Obligations of Insurer and Policyholders


Table of Contents

§ 1.1 Introduction...01

§ 1.2 Obligations of the Insurer...02

§ 1.2.1 The Duty to Defend...03

(a) Scope: The “Comparison Test”...04

(b) Insurer Obligation of “Reasonable Performance”...10

(c) Termination of the Defense Obligation...12

(d) The Duty to Defend and the “Mixed Claim”....16

(e) Control of the Defense...19

(f) Defense Expenses and Policy Limits...22

(g) Consequences of Breach of the Duty to Defend...24

§ 1.2.2 The Duty to “Indemnify”...29

(a) The “Facts” for Purposes of Indemnity...31

(b) Limits of Liability; Insurer Responsibility for Interest and Costs...34

§ 1.2.3 The Duties to Investigate and to Settle...36

§ 1.3 Obligations of the Policyholder...41

§ 1.3.1 The Policy Application and the Insured’s Disclosure Obligations...42

§ 1.3.2 The Notice Obligation...47

(a) Notice Under “Occurrence”-Basis Policies...48

(b) Notice Under Claims-Made Policies...52

§ 1.3.3 The Duty to Cooperate...57

(a) In General...57

(b) The “Voluntary Payments” Clause...59

(c) Pre-Tender Costs...61

§ 1.3.4 The Duty to Mitigate Damages...63

EXHIBIT A — Court’s Order Staying Litigation in Eastern Enterprises v. Hanover Insurance Co...66

EXHIBIT B — Court’s Order Staying Discovery in Commercial Union Insurance Co. v. RohmTech, Inc...67

EXHIBIT C — Court’s Allowance of Protective Order in

American Policyholders Insurance Co. v. Nyacol Products, Inc...70

About Foley Hoag LLP...75

Martin C. Pentz, Esq...75

Jeremy A. M. Evans, Esq...75

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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