When your insurer must pay your loss

As I discussed in my last post, an insurer has two duties: the duty to defend and the duty to indemnify. The insurer may have a duty to defend but ultimately no duty to indemnify.

While the duty to defend is determined by what is alleged in the complaint, the duty to indemnify depends on the "true" facts as determined by a court. So, going back to the example in the last post, if you are insured for injuries caused by apples falling from your apple tree, your insurer will defend you if someone states in a complaint that he or she was injured by an apple falling from your apple tree.

The case eventually goes to trial. Maybe you win at trial altogether. Your attorney convinces the jury that the plaintiff was not injured; or was not injured by something falling out of your tree. The plaintiff does not appeal. You are all set. The insurance company has paid an attorney to represent you; no damages have been found against you; and the case is over. While you have been inconvenienced and undoubtedly stressed by the lawsuit, you have not suffered any monetary loss.

But if you lose at trial, the insurer, having reserved its rights at the beginning of the case, will make a decision about whether to pay your damages awarded by the court to the plaintiff or to deny coverage. If the facts at trial demonstrated that the plaintiff was hit by an apple that fell from your tree--the very thing that your insurance policy covers--the insurer will pay the damages.

If the facts at trial showed that the plaintiff was hit by a falling acorn, then the insurer will "disclaim coverage"--refuse to pay the claim. Unless you have other insurance that will cover the claim, you will be personally liable to pay the damages assessed.

If you disagree with the insurer's view of the facts, you can file a "declaratory judgment" lawsuit. I will discuss that in a future post.