This document summarizes the duty to defend for insurers and the consequences for breaching that duty. It discusses how the duty to defend is broader than the duty to indemnify and is triggered if there is any possibility of coverage. It also outlines that an uncontested judgment against the insured is binding on the insurer if it wrongfully refused to defend. The insurer cannot later re-litigate the underlying case and is responsible for the judgment amount, attorneys fees, and other costs resulting from the failure to defend.

1. American Conference Institute 2013
Duty to Defend –
Consequences for Breach
Arnold Levinson
Pillsbury & Levinson LLP
San Francisco, CA
alevinson@pillsburylevinson.com
(888) 433-8335
Timothy E. Delahunt
Kenney Shelton Liptak Nowak LLP
Buffalo, NY
TEDelahunt@kslnlaw.com
(716) 853-3801

2. Defense
• Duty to pay for an attorney to defend action
against the insured
• Determined at the beginning of the case
• Duty to defend is much broader than duty to
indemnify
• Attaches if there as any possibility that there
will eventually be coverage

3. Essential Elements - Duty to Defend
• Issue of fact mandates defense coverage
• Any possibility of coverage triggers defense
obligation
• Unless summary judgment can be granted for
the insurer, there s a duty to defend

4. Consequences of Breach
• Duty to Defend
• Attorneys fees
• Amount of the judgment regardless of whether
there is coverage if the judgment was the result of
the failure to defend
• Uncontested trial is binding
• Insurance company has no right to re-litigate
underlying action to attempt to prove that it
should have been a smaller judgment

5. What is the Difference Between a Stipulated
Judgment and an Uncontested Judgment?
• Stipulated Judgment is By Agreement
• Settlement Agreement
• Parties stipulate to one issue (such as liability, agency,
scope of employment, comparative negligence)
• Parties stipulate as to the amount of damages, or
• Parties stipulate to the amount of the judgment

6. What is the Difference Between a Stipulated
Judgment and an Uncontested Judgment?
• Judgment after uncontested trial is in nature of
default in which judge hears evidence and
enters a judgment
• Judge determines all legal and factual issues,
including liability and damages
• Evidence is submitted
• Judge enters judgment based on evidence and
argument

7. Uncontested Judgment Is Enforceable
“These circumstances necessarily involve
significant independent adjudicatory action by
the court, thus mitigating the risk of a
fraudulent or collusive settlement between an
insured and the claimant. Final judgments
entered under either of these circumstances
are binding on the insurer [which] has
wrongfully abandoned its insured . . .” Pruyn v.
Agricultural Ins. Co. (1995) 36 Cal. 4th 500, 517

8. Insurer Cannot Relitigate Underlying
Action
“Transamerica officials were aware of the
lawsuit, had notice of Transamerica’s
potential liability, and chose to stay out of
the lawsuit. Transamerica is bound by the
result of that lawsuit as fully as if it had
participated in it from the start.” Samson v.
Transamerica Ins. Co. (1981) 30 Cal.2d 220,
229

9. “An insurer which has breached its
contract [to defend] is properly
bound by the result of such
[uncontested] trial proceedings”.
Pruyn v. Agricultural Ins. Co. (1995)
36 Cal.App.4th 500, 517

10. • The insurer “knew or should have known
that judgment against its insured would
form the basis for a later claim against it...
Instead of protecting itself... it chose to
remain silent, resting on its claim of
noncoverage. Having failed to pursue
remedies thus available to it, it cannot now
claim prejudice or lack of opportunity to
litigate damages.” Clemmer v. Hartford Ins.
Co. (1979) 22 Cal.2d 865, 886

11. • “He
need not indulge in financial masochism,
however. Whatever may be his obligation to
the carrier, it does not demand that he bare
his breast to the continued danger of
personal liability. By executing the
assignment, he attempts only to shield
himself from the danger to which the
company has exposed him.” Pruyn v.
Agricultural Ins. Co. (1995) 36 Cal.App.4th
500, 519, n.19

12. Rights Of Parties After Uncontested Trial
• Insurance company cannot re-litigate
underlying action
• No discovery directed at re-litigation the
underlying action
• Policy and statutory requirements for an “actual
trial” are satisfied
• Insured no longer required to cooperate
“Need not commit financial Masochism”