Most businesses that purchase liability insurance policies expect the insurer to provide a defense if the policy holder is sued for a negligence act. In the mind of most insureds, the duty to defend is the same as the duty to indemnify. Unfortunately, the two obligations are not necessarily identical.
An understanding of the differences is critical to understanding whether a policy of liability insurance provides the protection that the insured party was seeking when it purchased the insurance.
The obvious difference
The dictionary illustrates the most obvious difference between the duty to defend and the duty to indemnify. The duty to indemnify requires the insurer (or “indemnitor”) to pay any amounts owed to other parties as the result of the insured’s (or “indemnitee’s”) negligence or fault. This obligation technically does not arise until the party seeking damages obtains an enforceable judgment against the indemnitee.
The duty to defend, however, arises as soon as the indemnitee receives a notice of a claim for damages. When the duty to defend arises, the indemnitor is immediately required to take all steps necessary to prevent a judgment from being entered against the indemnitee.
What if the difference is not obvious?
The distinctions discussed above are not usually difficult to find. But what happens if the indemnity contract does not explicitly mention the duty to defend?
In many states, the indemnitee is legally bound to defend any action or proceeding brought against the indemnitee concerning the subject of the indemnity agreement. Most states either have statutes or judicial decisions that hold that the duty to defend is broader than the duty to indemnify.
How to spot a claim that must be defended
Courts in Texas and many other states follow the “eight corners rule.” If the claim as described within the four corners of the notice of claim falls reasonably within the four corners of the insurance policy, the obligation to defend arises.
The eight corners are the four corners of the insurance policy or other indemnity agreement plus the four corners of the notice of claim.
