“Duty to Defend” is an important provision in most Professional liability and Malpractice Insurance policies. This gives the insured the peace of mind that an insurer cannot just choose not to defend without clearly stating why the policy does not provide coverage. The reason that a “Duty to Defend” policy is purchased is to make sure the insurer is not left high and dry when a claim is reported. There are consequences for an insurer abandoning an insured with a “Duty to Defend” policy.
In 2008 Title Industry Assurance Company RRG (TIAC) (the Insurer) v First American Title Insurance Company (FATIC) and affiliates (claimants), (the insured) Chicago Abstract Title Agency LLC was sued by FATIC the claimants. The Insurer TIAC had four choices as to how to respond:
(a) Defend Chicago Abstract with‐ out reservation; or
(b) Defend while reserving its rights; or
(c) Seek a declaratory judgment concerning the scope of coverage. TIAC could also
(d) Decline to defend, but only if the allegations in the complaints against Chicago Abstract clearly fell outside the scope of the insurance policy, and then only at its peril. Under Illinois Law, when a liability insurer unjustifiably refuses to defend a suit against its insured, the insurer will be estopped from later asserting policy defenses to coverage.
TIAC declined to defend the suit. The years past the insured Chicago Abstract had liquidated and dissolved in 2009. In 2014, the claimants filed a 4th amended complaint against Chicago Abstract. TIAC attempted to have a declaratory action in federal court stating there was no coverage because of 2 policy exclusions. The Federal District Court and now the 7th Circuit ruled against TIAC stating that TIAC breached its duty to defend the insured and is now estopped from asserting policy defenses. As the Knights Templar stated in Indiana Jones and the Last Crusade, TIAC choose poorly.