This pandemic has gone on so long that I have watched and re-watched old television series involving lawyers. I have watched LA Law, the Practice, Boston Legal, the Good Wife, Scandal, Suits and countless episodes of Law and Order. While those shows oftentimes deal with issues of political intrigue, corporate corruption and complicated family drama, none of the shows that I have seen have dealt with the more common place issue of when an insurer must provide an attorney to defend its insured.
Perhaps that is because the issue is too mundane to be the topic of a television show. Or perhaps it is because insurance defense attorneys do not have the same small screen joi de vivre as corporate litigation sharks. Whatever the reason for the lack of television time for this issue, in the real world of insurance, the duty to defend is critical for both insureds and insurers.
The reason for this is simple. Litigation is expensive. Most individuals and main street corporations do not have the tens of thousands of dollars to pay a lawyer to defend them in litigation. Consequently, they turn to their insurance companies requesting that a lawyer be hired for them. Insurers are generally willing to provide defense counsel to the insured if the lawsuit clearly falls within the four corners of the insurance policy. The coverage issue respecting an insurer’s duty to defend occurs when the lawsuit is murky, which makes a determination as to what is and is not covered difficult.
As noted by the Maryland Court of Appeals in Brohawn v. Transamerica Ins. Co. and other subsequent cases, an insurer has an affirmative obligation to defend if there exists a “potentiality” that the claim could be covered under the policy. If there is any potentiality of coverage, no matter how slight, the insurer has a duty to provide the insured with a lawyer. In determining whether there is this potentiality, the allegations of the complaint must be viewed broadly and compared with the coverages under the policy. In addition, the insured, in order to establish the potentiality of coverage, may present extrinsic evidence to establish the potentiality of coverage. As noted in Griffin v. Chicago Title Ins. Co., while an insured may present extrinsic evidence to establish the potentiality of coverage, an insurer cannot generally consider extrinsic evidence in order to deny a duty to defend. (Such evidence may, however, be considered in determining whether there is a duty to indemnify.)
In making the determination as to whether there is a duty to defend, the Maryland courts have set forth a number of rubrics:
- As noted in Marvin J. Perry, Inc., all doubts as to whether there is a duty to defend must be resolved in favor of the insured. However, the insured is not permitted to present a frivolous defense to establish a duty to defend, but instead must offer a reasonable basis that the extrinsic evidence supports the argument that the claim is potentially covered under the policy.
- As noted in Moscarillo and Parts, Inc., the insured “may not extract stray phrases out of letters and discovery to transform allegations into coverage-triggering claims.”
- Even if the lawsuit does not allege enough facts to establish whether the claim is or is not covered, the insurer may, under Mount Vernon Fire Ins. Co., have a duty to defend.
- The insurer has the burden of proving that a specific exclusion in the policy precludes the claim from being covered under the policy as set forth in the case of Ace Am. Ins. Co. An insured may present the insurer with evidence that the exclusion might not apply and this can create a potentiality of coverage.
- The insurer, as set forth in the Gemini case, may use uncontroverted extrinsic evidence from the underlying lawsuit if such evidence clearly establishes that the suit’s allegations are beyond the scope of coverage.
- As set forth in Utica Mut. Ins. Co. v. Miller, if any claims alleged in the complaint potentially come within the policy coverage, then the insurer is obligated to defend all claims in the complaint (i.e. both covered and non-covered claims).
Once the insurer decides to provide a defense, there are sometimes issues as to whether the insurer may provide a defense using in-house counsel, an outside attorney that is on the insurer’s panel list or the insured’s own choice of counsel. As set forth in Allstate v. Campbell, Maryland law generally holds that an insurer has the right to select counsel and to control the defense of the litigation at issue. Sometimes, however, there is an actual or potential conflict of interest between the insured and the insurer. A reservation of rights letter does not in and of itself establish a conflict that would allow an insured to choose its own counsel. Rather, only in very limited fact-specific situations will the insured have the right to select its own counsel and have an insurer pay a reasonable fee for such defense costs.
These duty to defend rules are complex and sometimes difficult to navigate. The more difficult the issues concerning the potentiality of coverage, the more likely there will be lawyers involved for both the insured and the insurer. While none of these coverage issues are theatrical enough ever be the subject of a television show, there is drama in their resolution. After all, the cost of litigation is high and someone has to pay the lawyers involved.