What is the duty to defend on renters insurance? I noticed it when I read my policy. Why would an insurance company defend me? What are they defending me against? How long does that duty last, and when does it kick in?
What Is The Duty To Defend On Renters Insurance?
The insurance company has a duty to defend a policyholder in the event that they are sued for something that could be paid under the policy. The insurance company doesn’t just pay claims on your liability coverage, they fight against them as well. If you’re sued, or a claim is made, for something that the policy would cover, the insurance company is there for you.
There’s even better news, too. The lawyer the insurance company provides is not their lawyer, it’s your lawyer. Their duty is to you as the client, even though the insurance company is the one paying the bills. It doesn’t matter who writes the check, it’s your attorney.
Why Would An Insurance Company Have A Duty To Defend A Policyholder?
The insurance company has a duty to three main groups of people that cause the duty to defend.
First, of course, is to you, the policyholder. The insurance company has agreed to indemnify you against claims up to the policy limit, and in so doing they’ve agreed to do more than just pay for that claim. Indemnifying you involved preventing you from suffering a loss as a result of the claim.
The claim itself isn’t the only potential loss. Fighting that claim can cost a great deal of money as well as time. To indemnify you properly, the insurance company is responsible for that defense.
The insurance company also has a duty to other policyholders, to avoid paying frivolous or false claims. That prevents rates from rising more than necessary, because if people thought there was a source of free money by making ridiculous claims against insurance policies, they’d exploit it all day long. That would cost enough money that rates would go up, which is unfair to other people who have policies with the company.
In addition, the insurance company has a duty to other stakeholders. That can include creditors, investors, and anyone else who is impacted by the financial security of the insurance company. The company is required to take steps to prevent unnecessary claims from being paid, and that includes defending against them.
It’s also important to note that negotiating a settlement is, in a way, a form of defense. If the insurance company agrees to settle a claim, it means that the claim is gone in return for payment at or below the policy limits. The company can also settle for policy limits and their job is done and they are removed from liability for the suit, so it’s important to make sure you have enough coverage. Liability on renters insurance is cheap, so you should generally have as much coverage as possible on that part of your policy.
There are a large number of people who are impacted by the decision to settle a claim, to fight a claim, or to litigate a claim. That’s why that decision is left up to the insurance company. If you make an offer to settle the claim on your own without the approval and backing of the insurance company, they likely are not responsible for paying that settlement.
That’s why you tender the claim to the company and then let them and the lawyer speak for you about the claim to everyone, including the person making the claim. You wouldn’t want something you say or do to be misinterpreted as a settlement offer, because it wouldn’t be paid by the company and they likely would not be obligated to defend you further.
How Long Does The Duty To Defend Last?
So long as there is an open claim against a policyholder and the policy limits have not been met, the duty to defend continues. The insurance company is not required to defend you once they’ve paid the policy limits, whether as part of a lawsuit or as a settlement of the claim, so that’s a good reason to have higher limits.
As soon as those policy limits are paid, that duty is over, so don’t cheap out on liability coverage.
Please keep in mind that claims and suits can last for years. Not all of them do, of course, but if it gets to the point of actually being fought out in court, that can take many years because of delays that are built into the process. Nevermind that it can take years to get to that stage to begin with.
When Does The Duty To Defend Kick In?
As soon as the insurance company is aware of a claim or suit, the duty to defend kicks in. The key is “company is aware.” They can’t reasonably be expected to defend you against a suit that they’re not aware of, of course, nor to reimburse you for money you spent on a defense that they weren’t aware was necessary or which might have been conducted with a different attorney or in a different way.
As soon as you’re aware of something that gives rise to or might give rise to a claim or suit under the policy, it’s imperative to notify your insurer. There is a limited amount of time to make the claim, and you also want to make sure that they’re able to offer the defense that should be offered from the very beginning.
How Can I Find Out More?
If you have additional questions about the duty to defend on renters insurance, or if you need to get renters insurance, work with the experts at Effective Coverage. One call can get you covered, and one call can make sure all your questions are answered. If you’re short on time and just need a policy, click above and you can be covered in sixty seconds!
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