Obligations of Insurer and Policyholder E-book
April 26, 2021
3rd Edition 2017, Supplement 2020
The liability insurance relationship is primarily one of contract, with the insurance policy as the principal source of the parties’ obligations. As with other types of insurance, the duties of the parties—and the consequences of breaching those duties—are affected by government regulation, primarily in the form of state statutes addressing insurer conduct. Another source of law affecting insur-ance obligations is the judiciary. As liability insurance disputes have become a staple of the courts’ civil dockets, recurring issues have generated a significant body of common law on the obligations of insurers and policyholders. Never-theless, in any study of the obligations of insurer and insured under liability cov-erages, there is no avoiding the oft-used insurer admonition, “Read your policy.”
The Duty to Defend
The defense provisions of CGL policies have been aptly referred to as “litigation insurance.” Rubenstein v. Royal Ins. Co. of Am., 429 Mass. 355, 358 (1999). As stated by the Supreme Judicial Court in Rubenstein:
[T]he promise to defend the insured, as well as the promise to indemnify, is the consideration received by the insured for payment of the policy premiums. Although the type of policy here considered is most often referred to as liability insurance, it is “litigation insurance” as well, protecting the insured from the expense of defending suits brought against him.
Rubenstein v. Royal Ins. Co. of Am., 429 Mass. at 358 (quoting Brohawn v. Transamerica Ins. Co., 347 A.2d 842, 851 (Md. 1975)). The obligation is not merely one of reimbursement. Essential to the CGL defense concept is the undertaking of “responsibility for defending the insured,” Rubenstein v. Royal Ins. Co. of Am., 429 Mass. at 358, which means assuming the burden of retaining, supervising, and compensating the defense team, including defense counsel.
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