Many traditional liability insurance policies contain provisions specifying that in the event of a claim the insurer has the duty to defend the insured. However, many management liability insurance policies do not impose a duty on the insurer to defend the insured; rather, these policies usually provide that insureds will defend themselves, with the obligation on the insurer to advance defense costs as they are incurred, subject to all of the policy’s terms and conditions. However, because defense obligations under the more traditional duty to defend arrangement are well established and more familiar to many courts, courts sometimes attempt to resolve issues arising under duty to advance policies by referring to principles established with regard to duty to defend policies.

In a recent decision, the Ninth Circuit declined to apply duty to defend principles to interpret a D&O insurer’s duty to advance, holding that the insurer’s duty to advance extended only to actually covered claim and not to potentially covered claims as would be the case under a duty to defend policy. The appellate court also affirmed the district court’s rulings with respect to the applicability of the policy’s wage and hour claims exclusion; the policy’s definition of “loss,” precluding coverage for amounts deemed “penalties” in the applicable statute; and the insured vs. insured exclusion. A copy of Ninth Circuit’s June 17, 2020 opinion can be found here.
Continue Reading D&O Insurer’s Duty to Advance Defense Costs Applies to Covered Claims, Not Potentially Covered Claims