Contested Insurance Coverage: Defense Under Reservation of Rights

Under most liability insurance policies, insurers have the duty to defend the policyholders from lawsuits seeking damages within the scope of coverage. However, situations arise where the insurer and insured don't agree on the extent and applicability of coverage under the policy.

The insurer can proceed to defend the insured under a reservation of rights — or it may refuse and file a declaratory action for a court to determine coverage. What are the policyholder's options under these circumstances?

State law and court decisions are crucial in determining the insurance company's and the policyholder's rights when the duty to defend is under dispute. Both parties must understand the standards for the relevant jurisdictions.

Listen as our panel of experienced insurance attorneys examines the competing interests of the insurer and the policyholder where the duty to defend is under dispute, how different state laws and courts treat the issue, and how both the insurer and the policyholder can work toward a resolution.

The panel included:

Jay M. Levin, Counsel, Reed Smith, Philadelphia. He focuses his practice on representing policyholders in matters involving all types of insurance coverage. He arbitrates cases before the American Arbitration Assn. and in private binding arbitration. He has extensive experience in multimillion-dollar property insurance coverage cases, as well as professional and general liability cases. He also counsels policyholders in non-litigation contexts.

Kenneth E. Ryan, Partner, Wiley Rein, Washington, D.C. He represents insurers in coverage matters, litigates insurance coverage and other commercial litigation cases, and advises clients on developments impacting the insurance industry. He also assists insurance clients to develop practices, procedures and policy language to avoid future coverage disputes and bad faith claims.

The panel reviewed these and other key questions:

• What tactical considerations does an insurer have to weigh in deciding whether to file a declaratory action to dispute coverage?
• What are the prevailing state law standards governing the insurer's duty to defend — and when an insurer can file a declaratory action?
• What are the best practices for both sides to reconcile their competing interests when they don't agree about extent of coverage?
• What are the ethical issues that arise when an insurer representing a policyholder hires counsel in a liability matter?

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