Most Valuable Coverage

Asking a John Wayne Fan which Movie was the Duke’s Best is a lot like asking a group of insurance agents which coverage is the most valuable. You should expect more than a couple different answers. Rightly so, there are a lot of good John Wayne movies out there. “Stagecoach, Red River, McLintock, just to name a few. If you ask my Grandfather he says they are all better than what we have today. So, I’m here to settle the debate. True Grit 1969 . There that’s settled.

Now, on to the insurance.

The most valuable coverage in your insurance policy is the most valuable because it doesn’t have a Limit (most of the time.)Typically insurance carriers like to have a dollar amount of coverage shown on the policy to establish the “Limit of Insurance.” The limits define where the financial responsibilities of the insurance carrier end. Limits on your policy are important. You should review them and make sure you ask your agent any questions you might have.

So what is this coverage that has no limit, this bottomless pit of insurance? I suppose it’s not really bottomless, I guess it’s just not defined and we call it the “Duty to Defend” coverage. In our litigious society,its some times hard to believe but we can be sued at any time, and for almost any reason. These lawsuits are expensive, and if we can’t avoid them we want to transfer this risk to insurance policies. The difficult truth is that even if you are not at fault, even if the lawsuit is bogus and frivolous you have to defend yourself. That’s where the value of the “Duty to Defend” coverage comes in. As long as the claim isn’t clearly excluded the insurance carrier will respond and defend you. If the carrier decides to fight and those costs are more than the actual claim, don’t worry; the insurance company is on the hook for it.

Common to most policies; the “Insuring Agreement” is the section that includes something called “the right and duty to defend.” This statement is two parts, first, it establishes that once a claim has been made it is the company’s right to decide how to handle the claim. This is a positive 99% of the time. It means that the insurance carrier will take the lead and defend you, or pay the claim (without going to court,) or a little bit of both. Second, it establishes a requirement for them to show up and defend you as far as the policy allows. The only time they can escape this responsibility is if the claim for damages is clearly something that is excluded from your policy such as, criminal activity.



1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result. “

It’s important to remember that when we buy an insurance policy we transfer not only our risk, but we also the responsibility of handling the claim. The Insurance carrier is going to expedite the claim as best they can. For some claims this will mean  defending us in court, for others it could will mean settling out of court for negotiated damages. Once a claim has been submitted, it’s up to the insurance company to decide the most effective way to handle the claim. In any case we the insured’s escape the financial harm that the claim threatened to cause.

Some claims turn out to be more complicated than we expect them to, this is one reason why this is a valuable coverage in the policy. For example: A contractor took a customer to small claims court for not paying the bill. The contractor won in small claims and the customer was ordered to pay. The customer paid in part and the contractor turned the remaining debt over to a collection agency. Sometime later the customer sued the contractor for harassment, and claimed over $50,000 in damages stemming from the entirety of the contractors actions. After 3 years of court battles the insurance policy for the contractor paid $30,000 in damages and over $250,000 in lawyers, and other defense fee’s. I’m not sure if the Insurance carrier knew that the claim would be drawn out that long, or cost that much, but the major cost sometimes ends up being the defense costs not the actual damages.

While the “Duty to Defend” is important in every policy there are a few policies where it is absolutely essential. Medical Malpractice policies, Errors and Omissions policies, Directors and Officers policies, Employment Practices liability policies just to name a few. These policies have very specialized lawyers that charge a premium for their time and expertise. In these claims the priority concern is the “Duty to Defend” coverage for the lawyers, and the amount reserved for damages considered second.

It is important to be familiar with your policy. There are policies where Defense costs are “inside the limits” meaning that the defense and the damage’s costs come from a single limit shown on the policy. Some of the policies mentioned have unique policy language, not all policies are written equally. It’s important to know if the defense is inside or outside the limits of insurance. A mistake here could leave your business paying damages out of pocket in a severe claim.

We are always ready for your questions about this or any other topic. Feel free to email your questions here. Or call to speak with a live agent. 559-584-3323