duty to defend

The phrase “duty to defend” describes a liability insurance company’s obligation to pay for a lawyer to control the defense of a policyholder who has been sued by an injured plaintiff – an obligation that the insurer cannot lawfully discharge by itself because it is not licensed to practice law. As a financial institution like a bank, all the insurer can do is pay a lawyer to represent the policyholder. The policyholder “has the right to conduct such defenses, if he chooses to do so.” (Civ. Code sec. 2778(4) (ellipses omitted).)  However, most liability policies include language that successfully grants to the insurer the “right” to defend the policyholder. Some policies specify that the insurer may appoint defense counsel of its sole choice to defend the policyholder. In turn, the lawyer selected by the insurer must comply with applicable rules of ethics, specifically Rule 3-310 in California and ABA Model Rule 1.7. “Standard comprehensive or commercial general liability insurance policies provide that the insurer has a duty to defend the insured in any action brought against the insured seeking damages for any covered claim. [T]he duty to defend may be as important as the duty to indemnify. [T]he insurer’s duty to defend runs to claims that are merely potentially covered, in light of facts alleged or otherwise disclosed. It entails the rendering of a service, viz., the mounting and funding of a defense in order to avoid or at least minimize liability. It arises as soon as tender is made. It is discharged when the action is concluded. It may be extinguished earlier, if it is shown that no claim can in fact be covered. If it is so extinguished, however, it is extinguished only prospectively and not retroactively: before, the insurer had a duty to defend; after, it does not have a duty to defend further. Obviously, the insurer’s duty to defend is broader than its duty to indemnify. But, just as obviously, it is not unlimited. It extends beyond claims that are actually covered to those that are merely potentially so—but no further.” (Buss v. Superior Court (1997) 16 Cal.4th 35, 45-46.) See, Duty to Defend.

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