The Duty to Defend and Potentiality
In the leading case of Gray v. Zurich Ins. Co. 65 Cal.2d 263, 54 Cal. Rptr. 104 (1966) the Supreme Court of California set the basic rule followed in most jurisdictions for deciding whether an insurer owes a duty to defend or not. It found that insurers issuing dual-promise policies (a promise to both defend and indemnify) are required to defend any suit in which there is a potentiality that the insurer will have to indemnify.
The insured in Gray was alleged to have assaulted and battered the plaintiff. The policy, and the statutes of California, prohibited indemnity for an intentional act of an insured. Assault and battery are, by definition, intentional acts, so the insurer argued that it owed no defense.
The complaint against the insured only alleged the intentional tort of battery. The court concluded the insurer should be compelled to defend since there was a potential that the complaint could be amended, or the jury could find, the insured’s actions were merely negligent. The court’s decision was founded in the wording of the policy, concluding that the duty to defend was broader than the duty to indemnify. The insurer’s agreement to defend suits even if they were “false or fraudulent” caused the court to conclude that the insurer agreed to extend the duty to defend far beyond those acts for which coverage for indemnity might exist.
The potentiality concept has expanded the exposure of insurers insuring personal and commercial risks. Even though a policy excludes liability arising from violations of law, there is the potentiality that the jury would find there was no violation of law and that the policy provided coverage.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost
equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.