August 31, 2013 Articles

Prior Knowledge Provisions and the Duty to Defend

Two recent decisions provide good illustrations of how courts have approached the question of the duty to defend where a prior knowledge provision potentially bars coverage

by Mary E. Borja

The general rule in most jurisdictions is that the duty to defend is determined by the four-corners of the complaint.[1] Nonetheless, widely recognized exceptions to the general rule exist. For example, when applying prior knowledge provisions in errors and omissions policies, courts often consider facts outside the underlying complaint to evaluate whether an insurer has a duty to defend. Some courts, however, fail to appreciate that the four-corners rule has commonsense exceptions, particularly where the extrinsic facts do not relate to the merits of the underlying claim. Two recent decisions provide good illustrations of how courts have approached the question of the duty to defend where a prior knowledge provision potentially bars coverage. This article explains the proper prior knowledge analysis in the context of the duty to defend.

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