Insurance company’s duty to defend Lawyer Manual

The insurance company has a duty to defend its insured who has met the contractual obligations, even if it denies third-party claims.

For example, Bruce is insured by ABC Insurance. Bruce comes to a stop at a red light and is rear-ended by Lindsay, who is insured by XYZ Insurance. Bruce makes a claim with Lindsay’s insurance, XYZ Insurance, and never bothers to file a claim with his own insurance company ABC Insurance, believing that XYZ Insurance will surely “take care of it”. In the meantime, Lindsay also makes a first party claim with XYZ Insurance, under her collision coverage and her vehicle is repaired and paid for by XYZ Insurance. After its investigation, XYZ Insurance hires attorneys to file a subrogation, tort claim against Bruce for failing to keep a proper lookout, traveling at an excessive speed, stopping without warning and failing to keep a safe distance from the vehicle ahead of his. Bruce now brings the suit to his insurer, ABC Insurance, which denies his claim for failure to notify. That denial will most likely be upheld by the courts as Bruce had an obligation to notify his insurance company of the accident. Typically when the suit is finally filed, it’s quite sometime after the accident, and parties’ memories are not fresh and vehicles have been repaired or destroyed and the insurance company cannot conduct a proper investigation. If Bruce had notified ABC Insurance right away, brought his car in for an inspection and given his insurance company a statement, they would provide him with a defense when the suit arrives from XYZ Insurance and its insured, subrogor, Lindsay.

As for premiums, the policy of insurance will require the insured to pay the policy premiums. If the initial premium is not paid, the company is not likely to issue the policy, and if subsequent premiums are not timely paid, the policy will lapse or be canceled.