We encounter the following scenario from time to time: The defense counsel just scored a big victory, knocking out a key cause of action. The only problem is—the carrier now says that claim was the only covered cause of action, and since that claim has been dismissed, the insurer has no ongoing duty to defend. Can that be right? 

The short answer is no. The duty to defend is based on the “potential” for coverage. That means that, if there is any “potential” that liability will ultimately be established on a covered ground, there is a duty to defend. For example, if an insured is sued for intentional battery, but could be found liable based on negligence, there is a potential the ultimate liability will be covered, and thus the insurer has a duty to defend.

The same principle applies when a covered claim has been dismissed. Because the plaintiff has the right to appeal, there is a potential the dismissal of that claim will be reversed on appeal, and the case remanded to the trial court. The insured’s liability could ultimately be based on that covered ground. Thus, despite dismissal at the trial court level,  the potential of coverage continues to exist, and there is an ongoing duty to defend. See, e.g., Commerce & Indus. Ins. Co. v. Bank of Hawaii, 832 P.2d 733, 737 (1992); see also Meadowbrook, Inc. v. Tower Ins. Co., Inc., 559 N.W. 2d 411 (1985) (Minnesota Supreme Court adopts Commerce holding); Brewer v. Village of Old Field, 311 F. Supp. 2d 382, 386-87 (E.D.N.Y. 2004) (insurer must defend even if covered claims are dismissed by court leaving only noncovered claims remaining); Harrington Haley LLP v. Nutmeg Ins. Co., 39 F. Supp. 2d 403, 409 (S.D.N.Y. 1999) (duty to defend continues to exist because although covered claims had been dismissed; it was possible that the appellate court would reverse); Wells’ Dairy, Inc. v. Travelers Indem. Co. of Ill., 336 F. Supp. 2d 906, 911-12 (N.D. Iowa 2004) (duty to defend continues until all arguably covered claims have been completely extinguished); Westfield Ins. Co. v. TWT, Inc. 723 F.Supp. 492 (N.D. Cal. 1989)(ongoing duty to defend after a covered claim was voluntarily dismissed without prejudice, since the claim could be reasserted later).