Duty To Defend – Step By Step Analysis


Whenever liability insurance coverage is uncertain or insufficient, the insurer analyzes coverage within 40 days of notice of the plaintiff’s lawsuit.[1] Both the policyholder and the plaintiff may do the same, as each may have interests to protect that are contrary to the interests of the insurer.


To analyze the duty to defend, one should read the plaintiff’s complaint and the policy.[2] Because the insurer’s denial letter must list all factual and legal bases for the denial, state all reasons for the denial, and identify all specific policy provisions relied upon,[3] the scope of analysis may be limited to those issues raised by the insurer as a ground for denying all coverage. Additional facts nor found in these documents may also be sufficient to trigger an insurer’s duty to defend.[4] Thus, the materials necessary to properly analyze the duty to defend include:

•           Plaintiff’s complaint;

•           Defendant’s insurance policy;

•           Insurer’s coverage letter;

•           Additional acts relevant to coverage.


Liability insurance policies are contracts that are highly structured.[5] As delivered by an insurance agent, the contract often appears to be disorganized. Often, the document will start with various notices, then declarations pages, then endorsements, then the jacket, then more endorsements. When a policyholder renews a policy, the agent usually delivers only changes to the policy, not the complete document. To the uninitiated, it may seem very difficult to find where the insurer has promised anything to the policyholder.

1.   Step One: Inventory the Policy

Locate and copy one or more pages that list policy forms. This list will include alpha-numeric sequences that identify policy form numbers. On other pages of the policy, these alpha-numeric sequences are preprinted on the margin of each page, usually at the bottom. With the copy of the page(s) identifying policy forms, do an inventory to be sure that all forms are present.

2.   Step Two: Locate the Jacket

Locate the policy jacket.[6] The jacket is the basic contract form. The jacket is often identified as a “coverage form.” Strangely, it is usually found somewhere in the middle of the stack of papers that constitutes the contract. It is a relatively long form with often page numbers such as “1 of 15” on the bottom margin. Often the jacket will state something like: “Section I – Coverages / Coverage A – Bodily Injury and Property Damage Liability / 1. Insuring Agreement. The Jacket will include the insuring agreement(s), definitions, conditions, and exclusions.

3.   Step Three: Read the Promise to Indemnify

Read the insuring agreement(s) in the jacket. Usually a single sentence expresses the insurer’s promise to indemnify. For example: “a. We will pay those sums that the Insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”[7] Although most insurers use industry wide forms developed by the Insurance Services Office (Look for “ISO” on policy forms), policy language does differ and proper analysis of the duty to defend requires a careful reading of the actual language used.[8] Many terms that are in quotation marks or are capitalized may have special meaning, usually found in the “definitions” section of the jacket.

Good working assumptions as to the meaning of the promise to indemnify include the following:

•           The insurer has no duty to indemnify until a final judgment has been entered (“the Insured becomes legally obligated to pay”)[9];

•           The insurer has no duty to indemnify for any non-monetary form of relief (“legally obligated to pay as damages”);

•           The insurer has no duty to indemnify for any monetary damage except for bleeding injuries (see definition of “bodily injury”) or physical injury to or loss of use of tangible property (see definition of “property damage”)

•           The duty to indemnify is subject to all of language of the endorsements, definitions, conditions, and exclusions (“to which this insurance applies”).

•           It is usually extremely difficult, if not impossible, to determine whether the insurer will have a duty to indemnify until the plaintiff’s lawsuit is litigated to conclusion.

4.   Step Four: Read the Promise to Defend

Continue reading the insuring agreement(s) in the jacket to find another single sentence expressing the insurer’s promise to defend. For example: “We will have the right and duty to defend the Insured against any ‘suit’ seeking those damages.”[10] However, a defaulting insurer usually loses any right to control the defense.[11]

Good working assumptions as to the meaning of promise to defend include the following:

•           The insurer will routinely take control of the policyholder’s defense (“We will have the right to defend the Insured”).[12] No reported California cases decide whether this language is sufficient to require the policyholder to yield statutory control of the defense[13];

•           The only language in the policy describing the promise to defend is in this sentence (“We will have the duty to defend”)[14];

•           The insurer need provide a defense only to persons who qualify as an insured (“defend the Insured”). The Jacket usually includes a description of Who Is An Insured;

•           The insurer’s duty to defend does not begin until a complaint has been filed (“defend any ‘suit’”);

•           While the promise to indemnify is limited to judgment “to which this insurance applies”, no such limitation applies to the promise to defend. The duty to defend ripens is a complaint is “seeking those damages”.

5.   Step Five: Understand the Synergy

Cogitate about the synergy between the promise to defend and the promise to indemnify.

Good working assumptions as to this synergy emerge from the Civil Code:

•           If the insurer owes a duty to defend but fails to do so, a judgment suffered by the policyholder in good faith is conclusively binding on the defaulting insurer.[15]

•           If the insurer is not notified of the plaintiff’s lawsuit or the insurer is not allowed to control the defense, the insurer may be allowed to relitigate issues otherwise resolved by a judgment against the policyholder[16];

•           A stipulated judgment with a covenant not to execute may not be enforceable against a performing insurer.[17]

6.   Step Six: Scan the Remainder of the Policy

Scan the remainder of the policy[18] for endorsements that may change the meaning of the insuring agreement. However, because the duty to defend is broader than the duty to indemnify[19], it is very difficult for an insurer to avoid its duty to defend based upon exclusions, conditions, or limitations in the policy.[20]


Review the plaintiff’s complaint, the policy and insurer’s letter expressing its coverage analysis. Make an informed and logical decision whether the allegations of the complaint assert a claim that is potentially covered for indemnity by the policy, giving special attention to any reasons given by the insurer for its coverage position. If potential coverage appears from these three documents, the insurer has a duty to defend.

If a comparison of the complaint and the policy does not show the potential for indemnity coverage and the insurer has denied a duty to defend, consider providing additional facts showing potential to the insurer, amending the complaint to plead into coverage, and settling the lawsuit and suing the insurer from breach of the duty to defend.

[1] See, Reg. § 2695.7(b).

[2] “The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. [T]he existence of a duty to defend turns upon those facts known by the insurer at the inception of a third party lawsuit. [T]he duty may exist even where coverage is in doubt and ultimately does not develop.” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295 (Montrose I) (citations, ellipses, and quotation marks omitted).)

[3] “[E]very insurer shall immediately, but in no event more than forty (40) calendar days later, accept or deny the claim, in whole or in part. (1) Where an insurer denies or rejects a first party claim, in whole or in part, it shall do so in writing and shall provide to the claimant a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer’s knowledge. Where an insurer’s denial of a first party claim, in whole or in part, is based on a specific policy provision, condition or exclusion, the written denial shall include reference thereto and provide an explanation of the application of the provision, condition or exclusion to the claim. Every insurer that denies or rejects a third party claim, in whole or in part, or disputes liability or damages shall do so in writing.” (Reg. § 2695.7(b).)

[4] “Facts extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy.” (Montrose I, supra, 6 Cal.4th at 295.)

[8] See, Articles: Contract Interpretation and Various Policy Language.

[9] “Upon an indemnity against liability, the person indemnified is entitled to recover upon becoming liable.” (Civil Code §2778(1) (ellipsis omitted).)

[11] See, Article: Defaulting Insurer Forfeits Control of the Defense.

[12] See, Article: Control of the Defense.

[13] “The person indemnifying [the insurer] is bound, on request of the person indemnified [the policyholder], to defend actions or proceedings brought against the [policyholder] in respect to the matters embraced by the indemnity, but the person indemnified [the policyholder] has the right to conduct such defenses, if he chooses to do so.” (Civil Code §2778(4).)

[14] See, Article: Duty to Defend.

[15] “If, after request, the person indemnifying [the insurer] neglects to defend the person indemnified [the policyholder], a recovery against the [policyholder] suffered by him in good faith, is conclusive in his [the policyholder’s] favor against the former [the insurer]” (Civil Code §2778(5).)

[16] “If the person indemnifying [the insurer] has not reasonable notice of the action against the person indemnified [the policyholder], or is not allowed to control its defense, judgment against the latter [the policyholder] is only presumptive evidence against the former [the insurer]” (Civil Code §2778(6) (ellipses omitted).)

[17] “A stipulation that a judgment against the person indemnified [the policyholder] shall be conclusive upon the person indemnifying [the insurer], is inapplicable if he had a good defense upon the merits, which by want of ordinary care he [the policyholder] failed to establish in the action.” (Civil Code §2778(7).)

[19] “The duty to defend is broader than the duty to indemnify, and it may apply even in an action where no damages are ultimately awarded.” Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.)

[20] “[T]he insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot. Facts merely tending to show that the claim is not covered, or may not be covered, but are insufficient to eliminate the possibility that resultant damages (or the nature of the action) will fall within the scope of coverage, therefore add no weight to the scales. Any seeming disparity in the respective burdens merely reflects the substantive law.” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300.)

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