NCJ Number
177868
Journal
Maryland Law Review Volume: 58 Issue: 1 Dated: 1999 Pages: 1-54
Date Published
1999
Length
54 pages
Annotation
Virtually all standard personal and commercial liability polices -- including auto, homeowners', and commercial general liability -- give the insurer both the right and the duty to defend any lawsuit that seeks damages covered under the insured's policy; this article focuses on several core questions about the structure of this defense obligation.
Abstract
Part I examines the theoretical structure of defense insurance. It explains why and on what terms insurers and insureds, respectively, are willing to sell and buy it; why it is so commonly included with indemnity insurance; and why the coverage scope of defense insurance, although not identical to that of indemnity insurance, is similar to it. Part II examines in greater detail the decisionmaking structure of defense insurance. It addresses why courts universally view this insurance as having a different decisionmaking structure than other forms of first-party insurance. Two features mark this structure. First, at least at the outset of a lawsuit against the insured, the defense obligation, unlike other insurance, turns not on the actual facts that relate to coverage, but on what the tort plaintiff alleges in the lawsuit against the insured. Second, courts often will not allow a declaratory-judgment proceeding that seeks to adjudicate the defense obligation while the underlying suit against the insured is still pending. Both features of the decisionmaking structure should be examined in the context of the systemic aims of insurance and tort law. To do so, it is necessary to distinguish between two types of cases: cases in which the insurer's coverage argument does not overlap with the issues at stake in the underlying tort suit, and cases in which such an overlap exists. Regarding overlapping scenarios, this article argues that the insurer's obligation in such cases should have a different decisionmaking structure than other forms of insurance. The insurer generally should not be allowed to contest its defense obligation on the basis of the actual facts in a declaratory judgment suit. Part III turns to the nonoverlapping scenario and argues that in these cases the defense obligation should be given the same decisionmaking structure as other forms of first-party insurance. 189 footnotes