The duties to defend and indemnify are two similar yet distinct obligations that insurance companies often have with respect to their policyholders. Understanding these twin benefits is important to ensuring you receive the full value of your policy and don’t have to pay unnecessarily out of pocket. An attorney can assist if your insurance company is refusing to honor these duties.
What the Duty to Defend Covers
The duty to defend exists when, under the terms of the insurance policy, the insurer has an obligation to pay for the policyholder’s legal defense. This generally happens when a claim presents a potential for coverage. In California, this duty is broad and may apply even if the claim ultimately turns out not to be covered under the policy.
What the Duty to Indemnify Covers
On the other hand, a duty to indemnify concerns the insurance company’s obligation to pay covered damages or liability. The duty applies when the policyholder becomes legally responsible for a loss. Indemnification typically depends on the facts actually established in the underlying action against the policyholder, not merely on the claim being potentially covered.
When Your Insurer Defends Under a Reservation of Rights
An insurer often agrees to defend while reserving the right to deny coverage later. That creates a problem, the defense lawyer is chosen and paid by the insurer, but the way the underlying case is litigated may affect whether the insurer ends up owing anything at all. Where that conflict exists, California law gives the insured the right to independent counsel of their own choosing, paid for by the insurer, under Civil Code section 2860. Lawyers often call this Cumis counsel. Not every reservation of rights creates the conflict, and the statute places limits on rates and on the qualifications of independent counsel, so it is worth having the reservation letter reviewed.
Why You May Need an Attorney
An attorney can not only explain the differences between these duties and the specific obligations of your insurer, but can provide guidance and help with legal action if the insurer denies one or both.
In California the duty to defend is substantially broader than the duty to indemnify, and the burden falls on the insurer. To refuse a defense outright, the insurer has to establish there is no potential for coverage under any theory the claim could support. Doubt is generally resolved in favor of the insured. The duty to indemnify is narrower, since it depends on what the underlying case actually establishes rather than on what it might. Either way, the policyholder may be able to take legal action to determine what the insurance company’s coverage obligations are and whether the claim was handled correctly.
Complex Issues. Simple Explanations.
I can explore the above and related issues with you, such as who should pay defense costs, how legal counsel is selected, reservation of rights, policy limits, and exclusions. If the insurance company’s refusal to honor either duty is baseless, it may be possible to file a breach of contract lawsuit, seek reimbursement, and avail yourself of other options. Reach out and let’s start a conversation to learn more. I meet with clients in English, Armenian, and Russian.