What does the term “Duty to Defend” mean?
A Duty to Defend Provision in a Liability Insurance policy makes it an obligation of the Insurance Company to provide legal defence against a lawsuit. The Insurance Company can choose the lawyers to defend the Insured in a lawsuit as well as decide whether to settle the case or take fight the case in a court under the duty to defend provision.
Under the Duty to Defend Provision, the Insurance Company is required to defend a claim if the allegations mentioned in the suit and if proven to be true, would require the Insurance Company to indemnify the insured. It is irrelevant that the allegations are later proven or not. Just the mere possibility that the allegation falls within the ambit of Liability Insurance Coverage obligates the Insurance Company to indemnify the Insured under the Duty to Defend Provision.
Thus, the Insurance Company’s obligation to defend the insured depend on the allegations mentioned in the suit and not on the fact that it is later established that the claim is not covered under the Insurance Policy.
The only circumstances where the Insurer can refuse his duty to defend would be if the allegation itself does not fall under the Policy Coverage or if the allegation falls within the list of exclusions. In that case, the Insurance Company is does not have an obligation to defend the Insured.
Who chooses the Defence Team under the Duty to Defend Provision?
Under the Duty to Defend Provision, the Insurance Company chooses the defence team and lawyers to defend the Insured. This is unlike the Right to Defend Provision where the Insured has the right to choose his own defence team to defend himself against a lawsuit. Therefore, the Insured has limited control over his own defence under the Duty to Defend Provision.
What does the term “Right to Defend” mean?
The term “Right to Defend” or “Duty to Indemnify” means the Insurer’s obligations to pay the legal costs and damages after the merits of the lawsuit have been decided or a settlement has been reached. The Insurance Company will pay the costs once the Insurer’s liability is established and the quantum of damages covered under the Policy have been determined.
What are the advantages and disadvantages of the Duty to Defend Provision?
Advantage of Duty to Defend Provision
Coverage for all Claims
A big advantage of Duty to Defend Provision is that it offers coverage for all potential claims. The coverage under the Duty to Defend Provision is triggered once the allegations fall within the ambit of the Policy. The Insurance Company bears all expenses in defending the Insured against the lawuit and the Insured will only have to pay the Deductible amount.
This is unlike the Right to Defend Provision where the Insured will have to defend himself against the lawsuit and pay the defence costs out of pocket. The Insurance Company will then reimburse the Insured once the merits of the case have been decided and it is clear that the Insurance Claim falls within the Policy coverage under the Right to Defend Provision.
Disadvantage of Duty to Defend Provision
Lesser Flexibility
Under the Duty to Defend Provision, the Insurance Company chooses the Defence team to defend the Insured and decides whether to settle the case or fight it in courts. The Insured thus has a lesser control over his own defence under the Duty to Defend Provision as compared to under Right to Defend Provision where he can choose his own lawyer and decide whether to settle his case or not.
Which type of Insurance Policies are issued under Duty to Defend Provision?
Following Liability Insurance Policies are generally issued under Duty to Defend Provision
Commercial General Liability Insurance Policy
Product Liability Insurance Policy
Public Liability Insurance Policy
Conclusion
It is important for the Insured to understand whether his Liability Insurance Policy is under Duty to Defend Provision or Right to Defend Provision and the scope of coverage under both. It is advisable to take the assistance of an expert insurance broker to obtain comprehensive coverage for your Insurance Policy.
If you require any assistance for your Insurance, Qian is an IRDA licensed Insurance Broker with an experience of serving clients across diverse industries. You can reach out to us at insurance@qian.co.in or call us on 022-22044989. We would be glad to assist you.