Insurer's Duty to Defend California
It is firmly established the duty to defend is broader than the obligation to indemnify. the former arises whenever an insurer ascertains facts that give rise to the possibility or the potential of liability to indemnify. Unlike the duty to indemnify which arises only when the insured's underlying liability is established, the duty to defend must be assessed at the very outset of a case.
The determination whether an insurer owes a duty to defend is made in the first instance by comparing the terms of the policy with the allegations of the complaint. Facts extrinsic to the complaint give rise to a duty to defend when they reveal the possibility the claim may be covered by the policy.
Conversely, where such facts eliminate the potential for coverage, the insurer may decline to defend even where the bare allegations of the complaint suggest potential liability.
This is so because the duty to defend, although broad, is not unlimited, but rather measured by the nature and kinds of risks covered by the policy.
An insurer may have a duty to defend even though it ultimately may have no obligation to indemnify, either because no damages are awarded in the underlying matter against the insured or because the actual judgment is for damages not covered under the policy.
Finally, the duty to defend is a continuing one, arising upon tender and lasting until the underlying litigation is resolved, or until the insurer has established there is no potential for coverage. (Montrose II, supra, 10 Cal. 4th at p. 659, fn. 9; Montrose I, supra, 6 Cal. 4th at pp. 295, 299-300; Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal. 4th 1076, 1081 [17 Cal. Rptr. 2d 210, 846 P.2d 792]; Gray v. Zurich Insurance Co. (1966) 65 Cal. 2d 263, 274, 276 [54 Cal. Rptr. 104, 419 P.2d 168]; Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal. 4th 1, 19 [44 Cal. Rptr. 2d 370, 900 P.2d 619]; Borg v. Transamerica Ins. Co. (1996) 47 Cal. App. 4th 448, 454-455 [54 Cal. Rptr. 2d 811].)
Equally established is that "when a suit against an insured alleges a claim that potentially or even possibly could subject the insured to liability for covered damages, an insurer must defend unless and until the insurer can demonstrate, by reference to undisputed facts, that the claim cannot be covered." ( Borg v. Transamerica Ins. Co., supra, 47 Cal. App. 4th at p. 455.)
For example in a declaratory relief action, "To prevail, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential.
In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.
Facts merely tending to show that the claim is not covered, or may not be covered, but are insufficient to eliminate the possibility that resultant damages (or the nature of the action) will fall within the scope of coverage, therefore add no weight to the scales.
Any seeming disparity in the respective burdens merely reflects the substantive law." (Montrose I, supra, 6 Cal. 4th at p. 300.)
"A duty to defend does not exist only when the underlying complaint ' ". . . can by no conceivable theory raise a single issue which could bring it within the policy coverage." ' for this reason, where there is any doubt as to whether the duty to defend exists, that doubt must be resolved in favor of the insured and against the insurer." ( Borg v. Transamerica Ins. Co., supra, 47 Cal. App. 4th at p. 455; Maryland Casualty Co. v. National American Ins. Co. (1996) 48 Cal. App. 4th 1822, 1831 [56 Cal. Rptr. 2d 498].)