Insurers have a duty to indemnify policyholders by paying out claims lodged against the policyholder. However, insurers also have the duty to defend policyholders against lawsuits covered by the policy.
This duty to defend is more complex than the duty to indemnify. While initially the duty to defend seems to work in the policyholder’s favor to the detriment of the insurer, insurers have rights regarding the duty to defend.
An insurer’s duty to defend
As an insurer, your duty to defend policyholders from outside claims is not the same as your duty to indemnify policyholders.
Insurers generally have a duty to indemnify. If there is a lawsuit against a policyholder that results in damages, the insurer must pay those damages even if a defense was not provided or necessary.
Conversely, insurers have a duty to defend even if there is not a duty to indemnify. Insurers must defend policyholders until it is proven that a no damages ought to be paid.
The duty to defend kicks in when the allegations are made by the other party in a lawsuit, and they are the type that are covered by the insurance policy.
Even if, as the insurer, you believe the damages alleged are excluded from coverage per the language of the policy, you still must defend until it is shown that the damages are not covered by the policy.
You control the defense
The duty to defend may seem onerous or even unfair if you believe a claim is illegitimate or clearly is not covered. Still, there is one benefit: as the insurer, you control the defense. Insurers choose who will represent the case. Insurers get to decide whether to pursue a settlement or go to trial. This right makes the duty to defend less formidable and provides insurers with some control over claims they are required to defend in court.