice and will not be repeated here.

Duty to Cooperate: The insurer has limited understanding of the facts encompassing a claimed
loss, while the insured has far more knowledge of those facts. “The insurer is, therefore,
dependent on its insured for fair and complete disclosure; hence, the duty to cooperate.” 1
"[T]he purpose of the provision is to require the insured to cooperate in good faith with the
insurer in its defense of a claim." 2 “The basic purpose of a cooperation clause is to protect the
insurer's interests and to prevent collusion between the insured and the injured party. 3

Substantial Prejudice: Where the insurer does not suffer substantial prejudice the courts will
find coverage in spite of a violation of the “cooperation clause.” An insurer must demonstrate
actual, substantial prejudice from an insured's breach of a cooperation clause to defeat its
duties under the policy.4 Prejudice is more than a mere inconvenience but a damage or
detriment to one's legal rights, furthermore some prejudice is not the same as substantial
prejudice.5 “Nor is there any presumption of prejudice when the insurer attempts to avoid
responsibility for a breach of the cooperation clause.” 6
Substantial prejudice most often requires a total lack of communication resulting in a finding of
liability and entry of a money judgment against the insured. 7 Where the insured still has an
prospect to cure any breach, no prejudice will likely be found. 8 Five phone calls placed to the
insured, a skip trace, and insurer’s retention of a private investigator years after the accident to
locate the insured is an inadequate investigation on the part of an insurer who seeks to escape
its obligations under an automobile insurance policy for the insured’s failure to cooperate. 9
False Statements: Giving false statements to an insurer is not always a breach of the
cooperation clause. While an insurer should be able to rely on the statements of its insured in

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many circumstances, doing so will not always absolve the insurer of its duty to investigate an
accident.10

General Scope of Duty to Cooperate: “[T]he insured has no obligation to assist the insurer in any
effort to defeat recovery of a proper claim, the cooperation clause does obligate the insured to
disclose all of the facts within his knowledge and otherwise to aid the insurer in its
determination of coverage under the policy. [Citation.] The insurer is entitled, irrespective of
whether its duty is to defend or to indemnify, to gain as much knowledge and information as
may aid it in its investigation, or as may otherwise be significant to the insurer in determining its
liability under the policy and in protecting against fraudulent claims. To hold otherwise
effectively places the insurer at the mercy of the insured and severely handicaps it in contesting
a claim."11

a. Express Terms: Most insurance policies contain express language creating a “duty to
cooperate” for example:

“A person seeking coverage must:

1. cooperate with us in any matter concerning a claim or lawsuit;

2. provide any written proof of loss we may reasonably require;

3. allow us to take signed and recorded statements, including sworn statements

and examinations under oath, which we may conduct outside the presence of
you or any other person seeking coverage, and answer all reasonable questions
we may ask as often as we may reasonably require;

4. promptly call to notify us about any claim or lawsuit and send us any and all
legal papers relating to the claim or suit; ***." 12

Or “As often as we may reasonably require:

a. show the damaged property;
b. provide us with records and documents we request and permit us to
make copies;
c. submit to and subscribe, while not in the presence of any other insured
and to sign the same.”13

"The scope of the duties imposed upon an insurer and its insured are defined and
controlled by the terms of the insurance contract. Any condition in the policy requiring

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 cooperation on the part of the insured is one of great importance [citation], and its
purpose should be observed [citation]." 14 The duty to cooperate “is not boundless. It
must remain tied to the language of the cooperation clause itself.” 15
Claims Against Others: Frequently these clauses " imposes upon insureds the duty to
assist insurers in the conduct of suits and in enforcing any right to contribution or
indemnity against persons potentially liable to insureds [and provide] that insurers are
entitled to conduct any claim, in the name of insureds, for indemnity or damages against
persons, and that insureds ‘shall give all such information and assistance as the insurers
may reasonably require.’ ” Motorola Solutions, Inc. v. Zurich Ins. Co., 2017 IL App (1st)
161465, 83 N.E.3d 1063 (Ill. App., 2017)

b. Common Law Implied Duty: Even if there were no express language in the contract the
courts have found a “common law” or implied duty to cooperate. In Waste
Management, Inc. v. International Surplus Lines Insurance Co ,16 the court found that
"[e]ven were the express words, ‘duty to cooperate,’ omitted from the contract, such a
duty could reasonably be inferred based merely on principles of fairness and good
faith."17

c. Features of the Duty to Cooperate

i. Duty Does not Change: The insurer-indemnifier is no less interested or entitled
to protect its financial interests and to minimize unwarranted liability claims
than if it were actually participating in or providing the defense. 18
ii. Time: An insureds' duty to cooperate concerning matters covered by the
insurance agreement does not end with the termination of the underlying
lawsuit, but rather continues for as long as insureds seek to enforce its terms,
and certainly to the time when insurers are requested to carry out their end of
the bargain. This includes any potential recovery for contribution from
potentially liable third parties.19
iii. Attorney Work Product and Attorney Client Privileges: The policy language
defines the nature answer scope of the right to cooperation and the extent of
information that must be provided. “Both attorney-client privilege and work
product are provided for in Rule 201(b)(2) (citation omitted). However, they are
separate and distinct protections and waiver of one does not serve as waiver of

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 the other.”20 These privileges still exist but may be substantially curtailed as
these three cases show.

In Waste Management, Inc. v. International Surplus Lines Ins. Co. ,21 the insurer had
a duty to indemnify and a right but not a duty to defend the underlying claims.
The insurer sought access to the litigation files of the insured. The insured
objected asserting the attorney client and attorney work product privileges. The
Court found that in light of the “cooperation clause” located in the policy the
attorney-client privilege was unavailable to with respect to the litigation files upon
which the indemnification was sought. The insurance policy provided that the
insurers were entitled to conduct any claim, in the name of insureds, for
indemnity or damages against persons, and that insureds "shall give all such
information and assistance as the insurers may reasonably require." The Court
pronounced “the cooperation clause imposes a broad duty of cooperation and is
without limitation or qualification.” The Court observed that this duty continued
as long as the insureds seek to enforce the policy and was not mooted by
settlement of the underlying lawsuits. The Court declared that the policy
rendered any expectation of confidentiality in the attorney-client communications
under those circumstances, unreasonable. The Court further found that the
attorney-client privilege did not apply where the common interest of the parties
were concerned. It stated: “we believe that the doctrine may properly be applied
where the attorney, though neither retained by nor in direct communication with
the insurer, acts for the mutual benefit of both the insured and the insurer.” 22
Addressing the attorney work product privilege objection the court held “[t]o
permit insureds' attorney to invoke the work-product rule as a bar to discovery in
this instance would effectively allow the rule to be used as a sword rather than, as
intended, a shield. . . . We think that even the seemingly impenetrable work-
product doctrine would not permit such unfairness and potential injustice. We
hold, where, as in the underlying litigation, an attorney represents the common
interests of two or more clients whose relationship subsequently becomes
adverse, and, in a subsequent action, the work product of the attorney is at issue,

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Rule 201(b)(2) (134 Ill.2d R. 201(b)(2)) is not available to bar discovery by one of
the original parties.”23
In Sharp v. Trans Union L.L.C.,24 the insured sought coverage for a number of
lawsuits filed against them based on allegations that the insured improperly sold
consumer information to third parties in violation of the Fair Credit Reporting Act.
The insured was the subject of an Federal Trade Commission (FTC) administrative
complaint based on alleged FCRA violations and several similar lawsuits before the
policy was issued. The insurers claimed that the new lawsuits were based on the
same acts, errors, violations, and omissions that were known prior to the
inception of the policy. The insurers sought discovery of "pre-policy documents
that reflect, potentially reflect, or pertain to [the insured's] and/or its general
counsel's knowledge and/or analysis of the FCRA, the FTC litigation, and private
litigation arising from the same allegations as the FTC litigation." 25 Both the trial
and appellate courts found the cooperation clause required production of these
documents. The policy contained an exclusion for known losses under
circumstances where the chief financial officer for the insured “knew that such
acts, errors, violations or omissions might be expected to be the basis of a
Claim.”26 The Court said that there was no way for the insurer to know if the
exclusion applied without those documents. The court reasoned that by agreeing
to a policy with such particular language the insured has agreed to share this
information with the insurer.
In Motorola Solutions, Inc. v. Zurich Ins. Co. ,27 unlike the policy in Sharp, the policy
did not define a "known loss" in terms of plaintiff's general counsel's knowledge,
nor did the cooperation clause expressly require plaintiff's cooperation in
investigations of coverage questions. The court found that a common law duty to
cooperate does not waive the attorney client privilege (or work product) in
situations where the insurer is seeking prelitigation documents prepared by
completely different counsel from the counsel involved in litigating the underlying
claims. There is no commonality of interest in such records and without a known
loss clause similar to that in Sharp the insurer is not entitled to such discovery.

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iv. Debarring Order in Arbitration: Substantial prejudice to an insurer does not
automatically flow from the issuance of a debarring order preventing the
insured from rejecting an unfavorable arbitration award. 28

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1
Waste Management, Inc. v. International Surplus Lines Insurance Co., 144 Ill. 2d at 204, 161 Ill.Dec. 774, 579 N.E.2d 322.
2
Id , 144 Ill. 2d at 203, 161 Ill.Dec. 774, 579 N.E.2d 322.
3
See M.F.A. Mutual Insurance Co., 66 Ill.2d at 496, 6 Ill.Dec. 862, 363 N.E.2d 809; Pittway Corp. v. American Motorists
Insurance Co. (1977), 56 Ill.App.3d 338, 13 Ill.Dec. 244, 370 N.E.2d 1271; 8 J. Appleman, Insurance Law & Practice § 4771,
at 213 (West 1981). Waste Management, Inc. v. International Surplus Lines Ins. Co., 144 Ill.2d 178, 579 N.E.2d 322, 161
Ill.Dec. 774 (Ill., 1991)
4
M.F.A. Mut. Ins. Co. v. Cheek, 66 Ill.2d 492, 363 N.E.2d 809, 6 Ill.Dec. 862 (Ill., 1977).
5
Direct Auto Ins. Co. v. Reed, 2017 IL App (1st) 162263, 76 N.E.3d 85 (Ill. App., 2017).
6
M.F.A. Mut. Ins. Co. v Cheek, 66 Ill.2d 492, 363 N.E.2d 809, 6 Ill.Dec. 862 (Ill., 1977)
7
See i.e., American Country v. Bruhn, 289 Ill. App. 3d 241 (1997).
8
See i.e. Crowell v. State Farm Fire & Cas. Co., 259 Ill. App. 3d 456 (1994).
9
Am. Access Cas. Co. v. Alassouli, 31 N.E.3d 803 (Ill. App., 2015).
10
State Farm Mut. Auto. Ins. Co. v. McSpadden, 411 N.E.2d 121, 88 Ill.App.3d 1135, 44 Ill.Dec. 215 (Ill. App., 1980).
11
Waste Management, 144 Ill. 2d at 204, 161 Ill.Dec. 774, 579 N.E.2d 322.
12
Ean Servs. LLC v. Brunson, 2014 IL App (2d) 140118-U (Ill. App., 2014), Rule 23 order cited for policy language only.
13
Neiman v. Farmers Auto. Ins. Ass'n, 2016 IL App (1st) 150302-U (Ill. App., 2016), Rule 23 order cited for policy language
only.
14
Waste Management, Inc. v. International Surplus Lines Ins. Co., 144 Ill.2d 178 at 191, 579 N.E.2d 322, 161 Ill.Dec. 774
(Ill., 1991)
15
Motorola Solutions, Inc. v. Zurich Ins. Co., 2017 IL App (1st) 161465, 83 N.E.3d 1063 (Ill. App., 2017)
16
Waste Management, Inc. v. International Surplus Lines Insurance Co. , 144 Ill.2d 178, 161 Ill.Dec. 774, 579 N.E.2d 322
(1991)
17
Id 144 Ill. 2d 178 at 201–02, 161 Ill.Dec. 774, 579 N.E.2d 322 (1991)
18
Id 144 Ill. 2d at 204–05, 161 Ill.Dec. 774, 579 N.E.2d 322.
19
Motorola Solutions, Inc. v. Zurich Ins. Co., 2017 IL App (1st) 161465, 83 N.E.3d 1063 (Ill. App., 2017)
20
Waste Management, Inc. v. International Surplus Lines Ins. Co., 144 Ill.2d 178, 579 N.E.2d 322, 161 Ill.Dec. 774 (Ill.,
1991).
21
144 Ill.2d 178, 579 N.E.2d 322, 161 Ill.Dec. 774 (Ill., 1991)
22
Id., 144 Ill.2d at 194.
23
Id., 144 Ill.2d at 200.
24
364 Ill. App. 3d 64, 300 Ill.Dec. 830, 845 N.E.2d 719 (2006).
25
Sharp, 364 Ill. App. 3d at 70, 300 Ill.Dec. 830, 845 N.E.2d 719.
26
Id., 845 N.E.2d at 723-24.
27
2017 IL App (1st) 161465, 83 N.E.3d 1063 (Ill. App., 2017).
28
Direct Auto Ins. Co. v. Reed, 2017 IL App (1st) 162263, 76 N.E.3d 85 (Ill. App., 2017)