Understanding The Duty To Defend Versus Indemnify In Wisconsin

The intricacies of insurance law are challenging, especially when a claims representative or insured party must distinguish between an insurance company’s duty to defend and its duty to indemnify. As your dedicated legal partners in Wausau and all of Wisconsin, the lawyers at Kramer Shull Reeths LLP can help you understand these duties as they apply to your circumstances, so that you can make informed decisions.

What Is An Insurer’s Duty To Defend?

When a lawsuit is filed against a person covered by a liability policy, the duty to defend requires the insurance company to provide them with a legal defense to a lawsuit based on the allegations in the complaint. This duty is broad and is triggered whenever the factual allegations in the complaint, if proven true, could arguably invoke coverage under the policy. An insurer’s duty to defend is determined by evaluating the facts alleged in the complaint with the coverage provisions of the insurance policy.

What Is An Insurer’s Duty To Indemnify?

The duty to indemnify is the insurer’s duty to pay for monetary damages resulting from an insured’s legal liability. Unlike the duty to defend, the duty to indemnify is based on the insured’s actual liability as determined through admissible evidence. An insurance company has the right to litigate the issue of a duty to indemnify the insured under the coverage terms of its policy.

How Are These Two Duties Different?

The duty to defend and the duty to indemnify differ due to the:

• Nature of the obligation: A duty to defend requires an obligation to manage and fund the defense of a lawsuit; a duty to indemnify involves an obligation to cover losses or damages.
• Triggering event: A duty to defend is triggered solely by allegations covered by the policy; a duty to indemnify is triggered by legal liability covered by the policy.
• Basis for action: A duty to defend is based solely on the factual allegations in the complaint filed in a lawsuit against an insured; a duty to indemnify is based upon an insured’s established liability.
• Scope of the duties: The duty to defend is broader than the duty to indemnify. An insurance company has a duty to defend all allegations against an insured in a lawsuit, including false and groundless claims, and claims not covered by the policy, so long as at least one allegation, if true, would be covered by the policy. The narrow duty to indemnify only applies to an insured’s actual liability for claims covered by the policy.

If you have additional questions about the differences between these two duties, we can answer any questions and address any concerns you have.

What Can Trigger An Insurer’s Duty To Defend A Lawsuit?

In Wisconsin, the duty to defend a lawsuit is triggered solely by the factual allegations in the complaint filed against an insured. When determining a duty to defend, an insurer must assume that all allegations are true, even if they are known to be false, and may not consider other facts or additional information that is not included in the complaint. If any claim alleged in the complaint would arguably be covered under the terms of the liability insurance policy, there is a duty to defend all claims alleged in the complaint.

Can An Insurer Defend Under A Reservation Of Rights?

Yes, Wisconsin insurers can defend an insured under a reservation of rights, allowing an insurer to fulfill its duty to defend while also preserving its rights to contest the coverage. An insurer electing to defend under a reservation of rights typically sends the insured a reservation of rights letter, which explains the insurance coverage issues and relevant policy terms, and alerts the insured that, by agreeing to provide them with a defense, the company does not waive its rights to challenge or deny coverage for the lawsuit.

A reservation of rights letter protects an insurer from legal penalties it may face if it incorrectly determines it has no duty to defend a lawsuit. Further, by explaining why its policy may not provide coverage, the insured can assess the coverage issues, consult with a coverage lawyer and, if appropriate, take steps to challenge the insurer’s position in court or hire counsel to defend the lawsuit if the insurer later proves there is no coverage.

How We Can Help

Kramer Shull Reeths LLP represents insurers, municipalities, businesses and individuals across Wisconsin on insurance coverage issues and in coverage litigation. Our attorneys have handled complex insurance coverage cases throughout the state, including in the Supreme Court of Wisconsin, the Wisconsin Court of Appeals and Wisconsin’s federal courts. We help our clients understand insurance policy provisions, analyze an insurer’s duties to defend and indemnify, provide formal coverage opinions, and advocate for our clients’ rights and interests in court.

Have Additional Questions? Reach Out Today.

Whether you’re an insurance company seeking coverage or defense counsel or an insured involved in a coverage dispute, we can help.

Our team is ready to help you make informed decisions about insurance coverage and litigate any disputes regarding an insurer’s duty to defend or indemnify. Schedule a consultation by calling us at 715-203-4534 or through our contact form.