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Liability Insurance

Invisible Ink: The Duty To Defend When There Is No Duty To Defend

Steven Rawls | May 1, 2010

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An insurer's duty to defend is purely contractual; if the language of the insurance contract does not impose an obligation to defend, the insurer has no duty to defend. Rosati v. Vaillancourt, 848 So. 2d 467, 472 (Fla. Dist. Ct. App. 2003) (citing 14 Couch on Insurance 2d § 51.35 (1982); 7c Appleman, Insurance Law & Practice § 4682 (1979)).

An insurer's duty to defend is separate and distinct from the obligation to pay claims under a policy, e.g., Jackson Housing Auth. v. Auto Owners Ins. Co., 686 S.W.2d 917 (Tenn. App. 1984). Courts routinely characterize the duty to defend as broader than the duty to indemnify. Montrose Chem. Corp. v. Superior Ct., 861 P.2d 1153, 1157 (Cal. 1993). 1Moreover:

where a complaint against an insured contains allegations which are partially within and partially without the scope of the insured's coverage, the carrier must defend against even those portions of the complaint outside the coverage.

Garden Sanctuary, Inc. v. Insurance Co. of N. Am., 292 So. 2d 75, 78 (Fla. Dist. Ct. App. 1974).

CGL Policy Language

The insuring agreement of older general liability policy forms provided:

The company will pay on behalf of the insured all sums ... to which this insurance applies, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent.

The insuring agreement in the standard Insurance Services Office, Inc. (ISO) commercial general liability (CGL) policy form today states:

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. We will have the right and duty to defend any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply.

Courts apply traditional rules of contract interpretation to construe insurance policies. Thus insurance contracts must be construed in accordance with the plain language of the policy, e.g., Auto Owners Ins. Co. v. Anderson, 756 So. 2d 29 (Fla. 2000). Policy language is ambiguous when it is capable of two or more reasonable constructions, e.g., Amerigraphics, Inc. v. Mercury Cas. Co., 2010 WL 1038675 (Cal. App. 2010). Ambiguous policy language is construed against the drafter and therefore in favor of the insured, e.g., Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455 (Tex. 1997). Coverage provisions are construed broadly and exclusions from coverage are construed narrowly, e.g., General Cas. Co. of Wis. v. Wozniak Travel, Inc., 762 N.W.2d 572, 575 (Minn. 2009). However, courts will not rewrite the insurance policy to find ambiguity where none exists, e.g., Syed Shah v. State Farm Mut. Auto. Ins. Co., 377 F. Supp. 2d 748 (D. N.D. 2005).

The Duty To Defend Uncovered Allegations

Courts consider it axiomatic that:

the duty to defend is so broad that as long as the complaint contains language creating the potential of liability under an insurance policy, the insurer must defend an action against its insured even though it has independent knowledge of the facts not in the pleadings that establish that the claim is not covered.

Travelers Indem. Co. of Ill. v. Insurance Co. of N. Am., 886 F. Supp. 1520 (S.D. Cal. 1995) (citation omitted) (emphasis in original).

For this reason, when a policy represents that it will provide the insured with a defense, we have said that it actually constitutes "litigation insurance" in addition to liability coverage.

Automobile Ins. Co. of Hartford v. Cook, 850 N.E.2d 1152, 1155 (N.Y. 2006) (citation omitted).

In Garden Sanctuary, supra, a Florida appellate court addressed whether an insurer was required to defend all claims presented in a mixed complaint where some clearly fell outside of the policy coverage. Looking at other jurisdictions and treatises, the court first determined that the majority of courts:

agree that the mere fact that the complaint includes allegations outside the scope of the coverage does not provide the insurer an excuse not to defend the suit at all.

Garden Sanctuary at 77–78.

In Garden Sanctuary, upon receipt of the four-count complaint, the insurer immediately notified the insured that the first two counts (both for injunctive relief) were not covered and declined to defend. Garden Sanctuary hired separate counsel, settled those claims and filed suit against the insurer for breach of contract. The lower court dismissed the complaint against the insurer. Although the appellate court agreed that the policy did not cover injunctive relief, the appellate court reinstated the complaint against the insurer because counts three and four of the complaint against the insured fell within the coverage afforded by the policy.

In holding that an insurer had a duty to defend the entire complaint against its insured, including the noncovered claims, the court explained:

The language of the insurance policy does nothing to strengthen [the insurance company's] position because it provides that the company shall "defend any suit" against the insured alleging an injury and seeking damages within the scope of the coverage even if the suit is groundless, false or fraudulent. The policy does not limit the company's obligation to defend only that portion of a suit alleging matters within the coverage of the policy.

Garden Sanctuary at 78.

Similarly, in Horace Mann Ins. Co. v. Barbara B., 846 P.2d 792, 794 (Cal. 1993), the Supreme Court of California reversed summary judgment in favor of the insurer finding that unresolved issues of fact existed "as to the insurer's potential liability ... based on misconduct separable from the sexual molestation" which required the insurer to defend. Barbara B. and her parents sued her seventh grade band teacher, the school district, and others alleging injuries resulting from the band teacher's intentional and negligent sexual molestation and other harassing conduct. In reviewing the allegations of the complaint, the Supreme Court of California noted that:

The flaw in Horace Mann's reasoning is its unsupported assumption that the other alleged misconduct necessarily was part of the molestation and not in the course of [the teacher's] educational activities. ... Since an insurer has a duty to defend the entire third-party action if any claim encompassed within it potentially may be covered ... the mere fact that Horace Mann could not indemnify [the teacher] for the molestation did not eliminate its duty to defend other, possibly covered claims.

Horace Mann at 796–8.

Of the lower court's conclusion that if facts stated in the complaint or otherwise brought to the insurer's attention will not support any damages within the scope of the policy, then there is no potential for coverage and therefore no duty to defend, the Supreme Court of California stated:

This conclusion ignores the insurer's promise to defend the insured against groundless, false, and fraudulent claims. An insured buys liability insurance in large part to secure a defense against all claims potentially within policy coverage, even frivolous claims unjustly brought. To adopt the reasoning of the Court of Appeal would be to read out of existence the "groundless, false, or fraudulent" clause that is universally common in liability insurance policies.

Horace Mann at 799.

As described by Horace Mann, the effect of the older insuring language is to:

relieve the insured of the burden of defending even those suits which have no basis in fact, ... whenever the complaint filed by the injured party may potentially come within the coverage of the policy.

Gedeon v. State Farm Mut. Auto. Ins. Co., 188 A.2d 320, 321–2 (Pa. 1963) (citation omitted) (emphasis in original).

The natural and reasonable meaning of the [plain and concise] terms of the policy leaves no doubt that the defendant agreed to undertake the defense of such a suit as was brought against its insured.

International Paper Co. v. Continental Cas. Co., 320 N.E.2d 619, 621 (N.Y. 1974).

If, liberally constructed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be.

Cook, supra, at 1155. Therefore:

The purpose of the insured ... under defendant's policy was to obtain protection against the expense of defending suits, whether meritorious or groundless, within the area and scope of liability covered by the policy.

Dempster Bros., Inc., v. U.S. Fid. & Guar. Co., 388 S.W.2d 153, 155 (Tenn. App. 1965).

These cases rely on older policy language in determining that the insurer is obligated to defend clearly uncovered claims when part of an action contains potentially covered claims. Courts typically identify two reasons for this. First, the insurer agreed to defend "any suit," and the policy language did not limit the defense obligation to only the covered portion of the suit. Second, the insured's purpose in purchasing a liability policy was to insure against litigation costs.

Buss v. Superior Court: Public Policy

Buss v. Superior Ct., 939 P.2d 766, (Cal. 1997), 2 is one of the few cases that addresses the propriety of requiring an insurer to defend noncovered claims joined with covered claims. The insuring agreements in Buss required the insurer to defend claims "to which this insurance applies." In discussing the insurer's defense obligation, the Supreme Court of California did not explicitly address this change from the older policy language. The court relied on principles from older cases, including Horace Mann and Montrose Chem. Corp. v. Superior Ct., 861 P.2d 1153 (Cal. 1993), construing the older policy language to require a defense "even if any of the allegations of the suit are groundless, false or fraudulent." Thus, while the duty to defend is obviously broader than the duty to indemnify:

it is not unlimited. It extends beyond claims that are actually covered to those that are merely potentially so—but no further.

Buss at 773 (citations omitted).

The Buss court explained that the policy requires an insurer to defend where all of the claims are at least potentially covered and that an insurer has no duty to defend where none of the claims are even potentially covered. This "rests on the fact that the insurer has been paid premiums by the insured for a defense." See Buss at 774. Conversely, "'[t]he insurer has not contracted to pay defense costs' for claims that are not even potentially covered." Id. (citations omitted).

Thus, in a mixed action, the insurer has a duty to defend the claims that are potentially covered, "having been paid premiums by the insured therefor," but does not have a duty to defend uncovered claims, "having not been paid therefor." Id. Despite this clear statement of the policy defense obligations, the court reiterated that, "we have nevertheless held that, in a 'mixed' action, the insurer has a duty to defend the action in its entirety." Buss at 775.

While the Supreme Court of California clearly stated that there was no contractual language that required an insurer to defend uncovered claims present in a mixed action, the court was concerned that implementing this principle would "substantially reduce the likelihood that individual insureds will be left defenseless." To avoid this result, the court explained:

We can, and do, justify the insurer's duty to defend the entire "mixed" action prophylactically, as an obligation imposed by law in support of the policy.

Id., n. 11. Citing Montrose, supra, the court explained that:

To defend meaningfully, the insurer must defend immediately. [And t]o defend immediately, it must defend entirely. It cannot parse the claims, dividing those that are at least potentially covered from those that are not.

Id. Echoing a concern identified in Garden Sanctuary, in light of the "plasticity of modern pleading," parsing claims is time consuming and futile. Id. (citation omitted).

The fact remains: As to the claims that are at least potentially covered, the insurer gives, and the insured gets, just what they bargained for, namely, the mounting and funding of a defense. But as to the claims that are not, the insurer may give, and the insured may get, more than they agreed, depending on whether defense of these claims necessitates any additional costs.

Buss at 775.

The insurer's remedy for providing a defense that the insurance contract did not require was to recognize the insurer's "implied-in-law quasi-contractual right" of reimbursement for the costs of defending claims not even potentially covered under the policy, presumably to counter the inherent inequity in imposing such a duty on the insurer despite the policy language.


Although it is clear that an insurer currently has a duty to defend uncovered claims when joined in an action with claims potentially covered by the policy, whether such a sweeping obligation will continue is not as clear. The modern policy language counters the Garden Sanctuary rationale because the policy language now limits the insurer's duty to defending suits seeking damages "to which this insurance applies" and expressly states that the insurer has no duty to defend suits seeking damages "to which this insurance does not apply." The Buss court impliedly recognized the effect of the change in the insuring agreement and, relying on reasons of public policy and judicial economy, required an insurer to continue to defend the entire mixed action.

Contributing author Rebecca C. Appelbaum is a senior associate practicing in the area of third party coverage at the firm of Butler Pappas Weihmuller Katz Craig, LLP.

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1 Applying the eight-corners rule in Pine Oak Bldrs., Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009), the Supreme Court of Texas found that an insurer did not have a duty to defend where a complaint did not trigger this obligation despite actual facts that might potentially give rise to a duty to indemnify.

Buss is well known for recognizing an insurer's right to reimbursement of certain defense costs. Issues related to the reimbursement process are outside the scope of this article (and was the subject of a separate article here published in July 2005, "Insurers: Can You Get Your Defense Dollars Back?").