Navigating the Duty to Defend: Insights from the Third Edition of Hinshaw’s Fifty-State Survey

Hinshaw & Culbertson LLP is pleased to announce the publication of the Third Edition of its Duty to Defend: A Fifty-State Survey. The guide—which is Volume III of the Hinshaw & Culbertson LLP On The Law Series—provides an overview of common issues presented with respect to the duty to defend, with chapters covering all 50 US states. The following alert provides a detailed outline and highlights the insights covered in the guide.

An Overview of The Duty to Defend

Many insurance policies issued as primary layer coverage establish two separate principal duties on the part of the insurer: the duty to defend and the duty to indemnify.

1. 1. The duty to indemnify is the insurer’s obligation to pay for covered judgments or settlements.
   2. The duty to defend is the insurer’s obligation to defend its insured against lawsuits seeking covered (or at least potentially covered) damages.

What is the Duty to Defend?

The duty to defend is a contractual obligation reflected in the insurer’s agreement in the insurance policy. Accordingly, in the vast majority of states, if the insurance contract does not specifically provide for a duty to defend, the insurer will be held to have no duty to defend. In a limited number of states and situations, an insurer may have a duty to defend unless the policy expressly disavows a defense obligation.

Insurer Rights

Although most discussions about defense focus on the duty to defend, primary general liability contracts generally provide that the insurer has the right and the duty to defend the insured. The right to defend is important because it typically affords the insurer the right to conduct the insured’s defense in suits for which the insurance contract potentially provides coverage.

The insurer’s right to conduct the insured’s defense generally includes the right to select defense counsel, to make strategic decisions concerning the defense of the suit pending against the insured, and to make decisions regarding settlement and disposition. Allowing the insurer to conduct the defense of the insured protects the insurer’s financial interests and minimizes unwarranted liability.

As discussed in the Duty to Defend: A Fifty-State Survey (the “Survey”), under some circumstances and in some states, where the interests of the insurer and the policyholder are “conflicting,” the right and duty to defend may be transformed into an obligation of the insurer to pay defense costs of counsel selected by the insured, sometimes referred to as “independent,” “Cumis,” or “Peppers” counsel.

Primary Liability Policies

Under many primary liability policies, the duty to defend (or to pay defense costs) is supplementary. In other words, it is in addition to–and does not reduce–the policy’s limits of liability.

Over the years and with increasing frequency, primary liability policies are issued on a “wasting limits” basis, meaning that payment of defense expenses reduces the policy’s limits of liability. Wasting limits policies are permitted in most states, but as of October 2023, Nevada precludes insurers from issuing or renewing some policies with wasting limits. See NRS 679A 210.

Before embarking upon the issues addressed in the Survey, we briefly discuss the following matters not addressed in the Survey.

Duty to Indemnify Defense Costs Distinguished

An insurer’s obligation to pay an insured’s defense costs may sometimes be expressed as a duty to reimburse or indemnify defense costs. The duty to defend and the duty to reimburse (or indemnify) defense costs are distinct obligations.

For example, under policies that obligate the insurer to reimburse defense costs, the insured, rather than the insurer, generally is entitled to select counsel. In most states, the duty to defend is determined under the “potentially covered” standard, and reimbursement of defense costs generally is limited to costs associated with claims actually covered. Nonetheless, courts sometimes conflate the rules governing these distinct obligations.

The Survey does not address the duty to indemnify. The duty to defend generally is broader than the duty to indemnify. In most states, if there is no duty to defend, there is no duty to indemnify.

Although Texas subscribes to the near-universal principle that the duty to defend is broader than the duty to indemnify, some courts in Texas have ruled that the duty to indemnify is not dependent on the duty to defend, and an insurer may owe a duty to indemnify even if the duty to defend never arises.

The Role of Litigation Management Guidelines

Most insurers have implemented litigation management and/or billing guidelines that they ask assigned defense counsel to follow. Guidelines set forth many best practices and protocols for ensuring an efficient and cost-effective defense effort, which serve the best interests of the insurer, the defense firm, and the insured.

As expressed in most guidelines, they cannot be enforced by insurers to undermine the defense attorney’s professional obligations to the insured. Further, guidelines are not typically contractual, such that they are not binding on the insured (i.e., they are not part of the policy and do not, as a matter of contract law, limit the insured’s claims or rights to coverage for defense costs).

Yet, many disputes over the payment of defense counsel’s bills (whether insurer-assigned panel counsel or independent counsel) can be eliminated or at least mitigated by adherence to the philosophy of the insurer’s guidelines, the insured’s own guidelines (many insureds’ in-house legal or claim departments have promulgated their own guidelines), or manuscript negotiated guidelines applicable to specific insurer-insured relationships or particular litigation.

Excess Insurance Distinguished

The duty to defend is primarily an issue for primary insurance policies as opposed to excess or umbrella insurance. In contrast to the primary insurer, the excess insurer rarely undertakes to defend the insured.

Although excess insurance contracts ordinarily do not contain a duty to defend, most provide the excess insurer with the right at its “option” to participate or “associate” in the defense of lawsuits pending against the insured. These provisions are intended to allow the excess insurer, if it chooses, to become actively involved in defending lawsuits that could involve its layer of coverage.

The option to associate in the defense, for example, may be exercised by insurers in situations where there is significant exposure in excess of the underlying limits and the insured and the underlying insurer are not mounting a strong defense.

Another instance in which an excess insurer may wish to exercise its right to associate in the defense is where the insured or primary insurers are insolvent and there is a risk of a default judgment impacting the excess insurer’s limits. Most courts recognize that the right to associate does not impose a duty to defend the insured.

Some excess insurance contracts expressly exclude coverage for defense costs. Other excess contracts provide that, under certain circumstances, an excess insurer will reimburse the insured for defense costs. Many excess and umbrella insurance contracts expressly require the insured to obtain the insurer’s written consent prior to incurring defense costs for them to be reimbursable under the excess insurance contract.

The consent requirement exists for the protection of the insurer, not for the benefit of the insured. It allows the insurer to consent where it believes incurring defense costs will protect its exposure for indemnity losses. Most courts recognize that the excess insurer is free to consent or withhold consent for defense costs in accordance with its unilateral wishes or interests. Excess contracts providing defense cost reimbursement vary as to whether such payments are within or in addition to the limits of liability.

There may be limited circumstances under which an excess or umbrella contract obligates the insurer to defend lawsuits. For example, umbrella policies often provide that the insurer will defend lawsuits that are covered under the umbrella contract but not under the primary contract.

The broader coverage of an umbrella contract, including the umbrella insurer’s defense obligation, may apply to risks that are excluded by or are not within the scope of the underlying coverage or to those risks that fall within the more expansive coverage of the umbrella contract. Overwhelmingly, courts have rejected insured’s arguments that the mere exhaustion of a primary layer of coverage by the payment of claims gives rise to an umbrella insurer’s defense obligation.

For more detailed treatment of excess insurance issues, see generally S. M. Seaman & J. R. Schulze, “Chapter 17 Excess Insurance Coverage,” Environmental Liability & Insurance Recovery (ABA 2012); S. M. Seaman & J. R. Schulze, Allocation of Losses in Complex Insurance Coverage Claims (13th Ed. Thomson Reuters 2025) at Volume 1, Chapter 12.

The Importance of Considering Specific Policy Forms and Policy Language

Over the years, the scope of the insurer’s duty to defend has sometimes been limited through the introduction of specific language and definitions in standard insurance policies, such as the Commercial General Liability (CGL) form, in response to market conditions or judicial decisions.

Sometimes changes have been made through the use of manuscript language and endorsements. Accordingly, it is important to consider the language of the insurance policy involved in the respective decisions addressed in the Survey and to compare or contrast that language to the language appearing in the specific policy under consideration.

In pre-1986 CGL forms, for example, the term “suit” was not defined, leading to extensive litigation, especially in the environmental contamination context, as to whether the term “suit” includes administrative actions or demand letters from government agencies such as Potentially Responsible Party (PRP) letters from the United States Environmental Protection Agency or state equivalents thereby triggering the duty to defend.

Some courts have answered the question in the affirmative, while other courts have held that “suit” is limited to lawsuits filed in court. The CGL form was revised in 1986 to define “suit” as a formal “civil proceeding” (a lawsuit), or specific arbitration or other alternative dispute resolution proceedings to which the insurer consents. This change was aimed at eliminating disputes over the meaning of “suit” and emphasizing that the duty to defend is limited to defending lawsuits.

Policies usually specify that the duty to defend ends when the applicable policy limits have been used up in the payment of judgments or settlements. Absent specific language authorizing the practice, most courts have prevented insurers from escaping their defense obligation by unilaterally tendering the policy limits into court without the insured’s consent or a settlement.

The majority have disapproved the practice of “cutting and running” and have found that the duty to defend continues until the case is fully resolved by settlement or judgment. Some policies expressly provide for terminating the duty to defend by posting or interpleading limits or otherwise.

Historically, most general liability policies did not contain provisions expressly permitting an insurer to recoup defense costs associated with non-covered claims. Cases across the country are divided on whether an insurer may recoup defense costs on non-covered claims by unilateral reservation of rights in the absence of an express contract provision allowing recoupment or reimbursement. In recent years, some insurers have added provisions allowing for recoupment, which have been enforced by courts. See, e.g., Zurich Am. Ins. Co. v. Century Steel Erectors Co., L.P., 2020 WL 2065465 (W.D. Pa. 2020) (applying Pennsylvania law); Liberty Mut. Fire. Ins. Co. v. Ferrara Candy Co., 2019 WL 6830764 (Ill. App. Ct. 1st Dist. 2019); Liberty Ins. Underwriters, Inc. v. Cocrystal Pharma, Inc., 2022 U.S. Dist. LEXIS 91839 (D. Del. 2022) (applying Delaware law).

Other Types of Insurance and Issues Distinguished

This Survey does not address “claims-made” policy issues, issues of trigger of coverage, allocation of losses, or priority of coverage under “occurrence-based” contracts, or impact or division of responsibilities concerning the duty to defend arising out of multiple insurers having or potentially having a duty to defend.

For detailed treatment of these issues, see S. M. Seaman & J. R. Schulze, Allocation of Losses in Complex Insurance Coverage Claims (13th Ed. Thomson Reuters 2025).

Focus on General Liability Policies

The Survey focuses on general liability insurance, not other types of liability insurance. It is important to recognize that the provisions and language contained in other policy types may vary.

Often, professional liability policies and directors’ and officers’ liability policies, for example, contain provisions requiring the insured’s consent to settle and provisions requiring the apportionment of defense costs that may alter the result with respect to some issues addressed in the Survey.

Cyber policies often include multiple coverage grants that may contain different provisions applicable to defense obligations or defense cost reimbursement. These policies may provide limited coverage for regulatory proceedings or actions.

Eleven Key Issues Addressed in the Duty to Defend: Fifty-State Survey

The Survey focuses on 11 key issues commonly presented in connection with the duty to defend, which is designed as an overview, not a comprehensive treatise.

As with many coverage issues, a threshold determination is required to determine which state’s law governs. The Survey is not intended to be, and does not constitute, legal advice as to the duty to defend in any particular case or claim. Each claim is unique. The scope of the duty to defend and ramifications of any breach of that duty will depend on the specific language of the insurance contract, the particular facts and circumstances of each claim or case, and the governing substantive law.

Also, the laws of different states continue to evolve. Subsequent decisions may render some statements of the law contained in the Survey incomplete or inaccurate. As such, it will be necessary to determine the current state of the law in order to make correct decisions about the duty to defend in a given case.

With respect to laws of each of the fifty states, we examine the following eleven issues:

1. 1. What is the standard for determining whether an insurer has a duty to defend?
   2. What constitutes a “suit”?
   3. Under what circumstances will information not contained in the policy or underlying complaint be considered in determining whether an insurer has a duty to defend (extrinsic evidence)?
   4. When does the duty to defend begin?
   5. When does the duty to defend end?
   6. Must an insurer defend a lawsuit if only some of the facts alleged or counts included in the underlying complaint are potentially covered (mixed claims)?
   7. Under what circumstances may an insured select its own defense counsel to be paid by the insurer (independent counsel)?
   8. What are the consequences of a breach of the duty to defend?
   9. When an insurer pays for the defense of a matter where only some of the claims alleged in an underlying case are covered by the policy, may the insurer recoup from the insured the costs allocable to claims that are not covered (right of recoupment)?
   10. Does an insurer have an obligation to reimburse its insured for defense costs incurred by the insured prior to the time that the insured placed the insurer on notice of the claim or requested that the insurer defend (“pre-tender defense costs”)?
   11. Does an insured who prevails in coverage litigation recover from the insurer the attorney’s fees and/or costs expended by the insured for litigating coverage without establishing common law or statutory bad faith (cost shifting)?

The Survey, presented in a question-and-answer format, addresses the following 11 questions for each state, which are significant for insurance claims professionals and lawyers making decisions about properly responding to complaints tendered for a defense.