Insurance companies have essentially two contractual obligations under liability insurance policies: (1) to defend; and (2) to indemnify.
The Duty to Defend
The duty to defend is broader than the duty to indemnify. Thus, insurers must defend claims which may fall within coverage based upon the allegations made in the complaint or other demand. Most importantly from the perspective of the insured, as long as there is one potentially covered claim in the complaint, the insurer must defend all claims. Along with the duty to defend, the insurer usually has the right to control the defense, including the right to select counsel and make decisions concerning settlement. Many professional liability insurance policies allow the insured to reject settlements that the insurer would otherwise accept.
The Duty to Indemnify
The extent of the insurer’s duty to indemnify is determined by the express terms of the insurance policy. Insurance policies are contracts. Just like any other contract, the terms of insurance policies are analyzed to determine the parties’ obligations. In interpreting an insurance policy, the court applies the ordinary and plain meaning of terms, and tries to ascertain the insurance company’s intent.