Los Angeles Duty to Defend Lawyer
Jeffrey I. Ehrlich, Certified Appellate Specialist
Civil Appeals Attorney
What is the Duty to Defend?
Most insurance policies that protect the policyholder from liability from lawsuits filed against them by other people offer two kinds of protection — “indemnity” and a “defense.” Indemnity is the promise by the insurer to pay a judgment entered against its policyholder in the lawsuit. That is, if the policyholder loses, and is found liable, the insurance policy will pay the adverse judgment.
Most insurance policies that provide liability coverage also promise that if the policyholder is sued, the insurance company will provide a legal defense to that lawsuit. This involves hiring a lawyer to handle the defense, plus paying for the costs of preparing the defense, including factual investigation, hiring experts, paying for court costs, etc. The insurer’s obligations under the “duty to defend” and the “duty to indemnify” are different in two important respects.
First, the duty to indemnify is not triggered until after there is a judgment entered against the insured. But the duty to defend is triggered as soon as the insured has been sued (and sometimes sooner — when a suit is threatened), and asks the insurance company to provide a defense (this is called “tendering” the defense to the insurance company.)
Second, whether or not the insurer owes a duty to indemnify is determined based on comparing the terms of the adverse judgment with the terms of the insurance policy. The inquiry is, essentially, “is this judgment covered by this policy?”
When does the insurance company owe a duty to defend?
Because the duty to defend is triggered before a judgment is entered, and therefore before it is possible to determine whether or not the judgment is covered, the duty to defend arises when the suit against the policyholder might potentially be covered. If so, the insurer has a duty to defend the entire lawsuit — even against claims that would clearly not be covered by the policy.
Because they arise at different times, and because the duty to defend turns on possible or potential coverage, while the duty to indemnify turns on the existence of actual coveragefor the particular judgment that is rendered, the courts frequently say that the duty to defend is broader than the duty to indemnify. This means that it will extend to claims that might be covered, even if, eventually, it turns out that they are not covered.
Lawsuits involving breach of the duty to defend
If the insurer can determine that there is no possibility that the lawsuit against its policyholder would result in a judgment that would be covered by the policy, then the insurer can (and often will) refuse to provide a defense. Insurers will also frequently provide a defense subject to a “reservation of rights.” This means that the will defend — at least initially — while expressly preserving their right to challenge coverage (including their obligation to continue to provide a defense) at some future time. This is the kind of conduct that frequently generates duty-to-defend litigation.
These cases generally arise in two legal contexts — a suit initiated by the insurer against the policyholder seeking a judicial finding that the policy provides no coverage and therefore that there is no duty to defend (called a claim for “declaratory relief” in California), or a suit initiated by the policyholder for breaching the contract, and, if circumstances warrant, for bad faith.
If you are a policyholder who has been sued for declaratory relief, it is imperative that you find qualified counsel to represent you, and to pursue your claim against the insurance company for breach of the duty to defend.
In most cases, these claims must be heard in the same lawsuit. In other words, if the policyholder simply defends the insurer’s declaratory-relief claim, but fails to assert a cross-complaint for breach of contract or bad faith, these claims will be forever lost — even if the court in the declaratory-relief claim finds in favor of the policyholder.
Our practice involving cases concerning a breach of the duty to defend: An example of how we can help
Several college-age men, who were friends in high school, got together for a reunion in Chicago. They went to a Cubs game, drank several beers, and had a great time. On the way home, one of the young men jokingly backhanded his friend in the groin — a game they had played since high school. No malice was involved, and no one had ever been hurt before. But for some reason, this time his friend suffered a serious injury (which was not known for several days.)
The friend sued the young man, who tendered his defense to the insurance company. The company refused to defend, arguing that the claim could not be covered because the young man acted “intentionally.” The friend obtained a judgment against the young man in excess of $450,000. The insurance company sued both men for declaratory relief, seeking a declaration that it owed no duty to defend or to indemnify.
The Ehrlich Law Firm was hired to defend the declaratory-relief claim and to prosecute a bad-faith claim. We defeated the insurer’s motions for summary judgment, and then obtained a favorable summary adjudication of the duty to defend. The carrier then agreed to enter into a settlement.