August 11, 2016 Articles

Determining Whether and When the Duty to Defend Ends

Practical tips for insurers that wish to withdraw the defense and for policyholders who learn that their defense will be withdrawn

by Rina Carmel, Tred R. Eyerly, and Karin S. Aldama

Determining whether and when the duty to defend ends can be complicated. This is particularly so if only part of the underlying action is resolved or only some defendant insureds are dismissed or the underlying action is not final. The analysis may touch on procedural as well as substantive law governing the underlying action. An insurer withdrawing the defense could find itself facing claims of breach of contract or bad faith—whether or not it acted properly in withdrawing.

This article discusses some common issues that arise in determining whether the duty to defend has ended. It begins with a review of exhaustion and of whether and when the underlying action is deemed final for purposes of the duty to defend. Next, it explores settlement; in particular, settlement of less than the entire underlying action. It then discusses an insurer’s options if the policyholder fails to cooperate. Finally, it addresses withdrawal procedures, including the formal options of declaratory relief and interpleader as well as informal withdrawals by letter. Throughout, the article offers practical tips for insurers that wish to withdraw the defense and for policyholders who learn that their defense will be withdrawn.[1]

Premium Content For:
  • Litigation Section
Join - Now