Insurance Law

Very Significant Duty To Defend Case: If You Read Only One Article In This Issue Of Coverage Opinions….

If you read only one article in this issue of Coverage Opinions, make it the one about my webinar – “The Definitive Reservation of Rights Checklist: 50 Things That Every ROR Needs.” If you read two, make this one the other.

There have been a lot of cases over the past few years, between Travelers and Centex Homes, involving construction defect coverage. I do not pay attention to them. It seems like a complex story and one that would be futile to understand if you came in late – like trying to understand Breaking Bad by only watching the last episode.

But I took a look at the latest episode of the Travelers -- Centex Homes mini-series and it was a whopper. And I understood it.

In Travelers Indemnity Co. v. Centex Homes, No. 11-3638 (N.D. Calif. Oct. 7, 2015), [subscribers can access an enhanced version of this opinion: | Lexis Advance], the court addressed Travelers’s duty to defend Centex, in construction defect litigation, under a policy issued to a Centex contractor.

Travelers acknowledged that it had a duty to defend Centex in certain actions. The issue at hand was whether Travelers had nonetheless breached the duty to defend because it had been late in acknowledging it. Well how late had it been? Not very. But as the court saw it, late is late – no matter how little. And that’s just half the story.

In one situation, a complaint was filed against Centex on April 19, 2011. With a responsive pleading due 30 days after a complaint is filed, Travelers’ duty to defend was not triggered until May 19, 2011. However, Travelers did not accept Centex’s tender until June 1, 2011. This means that, as the court put it, “there were at least 13 days during which Travelers had a duty to defend Centex but did not provide a defense. As a result, Centex had to employ its own counsel.” In another situation, Travelers did not accept Centex’s defense until 67 days after a response pleading to a complaint was required.

As if that’s not enough, the court also held: “A failure to provide counsel or to guarantee the payment of legal fees immediately after an insurer’s duty to defend has been triggered constitutes a breach of the duty to defend, even if the insurer later reimburses the insured [which Travelers had done].” (emphasis added).

What about Travelers’s right to investigate whether it owed a defense, you ask. The court addressed that. “Of course, an insurer is free to conduct an investigation beyond the point at which its duty to defend has been triggered. Such an investigation may lead to facts establishing that there is no possibility of coverage, thereby ending the insurer’s duty to defend. An insurer may not, however, deprive an insured of the security implicit in the duty to defend -- specifically, ‘the right to [immediately] call on the insurer’s superior resources’ as opposed to having to marshal its own resources to mount a defense against a claim that possibly falls within the policy’s coverage.”

As a result of the court’s conclusion that Travelers breached the duty to defend, Travelers lost the right to control Centex’s defense.

Should insures make duty to defend decisions as quickly as possible? Sure. But a court that holds that an insurer breached the duty to defend, despite acknowledging a defense just 13 days after an answer was due, and reimbursing the insured for its defense costs during this gap, unquestionably fails to recognize the realities of certain administrative issues involved in claims handling – especially at a large insurer.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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