The duty-to-defend clause in an insurance policy requires the insurance company to assume responsibility for defending the insured individual in a lawsuit initiated by a third party. This obligation is applicable only if the lawsuit pertains to matters covered by the insurance policy. A duty refers to a legal obligation to perform or refrain from certain actions. Various types of duties exist, such as the duty to prevent harm to others, the duty to act with honesty and fairness, or the duty to fulfil tax obligations.
A duty-to-defend clause in liability insurance requires the insurer to assume responsibility for defending the insured in any lawsuit filed by a third party for a claim covered by the policy. In other words, if the insured is sued for something that is covered by their insurance policy, the insurance company will provide legal representation and cover the costs of the defence. For instance, if a person has liability insurance for their vehicle and is involved in an accident that causes injury to another person, the insurance company will appoint a lawyer to defend the insured if the injured party files a lawsuit seeking compensation.
A duty-to-defend clause is a provision in an insurance policy that requires the insurer to defend the policyholder against any claims or lawsuits that fall within the scope of the policy.
General liability insurance policies, professional liability insurance policies, and directors and officers liability insurance policies typically include a duty-to-defend clause.
A duty-to-defend clause requires the insurer to defend the policyholder against claims or lawsuits, while an indemnification clause requires the insurer to pay damages or losses that the policyholder is legally obligated to pay.
If the insurer breaches its duty-to-defend obligation, the policyholder may be entitled to recover damages, including the costs of defending the claim or lawsuit.
In most cases, the insurer has the right to choose the defence attorney. However, the policyholder may be able to challenge the choice of attorney if there is a conflict of interest or if the attorney is not competent to handle the case.
If the insurer denies coverage, the policyholder may need to hire its own attorney to defend against the claim or lawsuit. The policyholder may also be able to challenge the denial of coverage through arbitration or litigation.
In most cases, the policyholder cannot settle a claim without the insurer’s consent. However, if the insurer breaches its duty-to-defend obligation, the policyholder may be able to settle the claim without the insurer’s consent.
The duty-to-settle obligation requires the insurer to settle a claim within the policy limits if it is reasonable to do so. If the insurer fails to settle a claim within the policy limits and the policyholder is later found liable for damages in excess of the policy limits, the insurer may be liable for the excess damages.
In most cases, the policyholder cannot waive the duty-to-defend clause. However, the policyholder may be able to negotiate with the insurer to modify the duty-to-defend clause or to purchase a policy without a duty-to-defend clause.
The policyholder should notify the insurer immediately and provide all relevant information about the claim or lawsuit. The policyholder should also cooperate with the insurer in the defence of the claim or lawsuit.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 16th April 2024.
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