Liability insurance policies generally provide both indemnification against loss and defense against claims and suits. The cost of defense is generally paid in addition to the policy limits for indemnity. The defense is thus an important feature of the policy. In fact, liability insurance is sometimes characterized as both indemnity and litigation insurance.
The insurer’s duty to defend is not without limits. The defense obligation is linked to the indemnity obligation in that the defense extends only to claims for which the insurer must indemnify the insured. Accordingly, policies generally stipulate that the insurer’s duty to defend ends when it has used up the policy limits in payment of judgments and/or settlements. Further, the policy gives the insurer the discretion to settle any claim against the insured and the insured’s consent to settle is not required.
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