Duty to Defend – An Article for Zalma Substack Subscribers

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When liability insurance was first offered to the public it was concerned only with indemnity. As liability insurance developed, the concern about defense costs matured into clauses promising defense as well as indemnity — the so-called dual-promise policies.

These clauses have led to the development of a considerable body of law interpreting the agreements to defend. To properly investigate a casualty or liability claim for defense and indemnity, an adjuster must understand the history of the promise to defend and understand how it grew from the original promise to indemnify.

In RLI Ins. Co. v. Conseco, Inc.,[1] the Seventh Circuit denied a defense because a settlement agreement released any claims that the class members had arising out of the insureds’ manipulation of and false reporting regarding securities during 1999 and 2000. It was the same false reporting and manipulation alleged in the securities action that precipitated the underlying action.

Insurers who insure bars and other places where alcoholic beverages are sold are loathe to insure the bar against liability for barroom fights, acts of security personnel (bouncers), or any form of assault or battery. This concern is usually avoided by including in the policy wording, or an endorsement, a clear and unambiguous exclusion for any claim arising from an assault or a battery.

Plaintiffs’ lawyers recognize this fact and will therefore add to their pleadings allegations of negligence on the part of the bar or its owners to attempt to drag the insurer and its big pockets of cash into the case to compel a settlement that is less than the cost of defense.

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