Insurance Claim Denial - Legal Exposure Analysis

The Two Primary Duties

Legal exposure often hinges on which duty the insurer denied:

• Duty to Defend: Broader than the duty to pay. If any allegation in a lawsuit potentially falls under coverage, the insurer must typically provide a lawyer.
• Duty to Indemnify: The duty to pay the actual judgment or settlement. This relies on the actual facts proven, not just allegations.

Common Grounds for Denial

Insurers typically cite specific policy language:

• Exclusions: Specific scenarios listed as "not covered" (e.g., pollution, known prior acts).
• Late Notice: Failure to report the claim immediately.
• Prior Knowledge: Did you know about the potential error before buying the policy?

Reservation of Rights

Often, an insurer will defend you but send a "Reservation of Rights" letter. This means they are defending you for now but reserve the right to deny coverage later if facts show the claim is excluded.