Duty to Defend: Step by Step Analysis


Analyzing the duty to defend is much simpler and quicker than analyzing the duty to indemnify. Policyholders, plaintiffs, nor their counsel may avoid hiring a “coverage expert” to evaluate the correctness of an insurer’s denial of the duty to defend. Understanding the duty to defend is simple because the duty to defend is triggered by “potential” indemnify coverage. A policyholder usually need only show that it is conceivable that the plaintiff’s lawsuit could result in a covered judgment.[1] The burden then shifts to the insurer to prove conclusively that it cannot.[2]


A typical liability policy has five qualifiers which must be satisfied to trigger the obligation to defend: who, what, how, when and where. If truthful evidence establishes that all five qualifiers are true, then the insurer should agree to defend.

To analyze the presence of all five qualifiers, ask: Does the complaint:

1.   identify a defendant as an insured? (Who)

2.   seek the kind of damage covered for indemnity? (What)

3.   allege the kind of activity covered for indemnity? (How)

4.   allege loss during the period of time covered by the policy? (When)

5.   allege loss within the coverage territory? (Where)


Read Article: Duty to Defend,[3] the plaintiff’s complaint, the insurer’s denial letter, and the insuring agreement and a few other policy provisions. The insurer’s denial letter usually forms a guide to help a policyholder shape a response.[4]


The policyholder/defendant seeking coverage must qualify as an “insured” identified by the policy language. The declarations page usually identifies the “named insured.” A provision typically entitled “Who Is An Insured” identifies others who are also protected by the policy as additional insureds. These often include officers, directors and employees of the named insured. Sometimes an endorsement will identify insureds.


A phrase in the insuring agreement such as “damages because of ‘bodily injury’, ‘property damage’, ‘personal injury’, or ‘advertising injury’” requires that the plaintiff’s complaint must seek to recover loss for the limited type of damage identified in the policy. Terms in quotation marks are typically defined in the “definitions” portion of the policy. “Bodily injury” is typically defined in the policy to mean: “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” “Property damage” is typically defined in the policy to mean: “Physical injury to tangible property, including all resulting loss of use of that property.” “Personal injury” and “advertising injury” are usually defined to include a discrete list of offenses, such as malicious prosecution, invasion of privacy, and wrongful eviction. Not all liability policies insure for all of these typical “what” qualifiers.


Liability policies include language identifying how loss happened. The word “occurrence” in a typical CGL insuring agreement requires that the plaintiff’s complaint seek to recover loss caused by a qualifying activity. “Occurrence” is typically defined in the policy to mean: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”[5] A lawsuit may allege one or more “occurrences.” If there are multiple occurrences, the policyholder may have to pay more than one deductible and/or the insurer may have to pay more than one per occurrence policy limit. Not all policies require an “occurrence” as a “how” qualifier. For example, the activity required to establish coverage under a typical professional liability policy requires that the insured commit an “act or omission [in] the performance of professional services for another.”


The phrase “during the policy period” in a typical CGL insuring agreement requires that the plaintiff’s complaint must seek to recover loss that happened during an identified period of time. The “policy period” is typically a one year period specified on the declarations page. However, case law addresses whether the wrongful act of the policyholder, the resulting damage, or both must happen during the policy period. Also, case law addresses whether a policy covers an activity which happened during the policy period but results in damage after the policy period. Also some CGL policies include language seeking to limit coverage to damage that “first occurred” during the policy period. The intent of such language is to not cover damage which started prior to the policy inception but continues into the policy period. Some CGL policies also include language seeking to limit coverage if an policyholder knew of damage prior to the policy period. Not all policies require that damage “occur” during the policy period as a “when” qualifier. For example, a typical professional liability policy may be triggered by when a “claim” is made rather than when the damage happened.


The phrase “coverage territory” in the insuring agreement requires that the plaintiff’s complaint must seek to recover loss that happened in an identified geographical area. “Coverage territory” is typically defined in the policy to mean: “The United States of America” or “anywhere in the world.” Thus, rarely does the “where” qualifier defeat coverage.


If the foregoing analysis yields a conclusion that the insurer is undeniably correct in denying coverage, the policyholder and/or plaintiff may decide to simply accept its decision to deny coverage. If analysis shows that the insurer is justified in denying coverage, but it has failed to consider certain allegations and/or additional facts, the policyholder and/or plaintiff may decide to urge the insurer to reconsider its denial.[6] If the analysis demonstrates that the insurer is clearly wrong in denying coverage, the policyholder and/or plaintiff may consider the options to settle or adjudicate and sue the defaulting insurer.[7]

Since the duty to defend arises from a comparison of the language of the policy to the allegations of the complaint, the plaintiff has a great deal of influence over the “potential” for coverage. Therefore securing coverage may provide an incentive for the plaintiff and the policyholder to cooperate with one another to resist a wrongful denial of coverage by the insurer.[8]


Nearly a half century ago, the Supreme Court held that “if the insurer adequately reserves its right to assert the noncoverage defense later, it will not be bound by the judgment. [After the liability suit is resolved,] the insurer can raise the noncoverage defense previously reserved.”[9] The Supreme Court has decreed that certain rights must be specifically reserved.[10] However, since then no reported California published opinion assesses whether any particular reservation is “adequate.” Thus, California law is not clear whether an insurer that reserves “all” rights to deny coverage has “adequately” reserved its rights.

[1] “[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. 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. 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. For an insurer, the existence of a duty to defend turns not upon the ultimate adjudication of coverage under its policy of insurance, but upon those facts known by the insurer at the inception of a third party lawsuit. Hence, the 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) (Citations, quotation marks and ellipses omitted).)

[2] “To prevail [on a motion for summary adjudication], the 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.” (Id. at 300.)

[3] Nature of the Duty to Defend supplements fn. 1 & 2. For more, consider reading, Model Pleading: Plaintiff’s Trial Brief – A Comprehensive Overview of the Law of the Duty to Defend.

[4] “[E]very insurer … shall . . . accept or deny the claim, in whole or in part. . . 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. [If] based on a specific policy provision . . ., the written denial shall include reference thereto and provide an explanation of the application of the provision, condition or exclusion to the claim.” (Code of Regulations, §2695.7(b).)

[5] “No all-inclusive definition of the word ‘accident’ can be given . . . as a source and cause of damage to property, within the terms of an accident policy, [accident] is an unexpected, unforeseen, or undesigned happening or consequence from either a known or unknown cause.” (Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 559.)

[6] See Articles: Plead Into Coverage Properly and Testifying Into Coverage Truthfully.

[7] See Article: Settle and Sue and Adjudicate and Sue.

[8] See Article: Line Dividing Cooperation from Collusion.

[9] Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 279.

[10] Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489, 502( “[T]he prerequisites for seeking reimbursement for noncovered claims include[] a timely and express reservation of rights.”); see also, Buss v. Superior Court (1997) 16 Cal.4th 35, 61, fn. 27. (“[I]n order to obtain reimbursement for defense costs, the insurer must reserve its right thereto. To the extent that this right is implied in law as quasi-contractual, it must indeed be reserved.”).

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