Insurers Says Court Decision Makes Mockery of "Duty to Defend"

A recent Maine Supreme Judicial Court decision requiring an insurance company to provide legal defense for a policyholder, even when the complaint does not allege a covered act, could increase costs for everyone, according to the National Association of Independent Insurers (NAII).

The original case, York Insurance Group v. Lambert, involves a defendant in a probate action charged with breaching fiduciary duty, conversion, and interference with the expectancy of inheritance, who attempted to collect for economic damages under his homeowners policy. A lower court ruled that the insurer had no duty to defend the policyholder because the damages sought were economic and not covered under his policy.

The Supreme Court, however, determined that "a potential exists that the facts alleged may result in bodily injury within the coverage of the homeowners policy," and that the insurer has a duty to defend.

"By overreaching like this, the Maine Supreme Court makes a mockery of an insurer's duty to defend its policyholders," said Gerald Zimmerman, associate counsel for the NAII. "They have determined that the mere possibility of bodily injury is reason enough for an insurer to defend a policyholder -- even if the policy language specifically excludes economic damages."

He added, "This dangerous precedent could clog up the courts with frivolous lawsuits and cost insurers even more in legal defense. For Maine consumers, it could mean higher premiums to accommodate these increased expenses. Nobody wins in this scenario except the trial lawyers."