The commercial general liability (CGL) policy obligates an insurer to defend an insured against any suit seeking damages because of bodily injury, property damage, or personal and advertising injury.  The duty to defend is provided by an express grant of coverage contained in both the Coverage A – Bodily Injury and Property Damage Liability and Coverage B – Personal and Advertising Injury Liability insuring agreements.  This promise to defend, which appears as a separate clause within the insuring agreements, is subject to policy limitations.


Duty to Defend – CGL Requirements.    The duty to defend is triggered by a “suit” demanding damages against an insured for bodily injury, property damage, or personal and advertising injury liability covered by the CGL policy.  If the damages being sought are clearly not covered by the CGL, the insurer will have no duty to defend.  How a determination is made as to whether the damages being sought are covered by the policy is explained later in this article.


The Meaning of “Suit.”  A “suit”, which is a term defined in the CGL policy beginning in 1986, means a civil proceeding, such as the filing of a complaint, more commonly known s a lawsuit.  The definition of “suit” also includes arbitration proceedings if the insured is required to submit to such proceedings or if the insurer consents to the proceeding.  Other alternative dispute resolution proceedings are considered to be included within the term “suit” if the insurer agrees to the proceeding. For example, a mediation hearing may be considered a “suit” if the insurer consents to the mediation.


Duty to Defend – Scope of Duty.     It is generally acknowledged that the duty of defense in the CGL policy is broader in scope than the duty to pay on behalf of an insured.  The basis for the maxim is twofold:


1.       The insurer is required to defend covered claims even if the insured is ultimately found in a trial or other civil proceeding to have no legal obligation to pay damages and;


2.       The insurer’s obligation to defend is determined by the allegations contained in the suit and not by facts that may later be established that ultimately show the claim is not covered by the CGL policy.


No Legal Responsibility to Pay Damages.  The insurance company’s duty to defend in the CGL policy, and the resulting payment of legal expenses, is triggered when covered allegations are contained in a suit brought against an insured.  The requirement in the CGL policy that the insur3er pay actual damages on behalf of an insured is triggered when the claimant demonstrates an insured is legally liable for covered damages.  In short, all suits asserting covered allegations must be defended while only a fraction of these suits actually result in the payment of damages.


While prior CGL form editions required the insurer to defend an insured “even if the allegations of the suit are groundless, false or fraudulent,” this wording was removed beginning in 1986.  However, the obligation to defend an insured in the post- 1986 edition CGL policy does apply to “any suit”.  The phrase “any suit” has been interpreted to include suits alleging false information or complaints filed without legal grounds.


Defense of Entire Claim – Allegations Covered and Uncovered.   If just one of several allegations in a complaint is potentially covered by the CGL policy, the insurer generally has a duty to defend the entire claim, at least until the potentially covered claim is resolved.  The resolution may occur in several ways, including a judicial determination that the one potentially covered claim actually falls outside of the scope of the CGL coverage.


The duty to defend all allegations in a suit in which only one allegation is possibly covered is articulated in Aetna Casualty & Surety Co. v. Continental Casualty Co. 413 Mass. 730 (1992):

            Weight of authority imposes a duty to defend all counts of a

complaint if the insurer has a duty to defend at least one count.


                                    The reasoning for this rather expansive obligation is that the insurance company must defend the entire case in order for it to provide a timely defense.  Attempting to sort out potentially covered and potentially uncovered allegations, which may ultimately be a futile attempt, would delay the defense.  Failure to provide an immediate defense is considered a failure to provide a meaningful defense.


Terminating the Duty to Defend.   The CGL insuring agreement for both Coverage A – Bodily Injury and Property Damage Liability and Coverage B – Personal and Advertising Injury Liability specifically state when an insurance company’s duty (and right) to defend may be discontinued – that is when the applicable limit has been used up in the payment of judgments or settlements.


Popular belief to the contrary not withstanding, this limitation does not allow an insurance company to terminate their obligation to defend by simply offering to pay the applicable limit or paying the limit into a court or to the insured.  Such a tactic would be counter to the widely accepted view that the duty to defend is an independent duty arising out of a separate promise of protection within the CGL policy.  Defense of an insured must continue until the case reaches its conclusion, either by settlement with the claimant(s) or by court adjudication.  In some jurisdictions, an insurer may have a further duty to appeal if reasonable grounds for an appeal are present.


The issue of how an insurer may discharge its duty to defend is particularly important when the policy limit is clearly inadequate to fully indemnify the claimants.  For example, a CGL policyholder has purchased an each occurrence limit of $300,000, but is faced with what will almost certainly be a multi-million dollar settlement or judgment.  While the CGL insurer may wish to tender its limits and withdraw from the case, the majority rule is that the CGL insurer may wish to tender its limits and withdraw from the case, the majority rule is that the CGL insurer is bound to continue to defend the claim until its resolution – regardless of the cost of defense.


Reservation of Rights.   Where there is a possibility that CGL exclusions may apply to eliminate potential coverage or if some of the allegations are clearly not potentially covered by the CGL, the insurer may begin their defense but reserve their right to withdraw from defense as facts are established.  Typi-cally, the insured is advised that they may need to retain their own counsel.


Many states view the issuance of a reservation of rights letter as creating a possible conflict of interest.  If a conflict of interest results, the insurer may be required to appoint separate independent counsel to represent the insured.


California, arguably one of the stronger advocates of appointment of independent counsel, stated in a 1984 California appellate court decision, San Diego Federal Credit Union v. Cumis Ins. Society, Inc., 162 Cal.App.3d 358 (1984):

…where there are divergent interests of the insured and the insurer brought about by the insurer’s reservation of rights based on possible non-coverage under the insurance policy, the insurer must pay the reasonable cost for hiring independent counsel by the insured.


Declaratory Judgment.   Insurers do have the option, either in lieu of or in addition reserving their rights, to request the court to decide a dispute as respects their duty to defend via a declaratory judgment action.  In essence, the insurer files an action asking the court to rule and declare the rights of each party under the CGL policy regarding defense.


In a recent Massachusetts Supreme Judicial Court case, Hanover Insurance Company v. Catherine Golden Docket #99-P-38 (2001), it was ruled that if the insurer loses the declaratory judgment action on its merits (even if the insurer continues to provide defense after commencing the action for declaratory judgment), the insurer is liable not only for the costs to defend incurred by the insured, but also the cost incurred by the insured for reasonable attorney’s fees and expenses in establishing the insurer’s duty to defend.  It did not matter, according to the court, if the declaratory judgment was done in good faith or whether the question was the subject of a legitimate dispute – the insured is to be reimbursed for “successfully establishing the insurer’s duty to defend under the policy”.  [Rebenstein v Royal Insurance co. of America, 429 Mass 355 (1999)].   This case appears to be in the minority, as usually an insurer will not be required to pay for the insured’s cost of enforcing the right to defense, unless the insurer acted in bad faith.