Insurer Control of Defense - Essay Example

Does the insurer have a duty to defend? If so, on what grounds?

The insurer has a duty to defense before a court of law.  Insurance companies lose the right to defense only when there is conflict of interest. Insurance companies do not compensate the insured automatically before thorough analysis of the real cause of the losses which call for compensation. According to Devine (2006), the insurance company has a duty and a right to defend itself basing this on the principles governing the insurance contracts as stipulated in insurance law. Mr. and Mrs. Turner entered into an insurance contract with Youngston Company when they took a cover against any liability that arises other than injuries resulting from discharge, release, dispersal or escape from pollutants. These clauses specified the kind and extent of losses to be compensated whenever such specific liability arises. The policy language excluded losses suffered due to discharge, dispersal, release, or escape of pollutants. From the excerpt, we noted that the child became ill because of too much lead in the body system. Insurance company should defend itself basing this on the language of the cover i.e. the cover would not cover any liabilities resulting from losses suffered due to escape of pollutants. In addition, the company is not liable for the losses suffered by a third party.

 During the inception of the insurance contract, neither Mr. and Mrs. Cavanaugh nor any other person who rented the apartment was mentioned in the contract. Since, the child belongs to the third party; the insurance company has a duty to defense based on this. However, the insurance policy issued by the company did not specify exactly the boundaries of compensation. The exclusion language did not mention the specific pollutants which will be covered by the policy. In addition, the policy cover did not specify whether the company should compensate for any damages suffered by the third party. It is therefore the decision of the court to ensure justice and fairness is done (Barker, 2004).

If the insurer must defend, will the insurer need to indemnify? If so, explain why?

Under Insurance law, the holding on the duty to defense induces the conclusion that the insurer cannot stay away from the duty to indemnify the insured. Defending does not guarantee exemption from indemnification. Indemnification is affected by the pleadings of the insurer in the underlying actions that led to damages. Youngstown Company does not have any right to declare that it cannot indemnify Cavanaugh for the damages suffered. The decision of whether the insurance company should indemnify or not depends on the facts that are brought to the state court (Willis, 2004).

As mentioned above, the insurer must defend itself basing it on the grounds discussed. Youngstown Insurance Company is the indemnifying party and is responsible for the losses suffered by Cavanaugh. The process of compensation is done according to the rules of damage. This insurance policy cover was not specific enough as it did not mention whether or not the company should compensate for the losses suffered by the third party Devine (2006).

It does not clearly specify the type of losses that the company should compensate. Even though there is an exclusion language that exempts the insurer from compensating, lead pollution was not specified. The company is obliged to indemnify Cavanaugh because of the fact that the policy does not specify whether it covers losses suffered by third parties or not. Turner took a general commercial liability. Too much lead does not constitute discharge, dispersal, release, and escape of pollutants hence the policy is enforceable in a court of law.  The losses suffered by Cavanaugh’s family resulting from the sickness of their child are not covered in the exclusion language (Barker, 2004).

What should the insurance company do to avoid having a duty to defend or indemnify these types of cases in the future?

It is imperative for both parties to the insurance contract to strictly observe principles of insurance. Insurance companies should ensure that clients who intend to take insurance policies should understand the terms and conditions which governed compensation upon any losses. They should not hide material information from them so as to avoid complications in the future. It is the duty of the insurer to reveal factors affecting compensation upon any losses. Policyholders should evaluate the situations under which the insurer will not be liable for damages suffered. Insurance companies are obliged to teach clients all the exclusion languages which affect indemnification. The company should revamp its clauses so as to enable the policyholders to understand the extent to which the company is liable for losses or damages suffered by them. In a general commercial liability policy, it is imperative that the company explains the kind of losses that will be compensated (Willis, 2004).  

Litigation arises from a misunderstanding over the extent of coverage of a policy. Some policyholders take extreme positions in trying to fabricate or rationalize the extent to which the policy should cover. This calls for a good understanding of the intricacies surrounding the insurance contracts. It is therefore imperative that parties to an insurance contract understand the principles therein. Insurance companies should clarify these principles to the clients so that they may understand before making decisions on whether to take the cover or not. This enables the two parties to avoid future misunderstandings.