None

When Does the Carrier’s Duty to Defend End?

Several weeks ago the VU addressed an insurance carrier's duty to defend. As presented in the previous article, an insurer's duty to defend flows from the facts alleged in the lawsuit compared to the coverage provided. When the pleadings allege damage or injury that is covered by the policy, the insurance carrier has a duty to defend, regardless of whether the insured is ultimately liable and/or the insurer has a duty to indemnify. Conversely, when the pleadings allege facts or events not covered by the policy, the carrier is not obligated to defend.

Because it seems self-evident, an issue not addressed in the prior article was the point at which the insurance carrier no longerhas a duty to defend. Law and policy language seem to clearly indicate the insurance carrier's duty to defend ends when there are no longer any allegations in the suit covered by the insurance policy.

One court stated, “The duty to defend arises when the original complaint alleges a state of facts within the coverage of the policy."
Policy language commonly reads, “However, we will have no duty to defend the insured against any "suit" … to which this insurance does not apply."

Undoubtedly the carrier's duty to defend ends when any and all allegations potentially covered by the subject policy are dismissed. Wanna bet? Several often-cited court cases disagree with this contention, asserting that the insurance carrier's duty to defend ends only when an appeal is no longer available. Essentially, if an allegation that would be covered by the policy can still be resurrected on appeal, the insurance carrier must continue defending even if the remaining allegations are unquestionably excluded or otherwise not covered by the policy.

Imagine this, initially the insurance carrier must defend its insured because one count of a 10-count suit is covered by the policy. Ultimately, that one allegation is thrown out; this decision should release the carrier from any duty to defend the other nine uncovered allegations. The carrier is ready to walk away, but the court calls them back saying, “Hey, the defendant can still appeal this finding; and until all appeals are spent, you must provide a defense." The insurance carrier is left defending allegations for which there is clearly no coverage because there is still a potential for a covered claim.

Example Case Law

Five court decisions are regularly cited to support the finding that the insurance carrier's duty to defend remains until all possibilities of resurrecting a covered allegation are gone:

Commerce & Industry Insurance Co. v. Bank of Hawaii: “An insurer has a duty to proceed in defense of a suit to the point of establishing that liability upon which the plaintiff is relying is in fact not covered by the policy, and not merely that it might not be. The duty to defend continues until the potential for liability is finally resolved…." The court held that as long as there was potential liability (if the covered charge could be brought back by appeal), the carrier had to defend.
Meadowbrook, Inc. v. Tower Insurance Co.: “Although we are not bound by the Hawaii decision, we adopt its reasoning and hold that an insurer cannot withdraw from a defense until its duty to defend all arguably covered claims has been completely extinguished — in other words, when no further rights to appeal those arguably covered claims exist." Minnesota adopted the Commerce wording with this finding.
Brewer v. Village of Old Field: “An insurer must defend even if covered claims are dismissed by the Court leaving only non-covered claims remaining…. there never has been any assurance that the case ultimately could not result in insured liability. Among the possibilities were amendment of the pleadings at trial…." Again, because the complaint could be amended, or the covered allegation brought back by appeal, the insurer must defend.
Wells' Dairy, Inc. v. Travelers Indemnity Co. of Ill.: “[T]he court concludes that all the arguably covered claims against Wells have not been completely extinguished by the summary judgment ruling in the Pillsbury state court action because Pillsbury's right to appeal from that decision continues to exist. As such, the court further concludes that the summary judgment decision in the Pillsbury state court action does not alter Travelers's duty to defend Wells in that case." The right to appeal results in the requirement that the insurer continue to defend even though all covered claims were dismissed by a lower court.
Westfield Ins. Co. v. TWT, Inc.: “Plaintiff argues that because [the] cross-complaint was later dismissed without prejudice, by agreement of the parties, it cannot give rise to a duty to defend. However, the evaluation of the duty to defend must occur at the outset of the claim. And the cross-complaint may be reasserted at any time. Therefore, this court does not believe that the dismissal of the cross-complaint eliminates the duty to defend." As highlighted previously, because the covered complaint could be reasserted, the insurer still has a duty to defend even though no covered claims are part of the remaining complaint.

Understanding the Court

Policy language and even other court findings tend to support the position that a carrier's duty to defend ends when there is no longer any charge or complaint before the court potentially triggering coverage. In fact, holding otherwise seems to punish the insurance carrier for extending any coverage. However, the logic applied by some courts is that the potential for a covered claim is just as important as an actually covered claim.

While there may be some logic in this thought process, it does penalize the carrier. Is it any wonder why an insurance carrier would seek to deny coverage up front?

Depending on the jurisdiction, the carrier may be released when all coverable charges are released, or they may be on the hook until all possible attempts to reassert a covered claim are spent – even to the point of defending an insured even though there is never a chance they will have to indemnify or pay on behalf of the insured.

Last Updated: March 2, 2018