Defense of Claims
Duty to Defend - The Role of the Insurance Company
Most insurance policies include a clause that places the duty to defend any action initiated by a third party against an insured individual on the insurance company as long as the cause of action is covered by the policy. Insurance companies have a duty to defend an insured individual even if an allegation is groundless, false, or fraudulent; thus, an insurance company may be required to defend an insured even if no obligation to pay out proceeds exists. An insurance company must defend an insured party any time an action is filed against the insured individual where the allegations of a third party would result in a claim; however, an insurance company is only obligated to pay out proceeds to the insured party if there is a legal obligation to pay.
If you have questions about an insurance company's duty to defend its insureds, contact our firm to schedule a consultation with an attorney.
Failure to Defend
If an insurance company fails to uphold its duty to defend an insured party against a third party claim the insurance company may be held liable for the damages, which may include the costs and attorneys fees the insured paid out to retain his or her own defense attorneys, the judgment or reasonable settlement amount entered into in good faith between the third-party and the insured, and damages to compensate the insured party for suffering resulting from the insurer's failure to defend the insured.
Control of the Defense
Generally, if a claim falls within a policy's liability coverage, even if the total amount exceeds the policy's limits, the insurance company has a duty to defend the insured and a right to control the defense. However, an insurance company will often allow the insured's private counsel to play an advisory role where the policy limit is exceeded.
Conflicts of Interest between an Insured Party and the Insurer
Conflicts of interests can affect the insurer's right to control the defense of an insured individual. Situations that result in a conflict of interest between the insurance company and the insured individual include situations in which the:
- Insurer alleges that the insured and the third party claimant are in collusion and attempting to defraud the insurer
- Actions of the insured might be deemed negligent or intentional such that the insurance company may claim contributory negligence, assumption of risk, or both and seek to have the jury find the intentional conduct outside the policy's coverage
- Strategic approach of the insurer's defense conflicts with the personal interests of the insured
If a conflict of interest arises between the insurer and an insured, the insured may be able to choose to refuse representation by the insurer's attorney and charge the insurer reasonable costs and attorneys fees from seeking his or her own defense.
Discharge of Duty to Defend
Different viewpoints exist regarding whether payment of proceeds in accordance with an insurance policy's limits discharges the insurance company's obligation to defend a claim against the insured. Some courts believe that once an insurance company has compensated the insured party the full amount for which it can be held liable under the policy, the insurance company has fulfilled its obligation to defend the insured. In addition, some courts take the position that the insurance company can discharge its duty to defend through satisfaction of a judgment, settlement with, or payment of the full policy limit to a third party claimant. The insured individual must then settle the claim against himself or herself on his or her own. Finally, some courts believe that an insurance company's duty to defend is independent of the obligation to compensate the insured; therefore, if the insurer pays the insured party the duty to defend still exists. However, if an insurance company begins to defend an insured, generally the insurer cannot prematurely withdraw from the litigation.
If your insurance company is not upholding its obligation to defend your claim or you have questions about your insurance claim, contact our firm to schedule a consultation with an attorney.
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