As our first substantive liability blog, I want to talk about the duty to defend. Most attorneys recognize that the duty to defend is a broad duty – one broader than the duty to indemnify. But, the breadth of that duty has a side effect that some lawyers have not anticipated. If, after looking at the duty to defend, not a single allegation of the Complaint would raise a duty to defend, then by necessity, there cannot be a duty to indemnify. If the duty to defend is broader than the duty to indemnify, and analysis of the Complaint or claims against the insured show that there is no duty to defend, then there can never be a duty to indemnify.
In these cases, it is entirely appropriate for an insurer simply to disclaim coverage and, effectively, walk about from the claim or suit. There is no reason for the insurance carrier to remain involved if the duty to defend does not exist. I am often met with an objection when a defense is withdrawn of – “but you don’t know what will happen.” If the duty to defend does not exist, then what happens in that suit, where no duty to defend exists – is really a moot point. If the broad duty cannot exist, the specific duty of indemnity cannot exist.
Case law holds that this conclusion is based upon “logic and common sense,” and the cases hold that logic and common sense dictate that if there is no duty to defend, then there must be no duty to indemnify. See e.g. American States ins. Co. v. Bailey, 133 F. 3d 363 (5th Cir. 1998).
Tennessee courts have long noted it is not uncommon that an insurer will have a duty to defend based on the allegations in the complaint, yet have no subsequent duty to indemnify the insured. St. Paul Fire & Marine Ins. Co. v. Torpoco, 879 S.W.2d 831(Tenn. 1994). I point this “twist” out because it has come up in a couple of my recent cases, where my client is challenging both the duty to defend and the duty to indemnify.