September 20th, 2012
An Insurance Company’s Duty to Defend…and Why it Might be the Most Important Duty the Insurance Company Owes You
By Mark A. Boyle
When you are sued, that’s when you really need your insurance company … especially to defend you. Most modern liability policies issued to individuals and businesses have two requirements. The first, and the one we usually think about when we think about insurance, is the duty to indemnify – meaning pay for any judgment up to the limit of the policy that you purchased. The second duty, which most of us don’t always appreciate, is often even more important. It is the duty to defend. This duty to defend requires that the insurance company retain and pay for a competent attorney to defend you from a lawsuit. This duty also requires the insurer to pay for the associated cost involved in litigation — such as deposition fees, expert witnesses and the like. Most individuals and small businesses cannot afford to defend themselves due to the high cost of lawyers and associated court costs.
The rules regarding the duty to defend are very clear. The duty to defend is separate and apart from the duty to indemnify, and the insurer is required to defend the suit even if true facts later show there is no coverage. Importantly, the duty to defend is much broader than the duty to indemnify, as it is based solely upon the allegations in the complaint against the insured. If the complaint alleges facts which are partially within and partially outside of coverage of the policy, the insurance company is obligated to defend the entire lawsuit. All doubts as to whether the duty to defend exists in a particular case must be resolved in favor of the insured and against the insurer. It has also been stated that so long as the complaint alleges facts which create potential coverage under the policy, the insurer must defend the suit. An insurer must defend if the allegations in the complaint could bring the allegations of the complaint within coverage under the subject policy. If the language of the complaint “at least marginally and by reasonable implication” can be construed to invoke a duty to defend, the duty to defend exists. It has also been said that the court must not only look to the facts alleged in the complaint but their implications as well as determining whether the complaint may represent a covered occurrence.
One of our favorite cases which discuss the scope of the duty to defend isBiltmore Construction Co., Inc. v. Owners Insurance Co., 842 So. 2d 947 (Fla. 2d DCA 2003). In that case, and as the rules existed at the time, the insurance company’s policy only covered water damage to personal property and no coverage existed for the actual work of the insured or its subcontractors. The complaint against the insured in Biltmore generally alleged water damage, but did not specify whether it was damage to the general contractor’s work, the subcontractor’s work, or third party property, such as table or wallpaper, which were added after construction. The court held that under these facts, the insurer was required to defend. Relying on the duty to defend rules cited above, the court held that there was at least a potential that some of the damages were covered and thus, the insurer was required to defend the entire suit. This is a very common mistake by insurers. The Biltmore case shows a very common mistake by insurers. Often when insurers see uncovered or excluded damages in a case, they refused to defend even though there is a possibility some covered damages exist. If there are both covered and uncovered damages an insurer should offer to defend under reservation of rights.
Commonly, our firm is asked to represent individuals where the insurance company has denied the insured a defense when it has been requested. In most of the cases we evaluate, the insurance companies’ claim that they are not required to defend is unfounded. If you have sought a defense from an insurance company and they have not agreed to defend your interests, please feel free to contact us.