Nearly all insurance policies provide for the defense of lawsuits and the payment for any judgments obtained against an insured. Insurance companies are obligated to defend insureds , even if there is a dispute whether or not the allegations in the lawsuit are covered by the policy. This is due to the legal reality that the duty to defend an insured is broader than the duty to protect, or "indemnify" the insured for the damages sought in the lawsuit. Whenever an insured is sued, for whatever reason, the lawsuit should be tendered to any insurance company for which coverage may be available. The insurance company then must either agree to defend the insured and protect them against a judgment, or defend them while they are doing their investigation regarding coverage.
Reservation of Rights
In this latter instance, the insured may receive a "reservation of rights" letter, which states the issues under scrutiny, and why the insurance policy may not cover the allegations in the lawsuit. Sometimes, although rarely, an insurance company, upon receipt of the lawsuit will both deny a duty to indemnify the insured, and also refuse to defend the insured. By doing this, the insured is now exposed to a judgment under the lawsuit, unless they can afford to pay their own fees to defend the suit. Most wise insurance companies will not take this path, but may file their own lawsuit, while defending their insured, asking for the court to decide if coverage is available. These suits are commonly referred to as "declaratory judgment" actions and create their own unique conflict between insureds and their insurance companies. A failure to defend an insured, even if there is a bona fide dispute, can be disastrous for an insurance company, who may later face a lawsuit for bad faith or extra-contractual damages.
To learn more about common issues defending an insured, please contact Corless Barfield Trial Group at 813-498-1623.