Insurer's Duty to Defend

The promise in a liability insurance policy to pay for the policyholder's lawyer when they are sued, why it is broader than the duty to pay a judgment, and what happens under a reservation of rights.

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What it means

A liability insurance policy - commercial general liability, professional liability, auto, homeowners or umbrella - usually makes two separate promises. The duty to indemnify is the promise to pay covered settlements and judgments up to the policy limits. The duty to defend is the promise to provide and pay for a lawyer to defend the policyholder against a covered lawsuit. In many policies defense costs do not reduce the limits, which can make the defense the more valuable promise.

The duty to defend is broader than the duty to indemnify. In most states it is triggered whenever the allegations of the lawsuit, compared with the terms of the policy, show a potential for coverage, even if the allegations are groundless or some claims in the suit are not covered; courts often call this the "eight corners" or "four corners" rule because it looks at the complaint and the policy. Some states also let the insurer or policyholder rely on known facts outside the complaint. If any claim is potentially covered, the insurer usually must defend the whole suit, and doubts are resolved in the policyholder's favor.

Insurers often defend under a reservation of rights, a letter saying the insurer will defend while reserving the right to deny payment later or to ask a court to declare that it owes nothing. Where the reservation creates a conflict, for instance because the case could be steered toward an uncovered theory, some states give the policyholder the right to independent counsel paid by the insurer. An insurer that wrongly refuses to defend may be liable for the defense costs and, in many states, for the judgment or a reasonable settlement, and an unreasonable refusal can support a claim of insurance bad faith. The policyholder's own first duty is to give the insurer prompt notice and a copy of the suit papers, because late notice can forfeit coverage.

Where this comes from

When people hire a lawyer for this

Send the lawsuit to every insurer that might cover it as soon as you are served, including older policies and umbrella policies, and keep proof of when you did. A coverage lawyer, who represents policyholders against insurers rather than defending the underlying case, is worth consulting when an insurer denies a defense, defends under a reservation of rights, refuses to settle within limits, or files a declaratory judgment action against you. The lawyer the insurer appoints represents you in the lawsuit but usually will not advise you on coverage disputes with the insurer.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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