§17.6 - Duty to Defend

• Jurisdiction: Washington

§17.6 Duty to Defend

In Washington, as in other jurisdictions, the duty to defend is broader than the duty to indemnify. Holland Am. Ins. Co. v. Natl Indem. Co., 75 Wn.2d 909, 454 P.2d 383 (1969); Woo v. Firemans Fund Ins. Co., 161 Wn.2d 43, 52, 164 P.3d 454 (2007). Upon receipt of a complaint, an insurer should compare it with the policy terms to determine whether there is a defense obligation. The merits of the claim are generally not at issue: the typical primary policy requires a defense even if any of the allegations of the suit are groundless, false, or fraudulent. State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 486, 687 P.2d 1139 (1984).

The duty to defend is one of the main benefits of the insurance contract, arises at the time an action is first brought, and is based on the potential for liability. Truck Ins. Exchange v. Vanport Homes, Inc., 147 Wn.2d 751, 58 P.3d 276 (2002). [T]he duty to defend is triggered if the insurance policy conceivably covers the allegations in the complaint, whereas the duty to indemnify exists only if the policy actually covers the insureds liability. Woo, 161 Wn.2d at 53 (emphasis added). An insurer must defend unless it is clear from the face of the complaint that the claim is not covered by the applicable policy. Id. [I]f it is not clear from the face of the complaint that the policy provides coverage, but coverage could exist, the insurer must investigate and give the insured the benefit of the doubt that the insurer has a duty to defend. Id. The liability insurer may not rely on facts extrinsic to the complaint to deny the duty to defend; it may do so only to trigger the duty. Id. at 54; see also W. Nat'l Assurance Co. v. Maxcare of Wash., Inc., No. 67952-0-1, 2012 WL 6690215, at *2-3 (Wash. Ct. App. Dec. 24, 2012) (unpublished) (holding that when the policy's pollution exclusion is unambiguous, depositions of plaintiffs' experts may not be considered when determining whether the insurer has a duty to defend, because depositions are beyond the four corners of the complaint)..

If a complaint is not ambiguous or if the allegations are not in conflict with the facts known by the insurer, the insurer may properly base its determination of its duty on the four corners of the complaint. R.A. Hanson Co. v. Aetna Ins. Co., 26 Wn.App. 290, 612 P.2d 456 (1980). However, if the allegations of the complaint are ambiguous, inadequate, or in conflict with facts known or readily ascertainable by the insurer, the insurer must look beyond the four corners of the complaint to determine if there is a potential for coverage under the terms of the contract. E-Z Loader Boat Trailers, Inc. v. Travelers Indem. Co., 106 Wn.2d 901, 726 P.2d 439 (1986). The insurer then decides whether to (1) accept the defense, subject to a reservation of rights; (2) agree to defend while reserving its right to contest indemnity obligations, see Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 388, 715 P.2d 1133 (1986); or (3) deny coverage under the policy.

Where an insurer is unconvinced of its duty to defend, it may defend under a reservation of rights. Under a reservation of rights defense, the insured receives the defense promised and, if coverage is found not to exist, the insurer will not be obligated to pay. Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wn.2d 903, 914, 169 P.3d 1 (2007) (quoting Truck Ins. Exch., 147 Wn.2d at 761 (citation omitted)). If the complaint does not allege liability that could be covered by the policy, however, there is no duty to defend. Waite v. Aetna Cas. & Sur. Co., 77 Wn.2d 850, 855, 467 P.2d 847 (1970). The facts alleged and not the legal theories advanced determine the insurers duty to defend. See R.A. Hanson Co., 26 Wn.App. 290.

In National Surety Corp. v. Immunex Corp., 176 Wn.2d 872, 297 P.3d 688 (2013), the court held that a determination of no coverage does not apply retroactively to the defense costs an insurer incurs in providing a reservation of rights defense. Rather, the insurer could be held responsible for the reasonable defense costs expended up until the determination that the insurer had no duty to defend, without a right of recoupment unless the insurance policy so provided. However, the court in Immunex also recognized that an insurer may minimize or avoid liability for defense costs based on the insurer's showing that actual and substantial prejudice resulted from an insured's untimely tender. Id. at 889-90.

Insurers must pay for the cost of defense as soon as the duty to defend is triggered, even if the insurer has a coverage defense that might ultimately relieve the insurer of its duty. In Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 793, 805, 329 P.3d 59, 65 (2014), the Washington Supreme Court unanimously held that once an insured establishes that the duty to defend is triggered by a lawsuit that could potentially fall within the four corners of the policy, the insurer is obligated to provide payments until a court determines after discovery and briefing that the insurer is excused. Before such time, the insurer cannot take any action, such as pursuing discovery, that would prejudice the rights of its insured. Id. at 807.

Although an insurer has a broad duty to...