Hunton Insurance Recovery Blog

A policyholder’s settlement negotiations—even without a formal proceeding like arbitration or mediation—can give rise to its insurer’s duty to defend.

The Fifth Circuit in BPX Prod. Co. v. Certain Underwriters at Lloyd's London found that because the contractor master services agreement (MSA) required the negotiations, the negotiations were not informal and were a type of alternative dispute resolution (ADR) proceeding. This case emphasizes that trade policyholders and risk management teams should give serious consideration to ADR provisions when working up construction contracts, such as ensuring that the ADR provision requires initial negotiations if the parties seek that type of alternative resolution. These provisions not only pave an avenue for dispute resolution out of court but can also serve as the impetus to trigger an insurer to defend, and indemnify, the claim.