A 'Not So' Full Defense

Liability policies typically have a defense obligation and an indemnity obligation. The defense obligation is often as valuable, or more valuable, to the insured as the indemnity obligation. In fact, many courts refer to the defense obligation as “litigation insurance,” protecting the insured from potentially costly litigation. See, e.g., Rubenstein v. Royal Ins. Co. of America, 708 N.E.2d 639, 642 (Mass. 1999); Universal Underwriters Ins. Co. v. Lowe, 761 A.2d 997, 1012 n.15 (Md. App. 2000). Whether the defense obligation is expressed as a duty to defend or a duty to reimburse defense costs, insurers frequently impose major restrictions and limitations relating to the defense costs they will pay. The insurers do this by taking deductions from legal bills based upon the insurer's litigation or billing guidelines, approving rates at amounts less than those charged by defense counsel, and delaying payments of defense costs for unreasonable periods of time. These tactics leave policyholders feeling as though they did not receive the benefit of the insurance with respect to defense coverage and, in some cases, feeling that the defense of a claim is compromised. Fortunately for policyholders, there are ways to combat these practices.