Chapter 24 - § 24.5 • BENEFITS OF INSURANCE


§ 24.5.1—Property

The benefits of insurance on a business property differ depending on the type of business. It is important to work with a broker to make sure that the business is insuring the right type of potential losses. Generally speaking, however, a business property policy will cover any damage to physical property the insured owns or leases. It will also cover lost income resulting from a covered loss.

§ 24.5.2—Liability Policies

The benefits of insurance differ depending on the type of insurance. In liability policies such as CGL and D&O policies, there are two central benefits: (1) defense; and (2) indemnity.


In a CGL16 policy, the duty to defend is the duty on the insurer's part to defend any potentially covered claim made against the insured. The duty to defend is broader than the duty to indemnify.17 That is, the insured need only show that the underlying claim may fall within policy coverage. Conversely, to avoid providing a defense, the carrier must prove that it cannot possibly be covered.

The general rule is that, in a litigated claim, the duty to defend is determined from the four corners of the complaint. And, if any one of the claims asserted is one to which the duty to defend would attach, the carrier must defend the entirety of the complaint. In response to the cases requiring a broad response to defend a complaint, carriers have begun to assert provisions requiring the insured to reimburse them for the defense of claims that are ultimately proved not to be covered.

California, a jurisdiction generally considered favorable to insureds, has recently restated the parameters of the duty to defend as follows:

• An insurer bears the duty to defend whenever it ascertains facts that give rise to the potential of liability under the policy.
• Any doubt as to whether the facts establish the existence of the duty to defend must be resolved in the insured's favor.
• However, a third-party plaintiff cannot be the arbiter of coverage under a policy.
• A carrier need not defend if the third-party complaint "can by no conceivable theory raise a single issue which could bring it within the policy coverage."18

Some policies provide that dollars spent in providing a defense serve to reduce the amount of coverage available. These are sometimes referred to as "pac man" policies (because defense costs will gobble up the amounts available for indemnity coverage).

An issue that is of increasing importance to many insureds is the selection of defense counsel.

Commensurate with the insurer's duty to defend is the insurer's right to control the defense. However, the insurer can lose that right when it wrongfully refuses to defend the insured. The right to control the defense generally entitles the carrier to select and direct defense counsel, determine defense strategy, and, in many instances, decide when and whether to compromise a claim through settlement. All of these carrier decisions are subject to the covenant of good faith and fair dealing, and its obligations to protect its insured's interests.

A fairly standard insurance policy provision also provides that the insurance company will pay "[a]ll costs taxed against the insured in the suit." That obligation is not linked to coverage, but to the defense of the case. Accordingly, if damages and costs are awarded against an insured, even where the insurer is not liable for the damages, it can still be liable for the costs awarded. See Mt. Hawley Ins. Co. v. Casson Duncan Constr., Inc., 2016 COA 164, ¶ 21 (where the insurance company defended against a reservation of rights, the court observed that the reservation does not destroy the insured's rights or create new rights for the insurer).

Many CGL policies also contain a supplementary payments provision. This provision requires the insurer to pay "[a]ll costs taxed against the insured" in any lawsuit in which the insurer defends on behalf of the insured. Issues arise as to whether those costs include attorney fees when they are taxable as costs against the insured, including, for example, where a contract provides for the prevailing party to recover attorney fees. While Colorado courts have not yet addressed this issue, in California these types of attorney fees awards are covered costs. See generally Cal. Code Civ. P. § 1033.5(a)(10) (which includes attorney fees authorized by contract within recoverable costs of suit).19

The duty to defend usually comes with a corresponding duty that the insured cooperate. The duty to cooperate is quite broad and includes providing timely notice, giving the insurer access to all documents and records, assisting the insurer in the investigation or settlement of the claim, and assisting the insurer in pursuing any potentially liable...

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