Insurer’s Initial Duty – The Duty to Defend Insured

When a claim is asserted against you in a construction defect dispute, one of the first things you will do (and should absolutely do) is notify your commercial general general liability insurer.  You want to make sure your insurer initially defends you against the claim.  You should work with counsel in notifying your commercial liability insurer, but the key is to ensure they will provide you a defense against the claim / lawsuit, as construction defect disputes can be very costly.

If your insurer refuses to defend you, that may likely mean they are denying coverage relating to the third-party claim.  This is not good and means you should be immediately consulting counsel and/or working with the counsel you got on board.  This denial may result in a declaratory relief action with your insurer regarding coverage and the insurer’s duties to defend you and indemnify you.  

An insurer’s duty to defend is the first duty that is triggered.  It is a broad duty and triggered by the allegations in the claim – specifically, the lawsuit (although, in my opinion, a prudent insurer will get involved when they receive notification of a claim albeit not a formal lawsuit.)   An insurer picking up a defense does not mean the insurer will indemnify its insured from the claim. An insurer will issue you a reservation of rights letter telling you they are defending you subject to a reservation of rights relating to insurance coverage (i.e., its duty to indemnify you as to the damages).   Receiving a reservation of rights letter is common — many insurers will issue them as a matter of course.  The point is that when you receive a claim relating to construction defects, you want to get your insurer on board ASAP to ensure the duty to defend is triggered or understanding from the insurer why it is refusing its initial duty to defend you against the claim.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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