Duty to Defend the “Bad” Case
When a Defense Is Not Required
Duty to Defend the “Bad” Case
The duty to defend is not limited to cases where the suit against the insured is viable. The duty extends to those that are brought against the insured that are bad, false, or even fraudulent.
In Wild v. Subscription Plus, Inc.,[1] the Seventh Circuit was faced with a dispute over the duty to defend when there was a finding that the insurer, Scottsdale, had no duty to indemnify the two insureds, because the accident was not covered by the policy after all. Scottsdale appealed the judgment that it had a duty to defend. It also appealed from the court’s correlative order, based on Oklahoma insurance law, that it reimburse the insureds for the expense of defending against the tort suit. The Seventh Circuit, resolving the issue in favor of the insured, and noting how the arguments of the insurer made no sense, stated:
The insured who has bought a liability policy that entitles him to defense as well as indemnification wants to be defended against claims of liability regardless of their merit. He doesn’t want to be stuck with the lawyer’s bill just because he wins and therefore doesn’t need to look to the insurer for indemnification. If he wanted that he would just buy indemnification, and not defense.[2] (Emphasis added.)
In 2007, defendants Jack and Sally Pomeranc, doing business as Mansard Gardens Associates, LLC (Mansard), were the owners of an apartment building in Bayonne, New Jersey. They were taken to court by tenants of the building after a fireball erupted in a unit, causing burn injuries to three children, whose mothers could only watch helplessly as the children were scorched.
The mothers sued the Pomerances for emotional distress, under what is known as a Portee claim. But Mansard’s insurer under a commercial general liability insurance policy, Greater New York Mutual Insurance Company (GNY), refused to cover the Pomerances’ defense costs.
The policy provided that it would defend any lawsuit against the insured for property damage or bodily injury but would not defend a lawsuit that did not involve property damage or bodily injury, which the policy defined as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” The Supreme Court of New Jersey allowed recovery for the suffering of the parents even though they suffered no physical injury.[3]
If the allegations in the underlying complaint fall within or potentially within the policy's coverage, the insurer's duty to defend arises even if the allegations are groundless, false, or fraudulent. [United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73, 161 Ill.Dec. 280, 578 N.E.2d 926 (1991)].
An insured has the burden of proving that a claim falls within the coverage of the policy. [Addison Insurance Co. v. Fay, 376 Ill.App.3d 85, 88, 314 Ill.Dec. 680, 875 N.E.2d 190 (2007).] Once the insured satisfies this burden, the insurer has the burden of proving that the loss was limited or excluded by a contract provision. [Stoneridge Development Co. v. Essex Insurance Co., 382 Ill.App.3d 731, 749, 321 Ill.Dec. 114, 888 N.E.2d 633 (2008).”][4]
If the allegations in the underlying complaint fall within or potentially within the policy's coverage, the insurer's duty to defend arises even if the allegations are groundless, false, or fraudulent. An insured has the burden of proving that a claim falls within the coverage of the policy. Once the insured satisfies this burden, the insurer has the burden of proving that the loss was limited or excluded by a contract provision.[5]
Where the underlying complaint alleges facts within or potentially within the scope of coverage, the insurer must defend its insured, even if the allegations are groundless, false, or fraudulent. [Northbrook Property & Casualty Co. v. Transportation Joint Agreement, 194 Ill.2d 96, 98, 251 Ill.Dec. 659, 741 N.E.2d 253 (2000)), or the probability of recovery is minimal. Hertz Corp. v. Garrott, 1167 207 Ill.App.3d 644, 648, 152 Ill.Dec. 650, 566 N.E.2d 337 (1990).] [6]
When a Defense Is Not Required
The Ninth Circuit Court of Appeal, in Cort v. St. Paul Fire and Marine Insurance Companies, Inc.,[7] ruled on the issue where an insured painted over a work of art. Agreeing that no coverage was available for the insured, the Ninth Circuit Court explained:
If a third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage, there is no duty to defend.