Section 10.3 Duty to Defend

LibraryInsurance Practice 2015

In the insuring agreement of almost all insurance policies the insurance company undertakes “the right and duty to defend any” lawsuit seeking damages covered by the policy. Because even a successful defendant is exposed to considerable defense costs, the duty to defend is a significant element of insurance coverage. The duty to defend, however, is contractual; if the policy does not require the insurer to defend, the insurer is not obligated to pay for or provide a defense. Crown Ctr. Redevelopment Corp. v. Occidental Fire & Cas. Co. of N.C., 716 S.W.2d 348 (Mo. App. W.D. 1986). Thus, frequently excess policies or umbrella policies do not provide a defense to the insured.

Recognizing that the duty to defend is contractual, the court in Simpson v. Dale E. Saunchegrow Construction, 965 S.W.2d 899 (Mo. App. S.D. 1998), held that there was no duty to defend a workers’ compensation claim arising after the workers’ compensation insurance policy was canceled according to its terms. The reasoning of the court of appeals would likely be followed in interpreting a CGL policy.

Similarly, in Dennis Cain Motor Co. v. Universal Underwriters Insurance Co., 614 S.W.2d 275 (Mo. App. S.D. 1981), the insured failed to correct a defect in an automobile it was repairing. The insured then canceled its garage liability policy. Subsequently, the plaintiff was injured as a result of the defect in the car and sued the insured. Because there was no coverage for an injury occurring after the cancellation of the policy, the court held that there was no duty to defend.

When the primary carrier becomes insolvent, the excess carrier does not drop down and assume the duty of the primary carrier to defend. Fred Weber, Inc. v. Granite State Ins. Co., 829 S.W.2d 589 (Mo. App. E.D. 1992). See also Alvey, Inc. v. Mo. Ins. Guar. Ass’n, 922 S.W.2d 804 (Mo. App. E.D. 1996). When the primary carrier is bankrupt, the excess carrier does not assume the duty to defend. U.S. Fire Ins. Co. v. Coleman, 754 S.W.2d 941 (Mo. App. E.D. 1988). Even when the excess policy allows the insurer to assume the duty to defend if it so consents, there is no duty to defend if the insurer does not consent. Crown Ctr., 716 S.W.2d 348.

Because defense costs are such a significant portion of each claim, an insurer’s duty to defend the insured is broader than the insurer’s duty to pay damages on behalf of the insured. Mo. Terrazzo Co. v. Iowa Nat’l Mut. Ins. Co., 740 F.2d 647 (8th Cir. 1984). See also Becker Metals Corp. v. Transp. Ins. Co., 802 F. Supp. 235 (E.D. Mo. 1992).

The first step in determining whether the insurer has a duty to defend the insured is to compare the allegations made in the petition with the terms of the policy. Steve Spicer Motors, Inc. v. Federated Mut. Ins. Co., 758 S.W.2d 191 (Mo. App. S.D. 1988). If the allegations, when read in conjunction with the insurance contract, could potentially give rise to a claim that is covered under the policy, the insurer has the duty to defend. Moore v. Commercial Union Ins. Co., 754 S.W.2d 16 (Mo. App. E.D. 1988). See also Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Structural Sys. Tech., Inc., 764 F. Supp. 145 (E.D. Mo. 1991), aff’d, 964 F.2d 759 (8th Cir. 1992).

If the claim is potentially or arguably within the coverage provided, the duty to defend exists. Luyties Pharmacal Co. v. Frederic Co., 716 S.W.2d 831 (Mo. App. E.D. 1986). See also Ranger Ins. Co. v. Mercantile Trust Co., 363 F. Supp. 795 (E.D. Mo. 1973). The duty to defend exists even if the allegations in the lawsuit are false or groundless. Zipkin v. Freeman, 436 S.W.2d 753 (Mo. banc 1968); Benningfield v. Avemco Ins. Co., 561 S.W.2d 736 (Mo. App. W.D. 1978); Estrin Constr. Co. v. Aetna Cas. & Sur. Co., 612 S.W.2d 413 (Mo. App. W.D. 1981).

Citing well-settled Missouri caselaw that an insurer’s duty to defend is determined from the provisions of the policy and the allegations of the petition, the court in Safeco Insurance Co. of America, Inc. v. Wood, 948 S.W.2d 182 (Mo. App. E.D. 1997), reversed summary judgment for the insurance company because all of the insurance policies for all of the relevant times were not introduced into evidence and made a part of the record on appeal.

In Lumber Mutual Insurance Co. v. Reload, Inc., 113 S.W.3d 250 (Mo. App. E.D. 2003), the court of appeals held that the trial court’s decision that an insurance company did have a duty to defend was not a final and appealable order.

In Dairy Farmers of America, Inc. v. Travelers Insurance Co., 292 F.3d 567 (8th Cir. 2002), the insurance company admitted that it owed a defense to a dairy co-op and to its shipper. The court held, however, that the insurance company had a duty to provide each insured with a

separate attorney unless the two insureds expressly agreed to be represented by one attorney.

In determining whether the allegations in the petition potentially or arguably state a claim within coverage, the insurer cannot ignore facts of which it is aware but that have not yet been pleaded. Aetna Cas. & Sur. Co. v. Gen. Dynamics Corp., 783 F. Supp. 1199 (E.D. Mo. 1991), aff’d in part and rev’d in part, 968 F.2d 707 (8th Cir. 1992). Thus, in determining whether the insurer has the duty to defend, the petition is not controlling when the insurance company knows or reasonably should know facts that establish the existence or nonexistence of the duty to defend. Farm Bureau Town & Country Ins. Co. of Mo. v. Turnbo, 740 S.W.2d 232 (Mo. App. E.D. 1987). The insurance company must look beyond the allegations in the petition to determine facts that can be discovered through reasonable investigation. Columbia Union Nat’l Bank v. Hartford Accident & Indem. Co., 669 F.2d 1210 (8th Cir. 1982).

If the insurance company, after comparing the allegations in the petition with the coverage provisions of the policy and taking into account the facts that the insurance company reasonably should know through a reasonable investigation, determines that there is no coverage, there is also no duty to defend. First S. Ins. Co. v. Jim Lynch Enters., Inc., 932 F.2d 717 (8th Cir. 1991).

In First Southern, 932 F.2d 717, a former employee of Jim Lynch Enterprises, Inc., was to have received payment for his stock. He sued Jim Lynch Enterprises, Inc., claiming that the amount he was paid for his stock was not calculated properly.

First Southern provided coverage under an employee benefits liability policy for damages resulting from a “negligent act, error or omission” in the administration of an employee benefit program. The Eighth Circuit held that the miscalculation of the value of the former employee’s stock was not a “negligent act, error or omission” in the administration of the employee benefit program. The court held that First Southern had neither the duty to pay nor the duty to defend.

In Becker, 802 F. Supp. 235, the insured demanded that the insurer provide a defense in an Environmental Protection Agency (EPA) proceeding. The court held that the EPA proceeding was not a “suit” requiring defense, especially when the clean-up costs were not within the insurer’s coverage.

In National Union, 764 F. Supp. 145, aff’d, 964 F.2d 759, the issue arose as to whether the “your work” exclusion applied to dispense with the insurer’s duty to defend. The court held that the exclusion dispensed with the duty to defend only if the sole cause of the loss fell within the “your work” exclusion.

In Moore, 754 S.W.2d 16, an insured was sued for damages arising out of the insured’s demolition of a building next to a building the insured owned. The insured was insured under a landlord policy. The court held that the landlord policy did not require the insurer to defend the insured landlord because the claim did not arise out of the landlord’s status as a landlord but, rather, arose out of an independent activity not covered under the policy.

In 1999, the Southern District decided Casualty Indemnity Exchange v. City of Sparta, 997 S.W.2d 545 (Mo. App. S.D. 1999). City of Sparta dealt with the pollution exclusion in a policy issued to the city. Two farmers had sued the city, claiming damage to their dairy cows from sewer sludge used as fertilizer on an adjacent farm.

The court held that the damage to the farmers’ dairy cows was part of the...

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