One of the most vexing issues a liability insurer confronts is the question of defending an arguably covered claim against its insured. Most jurisdictions support, if not encourage, an insurer’s decision to provide the insured with a defense subject to a reservation of its rights to later decline coverage if eventually warranted. The approach has benefits for both the insured and the insurer. It provides the insured with a defense and protects the insurer from arguably defaulting on its duty to provide a defense while enabling both parties to explore the coverage without prejudicing their respective positions.
The question of whether an insured is obligated to reimburse its insurer for defense costs expended by the insurer in the defense of an underlying litigation after there has been a determination of no coverage and no duty to defend is a common one.
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