Duty to Defend Policy Form

In the Duty to Defend Form, the insurer defends the entire claim even if the claim is only partially insured under the policy.  The Duty to Defend requirement generally upholds even if there is only a potential for subjective coverage and the claim maybe without warrant.  The general standard is if there are any doubts giving rise to a duty to defend situation the dispute goes in favor of the insured.

As long as allegations remain open where there are insured and uninsured matters or allegations, the insurer has a duty to defend the entire claim.  When the claim is closed the insurer may have the right to “true-up” on defense costs, allocating between covered and uncovered matters.  However, the right to “true-up” will depend on policy wording.  If a policy provision states that 100% of defense costs will be covered, the ability of the insurer to “true-up” defense costs will not be an option.

Usually in Duty to Defend forms the insurer makes the selection and retains counsel for the insured, normally from a panel of defense firms that the insurer maintains.  The insurers’ law firms are available at preferred rates, which benefits the insurer and insured with a slower deletion of policy limits.  Panel Defense firms are usually accustomed to the insurers’ required billing practices and reimbursement procedures, thereby minimizing the insurers’ invoicing,  auditing and adjustment processes.

Some concerns of insureds when insurer selects defense counsel is that there may be a conflict of interest when defense counsel applies how coverage applies under the policy.  Another concern is that the defense counsel will have stronger loyalty to the insurer than the insured.  Lastly some insureds are concerned that Duty to Defend pressures the insurer to settle a claim that the insured would not wish to settle.

Non-Duty to Defend or Reimbursement Policy Form

The non-duty to defend or reimbursement policy form obligates the insured to provide its own defense, subject to approval of the insurer.  The insured’s counsel must adhere to the insurer’s billing practices.

For non-duty to defend the process for reimbursement to the insured is more complexed (and could take longer) because the insurer needs to conduct its own audit and adjustment of defense invoices according to the insurers’ guidelines.  The insurers’ audit could result in reductions in the incurred defense costs as the insurer adjusts reimbursements to conform to what the insurer determines as ‘reasonable and necessary’ fees and costs.  This could result in the insured paying the difference between the amount billed and the amount approved by the insurer above the amount the insured spends on the self-insured retention.

In addition in situations where there are covered and uncovered allocations, the insurer could allocate defense cost reimbursements for covered and uncovered costs.  This results in two parties (insured and insurer) in conflict against each other while defending a matter which they have common interest in resolving.

Notwithstanding, the selection of defense counsel by the insured is vital to some insureds who believe that their flexibility is worth the trade-off.

Matters to consider when choosing a policy form are as follows:

  1. Does the insured wish to retain its own preferred law firm or preferred counsel?

  2. How does the insured’s preferred law firm or counsel compare to the insurer’s law firms, attorneys, and rates of panel defense counsels?

  3. Is the insured willing to take an active role in managing counsel expenses and the overall litigation process?

  4. Does the insured have in-house counsel to assist in the litigation process?

  5. Does the insured’s in-house counsel have claims experience and would the insured’s in-house counsel assist in the insurer’s claim process?

  6. Is the insured able to sustain additional costs associated with either the allocation of uncovered costs or the insurer’s adjustment of invoices downward?

  7. Does the insured have sufficient cash flow to wait the additional time it takes for the insurer’s audit adjustment process to be completed and reimbursement made back to the insured?

UIC has detailed specifications of coverage which requests nearly the broadest and state of the art coverage available including the slightest language nuances which could be the difference between a covered and uncovered incident. Our team utilizes a more than 300 point checklist to achieve the core classic coverages as well as the dynamic/up and coming coverage. UIC utilizes different market access points from around the country to diversify the available markets and coverage.


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