Paying attorneys’ fees and other costs of a defense against a third-party lawsuit can deal a tremendous blow to a policyholder’s bottom line. Not surprisingly, some of the hardest fought battles between policyholders and insurers center on whether insurers have a duty to defend. Because an insurer’s duty to defend is broader than its duty to indemnify, when a lower court rules that a particular insurer has no duty to defend, many policyholders walk away from their policies and look for other sources of recovery. A recent case demonstrates that policyholders should not let their insurers off the hook so easily.
In Hartford Casualty Insurance Company v. DP Engineering, L.L.C., the appeals court held that insurers might have a duty to indemnify even though they had no duty to defend. Entergy hired the policyholder engineering company to assist in removing and refurbishing a 520-ton component at a nuclear power plant. The gantry used to lift the component collapsed, killing one worker, injuring others, and causing “massive damage” to the plant. The insurers contended that they had no duty to defend or indemnify the policyholder in the multiple lawsuits that arose from the incident, based on the professional services exclusions in the policies. The district court agreed with the insurers.
The Fifth Circuit Court of Appeals disagreed with this line of reasoning. Even though the insurers had no duty to defend because the actions alleged in the complaints fell within the professional services exclusions, the court said, the insurer could still have a duty to indemnify. The insurers’ duty to indemnify could only be determined after a final adjudication of the lawsuits because the allegations did not “conclusively foreclose” the development of facts involving the insured’s non-professional services, which would trigger coverage under the policies.
This case is a reminder not to walk away from coverage in the face of a loss on the duty to defend. Policyholders pay premiums to secure both the duty to defend and the duty to indemnify, and should fight for both coverages to avoid responsibility for a settlement or judgment that could be as damaging to the bottom line as the costs of defense.