Defense Under Reservation

Insurer wants to provide defense under reservation of rights. Do you have any recent decision as to the right (and the wisdom) of the insured to reject a defense under reservation and demand that the carrier either extend coverage or stand aside, and be exposed to the possibility of default judgment? I would think a conflict arises if an insurer is allowed to build a policy defense against the person it is defending.

Answer: It has been a while since I researched whether the insurance company can defend under reservation over the objection of the insured. I was surprised to learn authorities around the country are almost evenly split between those holding the insurance company must either defend unconditionally or get out of the case and those saying the insurance company can continue to defend even over the objection of the insured. For some reason, I am only finding the cases I cited in support of the proposition that the insurance company can’t defend under reservation without the insured’s permission. These are: Connolly v. Standard Casualty Co., 73 N.W.2d 119 (S.D. 1955); Boise Motor Car Co. v. St. Paul Mercury Indemnity Co., 112 P.2d 1011 (Idaho 1941); Hawkeye Cas. Co. v. Stoker, 48 N.W.2d 623 (Neb. 1951); and Beatty v. Employers’ Liability Assurance Corp., 168 Atl. 919 (Vt. 1933). My position on whether to demand the company defend unconditionally is determined by how strongly I think the insurance company feels about its coverage defense. I have found if they are not too proud of the coverage defense in the first place, they will usually abandon the reservation letter and agree to extend coverage. If they are real serious about the defense, you may well end up with a very expensive defense bill if you insist on the company making the decision.