Legal Definitions - duty-to-defend clause

A duty-to-defend clause is a crucial provision found in many liability insurance policies. It obligates the insurance company to provide and pay for the legal defense of its policyholder when a third party brings a lawsuit against them, provided the claims made in the lawsuit are potentially covered by the insurance policy.

Essentially, if you are sued for something your insurance policy might cover, this clause means your insurer will step in to hire attorneys, manage the legal process, and cover the associated legal costs, such as attorney fees, court costs, and investigation expenses, rather than leaving you to handle the defense yourself.

• Example 1: Small Business Owner

  Imagine a small marketing agency is sued by a former client. The client alleges that the agency's advertising campaign contained misleading information, causing them financial harm. The marketing agency's professional liability insurance policy includes a duty-to-defend clause.

  How it illustrates the term: Because the lawsuit's allegations (misleading advertising causing financial harm) could potentially be covered by the professional liability policy, the insurance company would activate its duty-to-defend. This means the insurer would appoint and pay for lawyers to represent the marketing agency in court, handling all the legal expenses and proceedings related to defending against the client's claims.

• Example 2: Homeowner

  A homeowner hosts a party, and one of the guests trips over a loose rug and breaks an arm, subsequently suing the homeowner for negligence and medical expenses. The homeowner's personal liability coverage within their home insurance policy contains a duty-to-defend clause.

  How it illustrates the term: The homeowner's insurance company would fulfill its duty to defend by hiring legal counsel for the homeowner and covering all the costs associated with defending against the guest's personal injury lawsuit. This includes attorney fees, court filing fees, and other litigation expenses, because the claim of negligence and injury on the property falls within the scope of typical homeowner's liability coverage.

• Example 3: Construction Contractor

  A general contractor completes a commercial building project. A year later, the building owner discovers significant water damage due to an alleged defect in the roof installation and sues the general contractor for property damage. The contractor's commercial general liability (CGL) policy has a duty-to-defend clause.

  How it illustrates the term: Given that the lawsuit alleges property damage potentially caused by the contractor's work, which is typically covered by a CGL policy, the insurance company would invoke its duty-to-defend. The insurer would then provide and pay for legal representation for the general contractor, managing the defense against the building owner's claims and covering all the legal expenses incurred during the litigation process.