Duty to Defend: What Are Your Insurer’s Obligations?

Duty to Defend

If your business liability insurance policy contains a “duty to defend” clause, your insurance company is obligated to defend your business against claims covered under the policy. This typically includes hiring lawyers to defend your business from lawsuits brought by third parties. The insurer’s obligation to defend is much broader than its duty to pay claims, and courts must side with the insured whenever there is potential coverage. However, insurance companies routinely manipulate policy language and look for other loopholes to escape responsibility and protect their bottom line.

What Triggers Duty to Defend

The insurer owes your business a duty to defend if the facts alleged in the lawsuit filed against you potentially fall within the scope of the policy’s coverage. As long as that criteria is met, the insurance company is obligated to defend you, even if the allegations are false or groundless. Even if only one claim in the lawsuit is potentially within the scope, the insurance company must defend the entire case. If the lawsuit does not allege facts that potentially fall within the policy’s coverage, the insurance company will not have to cover you at all.

What Commercial Liability Policies Cover

General liability insurance policies generally protect your business against claims of bodily injury, property damage or personal injury (such as libel or slander) brought by third parties. Policies have various exclusions, which may be worded or defined differently depending on the policy. Generally speaking, policies do not cover damage or injury resulting from intentional acts by the insured. Most policies also contain pollution exclusions, which mean they do not cover damage or injury resulting from the sudden or gradual release of contaminants, the exact definition of which will depend on the policy. Damages and injuries that are typically covered by other types of insurance, such as workers’ compensation or commercial vehicle insurance, are also generally excluded from commercial liability policies.  

How Courts Interpret Duty to Defend

To determine if there is a duty to defend, courts compare the allegations contained in the lawsuit with the relevant provisions of the insurance policy. In some cases, the terms of the insurance contract will be clear and unambiguous. But in many cases, the wording in the insurance policy is deliberately vague, and it’s common for competing reasonable interpretations of certain policy provisions to exist. In these cases, courts are obligated to interpret the insurance contract in favor of the insured and against the drafter of the policy. Thus, the insurer company will often be required to defend you in those cases. 

Intentional Acts

In duty to defend cases, disputes may arise over whether the action that led to the injury or damage was accidental or intentional. In determining whether an accident has occurred within the meaning of insurance policies, the court will look at the intent behind the action. If the act is performed with the intention of accomplishing a certain result, and a different, unexpected and unintended result occurred, that result is deemed to be accidental. For instance, if a lawsuit arises from damages caused by a tree cutter clearing trees on the wrong lot, and there is no evidence that the tree cutter intended the harmful result, the lawsuit will be deemed potentially within the scope of the coverage, thus triggering the duty to defend. Think in terms of car insurance. Everybody intends to drive their car somewhere, but they don’t intend to get in an accident, even when they are at fault. This is a classic example of an accidental result.

General Exclusions

When a lawsuit involves matters that may be excluded in the policy, such as “expected or intended” harm or “pollution,” the insurance company may refuse to defend or may argue it does not have a duty to defend. It is harder for an insurance company to escape the duty to defend in reliance on an exclusion, however, because the insurance company typically bears the burden of demonstrating that the facts fall wholly and completely within that exclusion. If the insurance company cannot do so at this stage, the court will obligate the company to defend the case completely. As stated earlier, when there are multiple allegations in a complaint, just one needs to be potentially covered for the duty to defend to apply. 

Bodily Injury or Property Damage

For duty to defend to be triggered, most lawsuits must allege bodily or personal injury or property damage as defined by the policy. Say a nonprofit organization or government body brought a lawsuit against a waterfront industrial facility for allegedly violating environmental statutes. The insurance company may argue that it’s off the hook because the lawsuit does not specifically seek to recover money for bodily injury or property damage. But depending on how the policy defines “property damage,” duty to defend may be triggered. For instance, if property damage is defined as “physical damage to tangible property,” and the suit alleges that fish and aquatic life were damaged by the facility’s activities, this potentially falls into the coverage area. 

 

If your insurance company is disputing its duty to defend your business, give us a call. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your businesses.