Duty to defend
This is the insurance company’s obligation and duty of providing a legal defense for claims made against the insured for a claim covered under the policy. The duty to defend arises after the insured reports the claim to the insurer.
The insurer’s other duty is to indemnify policyholders. This requires the insurer to pay a judgment against the policyholder in a lawsuit or a settlement made instead of a judgment. At times, the insurer is not obligated to provide a defense even though it is required to indemnify its policyholders.
An insurer’s duty to defend is greater than its indemnification duty. Insurers are usually required to provide a defense if the insurance policy covers the plaintiff’s allegations. This duty continues even if the insurer believes that a claim is not covered because of an exclusion or other policy term. The insurer must provide a defense until it can show that the claim is excluded.
General liability insurers typically control the defense. Insurers can assign their own attorneys or hire defense attorneys. Insurers have the discretion to enter a settlement or go to trial. Insurers can settle a claim without the policyholder’s consent.
The general liability policy’s supplementary payments section addresses the expenses insurers incur for their defense. These do not reduce policy limits.
Some insurers sell proprietary liability policies covering costs within the policy’s limits. Purchasers should assure this policy covers defense beyond the limits. The limits of the insurance section of a policy cover defense outside the limits if applies to damages only.
An insurer or policyholder may request a declaratory judgment from a court if they disagree about the insurer’s obligation to provide a defense or some other policy provision. This judgment is binding upon the insurer and the policyholder.
A reservation of rights letter is another option. An insurer prepares and sends this letter to the insured. It states that it will defend the claim but reserves the right to deny coverage for all or part of the claim later, typically in a declination letter.