Insurance Companies And The Duty To Defend

You're not always trying to use your insurance policy to recover money because of an injury to you or your property. Sometimes you need your insurance company to protect and defend you, including hiring a defense attorney, against a claim brought by someone else against you because of a car accident, motorcycle accident, or other type of accident, such as those involving boats, products liability, trucks, trains, drunk driving, pedestrians, premises liability, dog bites, or fires or explosions. So when does your insurance company have a duty to defend you against such claims?

The starting point of this analysis, as it is with any insurance coverage dispute, is your insurance policy's language. It often doesn't matter what coverage you think you have; what's important is what your insurance policy actually states. So if you injure someone or their property but the circumstances of the injury aren't covered by your insurance policy, your insurance company is unlikely to have a duty to defend you against a claim brought by the injured party.

Under Iowa law, an insurer has a duty to defend whenever there is potential or possible coverage for the loss based upon the facts appearing at the outset of the case. Although courts usually look first and primarily to the lawsuit against you for the facts, it's sometimes necessary to expand the scope of inquiry to other facts that don't appear in the lawsuit itself. So in considering whether it has a duty to defend, an insurer should consider both the allegations in the underlying complaint and those facts that are known to it concerning the claim. 

Whether a duty to defend exists depends of the substance of the underlying allegations, rather than any specific theory of liability expressed. A commonly expressed legal rule is that insurance coverage is predicated on the assessment of the risk involved should the insured participate in a particular type of conduct and not the risk of the plaintiff’s choice of legal theories, meaning that your conduct leading to the loss, and not the label the plaintiff puts on the claims asserted against you in the lawsuit, is what's important. On the other hand, an insurer is not required to provide a defense when no facts presently available to it indicate coverage of the claim, merely because such facts might later be added by amendment or introduced as evidence at the trial. 

Oftentimes it's not entirely clear whether the claims asserted against you are covered under your insurance policy. It follows that it's frequently unclear whether your insurance company has a duty to defend you. In such situations, insurance companies will commonly exercise a "reservation of rights." A reservation of rights allows an insurer to agree to defend an insured against a claim or suit while simultaneously retaining the ability to evaluate, or even later reject, coverage for some or all of the claims alleged against you by the plaintiff. The reservation of rights gives the insurer the ability to fulfill its obligation under the policy to provide a defense and hire a lawyer for you while simultaneously protecting itself by carrying on an investigation that could allow it to later deny coverage.