4.4 Common Policy Provisions and Conditions

Insurer Provisions

Duty to Defend

When a covered liability claim is made against an insured, the policy's Insuring Agreement generally requires the insurer to defend the insured in legal proceedings. This obligation is known as the duty to defend and may include investigating the claim, hiring legal counsel, and paying court-related expenses. Defense costs are typically paid in addition to the policy's liability limit. Therefore, these expenses do not reduce the amount available to pay covered judgments or settlements. However, the insurer's duty to defend generally ends once the applicable policy limit has been exhausted through the payment of covered judgments or settlements.

As part of its duty to defend, the insurer generally has the right to negotiate and settle a claim when it determines that a settlement is appropriate. However, some policies contain a Consent to Settle provision, which requires the insurer to obtain the insured's approval before agreeing to settle a claim or lawsuit.

Claim expenses, also known as supplementary payments, are costs the insurer pays while investigating, defending, and resolving a covered liability claim. These expenses may include premiums for appeal bonds, interest that accrues before or after a judgment, and reimbursement for the insured's lost earnings while assisting with the defense. Supplementary payments are generally paid in addition to the policy's liability limits and do not reduce the amount available for covered judgments or settlements.

Common Casualty Policy Conditions

Severability

The policy's coverage applies separately to each insured as though each person or organization had an individual policy. However, applying coverage separately does not increase the policy's overall limit of liability.

The Separation of Insureds provision clarifies that coverage applies individually to each insured. If one insured fails to comply with a policy condition, that failure does not automatically eliminate coverage for the other insureds. The provision may also allow coverage when one insured files a claim or lawsuit against another insured, subject to the policy's exclusions and other terms. However, all insureds share the same policy limits, and the separation of insureds does not increase the total amount of coverage available.

Bankruptcy

If the insured becomes bankrupt or insolvent, the insurer must still fulfill all duties and obligations required under the policy.