Friday, April 18, 2008

When your insurer must defend you

In my last post I talked about "reservation of rights letters" and what they mean. You might be wondering why your insurer will agree to pay for an attorney to defend you in a lawsuit but will not agree to pay any judgment against you that will come at the end of the lawsuit.

A liability insurer has two duties: the "duty to defend" and "the duty to indemnify." The duty to defend is the duty to pay an attorney to defend you in a lawsuit that is brought against you. The duty to indemnify is the duty to pay a judgment against you.

Whether or not the insurer has a duty to defend is determined by the allegations of the complaint that the plaintiff files against you in court. The insurer reads the complaint and determines whether, regardless of whether everything (or anything) in the complaint is true, the facts stated in the complaint could be covered by the insurance policy. If so, the insurer has to defend you.

For example, let's say that you have an insurance policy that provides insurance only if a person is hurt by an apple falling from your apple tree. Someone sues you and says in the complaint that they were injured when they were hit by an apple that fell from your apple tree. Your insurance company will have to defend you in that lawsuit. It doesn't matter that the person is lying and was actually hit by a falling acorn--your insurer still must defend you.

In a later post I will discuss the insurer's duty to indemnify, and why an insure might have a duty to defend but not to indemnify.

No comments: