What is the penalty to be assessed to a liability insurer for wrongfully denying the obligation to defend an insured? It has been axiomatic that an insurer's obligation to defend an insured is not based on the responsibility to indemnify. On the contrary, the duty to defend is measured by the allegations in the complaint juxtaposed against the policy provisions:
The duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be (Goldberg v. Lumber Mut. Cas. Ins., 297 N.Y. 148, 154, 77 N.E.2d 131). The duty is not contingent on the insurer's ultimate duty to indemnify should the insured be found liable, nor is it material that the complaint against the insured asserts additional claims which fall outside the policy's general coverage or within its exclusory provisions. Rather, the duty of the insurer to defend the insured rests solely on whether the complaint alleges any facts or grounds which bring the action within the protection purchased.
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