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Understanding Duty to Defend and Right to Defend in Liability Insurance in India

 

In a liability insurance policy, the insurance company has the duty and also the right to defend the insured. The cost involved in defending the insured does not affect the policy limits provided the policy does not state otherwise. This rule is useful because in many cases the defense costs are high when a judicial trail is involved. In some cases, the defense costs can be higher than the claim amount making the defense part of the policy more valuable. Defense costs can be higher than the claim amount particularly in nuisance cases. These are situations where a case is made against the insured party even though the liability is low.

The coverage of a claim under a liability policy can vary based on the duty to defend or right to defend clause.

Before buying a liability policy, one should know the difference between duty to defend and right to defend and the obligations of the insurer under each wording.

Duty to defend

Under the duty to defend provision in a liability insurance policy, the insurance company has to provide legal defense against any claim made against the insured.  The insurance company can choose the lawyers to defend the case.

The duty to defend provision makes it obligatory on the insurance company to defend a claim based on allegations against the insured. This is irrespective of the fact if the allegations are later proven to be true or not. If the allegation falls within the ambit of liability insurance coverage, then the insurance company has to indemnify the insured under the duty to defend provision.

In other terms the insurance company’s obligation to defend the insured depends on the allegations made in the legal suit and is exclusive of the fact if the claim is not covered under the insurance policy.

The insurance company can refuse to act under the duty to defend provision if the allegation is not covered in the insurance policy or comes under the policy exclusions.

Right to defend

Let us now look at the right to defend provision in a liability policy. This provision is related to the insurer’s obligation to pay the legal costs and damages to the insured after trail on the lawsuit is complete and a decision is made on the settlement amount. Under right to defend the insurer can decide whether to insure the policyholder or not and can opt out if they believe the claim will be unsuccessful or falls outside the purview of the policy coverage.

Under this provision the insured has the right to choose the lawyers to defend his case and decide on his defense strategy. Here the insured has more control on the defense strategy.

Key Differences: Duty to Defend vs. Right to Defend

Aspect

Duty to Defend

Right to Defend

Who controls defense?

Insurer

Insured

Who chooses legal counsel?

Insurer

Insured (with conditions)

Obligation to pay legal costs?

Insurer

Insurer reimburses based on policy terms

Common in which policies?

General liability insurance, professional indemnity

Errors & omissions, D&O policies

 

Why is it important to know about duty to defend and right to defend?

Those insured under any liability insurance policy should understand the aspects of duty to defend and right to defend clause in their policy. This is crucial when they are faced with any claims because the duty and right to defend does not apply to claims made under bodily injury or property damage.

The right to defend is not valid if the applicable limit of insurance is exhausted for the payment of claim settlements under Coverages A or B or medical expenses under Coverage C.

The right to defend is applicable only in those countries coming under the covered territory and where the laws of the territory allow the insurer to defend the claim.

Before buying any liability insurance policy one must read the policy wordings carefully to understand if the insurer has the duty to defend or the right to defend.

If the insurer has the duty to defend but fails to do so when a claim is made, then the insurer is liable to pay the damages charged on the insured even if ultimately the claim may not be covered under the policy.

 

Individuals and businesses in India should carefully review the terms of their liability insurance policy to understand whether their insurer has a "right to defend" or a "duty to defend" and seek advice if they have any questions. 

It is best to consult an insurance broker in such cases.We at Zen Insurance Brokers assist in choosing an insurance policy with clauses suited to your requirements. Choose your insurance policy wisely. Get in touch with us for any assistance.

 

Disclaimer:

Zen Insurance Brokers is an IRDAI registered broker which facilitates quick and adequate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.

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