In policies containing a duty to defend, the insurer’s duty is held to be a very broad one, triggered whenever claims are asserted against the insured that are even potentially covered by the policy. However, the determination of whether particular claims are potentially covered is not always clear at the onset of a litigation. At that stage, claimants may not yet have articulated their claims with specificity and the underlying facts may not yet be fully developed.
To satisfy the broad obligation to defend their insureds, while at the same time protecting their right not to pay for claims not covered by the policy, insurers will frequently tender a defense subject to a reservation of rights. Often, the reservation of rights will expressly state that the tender of defense is conditioned on the right to recoup defense costs if it is ultimately determined that the claims are not covered. This practice has been upheld by many courts, most of which rely on a line of cases beginning with the 1997 Supreme Court of California decision in Buss v. Superior Court. In Buss, the Court upheld the insurer’s right to recoup defense cost payments made for non-covered claims, explaining that the insured should not be unjustly enriched by obtaining payment for claims for which it did not purchase coverage.1
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