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February 2007 Archives

Duty to Defend

A typical Commercial General Liability (CGL) insurance policy includes two duties: (1) the duty to defend; and (2) the duty to indemnify. The duty to defend, when triggered, obligates the insurer to provide the insured legal counsel to represent them and to defend them from claims, including claims that may ultimately prove to invalid, or outside the scope of the policy. The duty to indemnify, when triggered, obligates the insurer to pay any costs or damages the insured must pay if the claim is upheld. It has been uniformly held that the policy covenant to defend is ‚ separate from and broader than the covenant to indemnify. See Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 640, 648, 593 N.Y.S.2d 966, 969 (1993); Burroughs Wellcome Co., v. Commercial Union Ins. Co., 632 F. Supp. 1213, 1218 (S.D.N.Y 1986) As a result, New York courts have generally held that an insurance company has an obligation to defend a claim against its insured unless it can establish ‚ as a matter of law, that there is no possible factual or legal basis on which the insurer might eventually be obligated to indemnify him under any provision contained in the policy. Villa Charlotte Bronte, Inc. v. Commercial Union Ins. Co., 65 N.Y.2d 846 (1985) Moreover, an insurance company cannot simply avoid its duty to defend its insured by claiming that any damages its insured may be entitled to would fall outside the policy coverage. For instance, if pollution exclusions operate to relieve an insurer of its duty to indemnify, but the applicability of the exclusions cannot be determined until after a court ruling, the insurer is still obligated to defend its insured against the underlying complaint. In contrast, an insurer has no obligation to defend its insured against complaints, where, as a matter of law, there is can be no possibility of coverage under the express terms of the policy.

Commercial General Liability (CGL) Insurance

A typical Commercial General Liability (CGL) insurance policy covers claims made by third parties for damages the insured party is legally obligated to pay as the result of an "occurrence" resulting in bodily injury or property damage taking place during the policy period. Generally, CGL insurance policies only cover bodily injury or property damage that occurs during the policy term (or any extended reporting period an insured may be able to purchase on the policy), regardless of when the claim is made. These are termed occurrence-based insurance policies. Occurrence-based policies typically define the term occurrence as an accident, which is neither expected nor intended from the standpoint of the insured. Claims-made insurance policies, on the other hand, only cover claims made during the term of the insurance policy. Thus, for there to be any potential for coverage under a claims-made policy, the insured must have made a claim during the policy period (or any extended reporting period an insured may be able to purchase on the policy). As a result, an important question to ask at the end of a claims-made policy term becomes whether an insured has renewed the policy's protection against environmental risk thus enabling the insured to make a claim for coverage within the (new) extended policy term.

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