A key consideration in developing a litigation strategy is whether or not insurance coverage applies to the causes of action at issue, which is important for both parties.  For the plaintiff, coverage can mean that he has a greater chance of collecting on his judgment if it is going to be paid from insurance proceeds.  For the insured defendant, insurance coverage can provide reassurance that, if any monetary judgment is awarded against him, he will not have to satisfy it from his own assets.  Equally important, his policy will also probably stipulate that the insurer will provide him with an attorney and legal defense for any claims covered by the policy.

The rules pertaining to the dual duties of an insurer to provide insurance coverage and a defense to the insured are well-established in Florida.  On the issue of indemnification for claims made against the insured, the construction of an insurance policy and the extent of coverage is a question of law for the court to decideJones v. Utica Mutual Insurance Co., 463 So.2d 1153 (Fla. 1985); State Farm Fire & Casualty Co. v. Lichtman, 227 So.2d 309 (Fla. 3d DCA 1969). On the other hand, it is for trier of fact to determine whether the facts of the case fall within the scope of coverage.  But, the duty to defend and the duty to indemnify are not coextensive, and the duty to defend is much broader than the duty to indemnify. West American Insurance Co. v. Silverman, 378 So.2d 28 (Fla. 4th DCA 1979).

It’s common for the insurer to reach a different conclusion from the insured on the issue of whether the claims alleged against the insured implicate the policy’s duties of defense and indemnification. This determination obviously has serious implications for the insured because the denial of coverage means that he will have to him to incur the expense of hiring an attorney to defend him.  However, insurers are not infallible—they make mistakes and will sometimes refuse to provide a defense even when, under the terms of the policy, they should.

For instance, in performing its due diligence and investigating the claim against the insured, the insurer may become privy to facts that are outside the allegations of the lawsuit, and its determination of coverage may be colored by those outside facts.  However, with respect to the duty to defend an insured, a liability insurer’s obligation to defend the claim must be determined solely from the allegations in the complaint.  State Farm Fire & Cas. Co. v. CTC Dev Corp., 720 So. 2d 1072 n. 3 (Fla. 1998).  Thus, only the causes of action alleged in the complaint are valid to the determination of whether the insurer has a duty to provide a defense to the insured; extraneous facts should not factor into the analysis.

Further, the actual facts giving rise to the lawsuit are not pertinent to the determination of whether the insurer has a duty to defend; the duty arises when the lawsuit against the insured alleges facts that fairly and potentially bring the suit within the terms of the policy.  Marr Invs., Inc. v. Greco, 621 So. 2d 447 (Fla. 4th DCA 1993); McCreary v. Fla. Residential Prop. & Cas. Joint Underwriting Ass’n., 758 So. 2d 692 (Fla. 4th DCA 1999).  In fact, the insurer must provide a defense to the insured even if the facts alleged are untrue or the legal theories alleged are unsound because, in determining if there is a duty to defend, only the allegations of the complaint factor into the analysis, regardless of what the insured and witnesses say actually happened. State Farm Fire & Casualty Co. v. Edgecumbe, 471 So.2d 209 (Fla. 1st DCA 1985); Grissom v. Commercial Union Ins. Co., 610 So. 2d 1299 (Fla. 1st DCA 1992).  The insurer’s duty to defend the insured, once invoked, continues throughout the case until the claims giving rise to coverage are eliminated from the suit.  Baron Oil Co. v. Nationwide Mut. Fire Ins. Co., 470 So. 2d 810 (Fla. 1st DCA 1985).

It is therefore advisable that, upon first learning of being sued, all defendants, whether individuals or businesses, request that their attorney review any and all insurance policies the defendant holds to determine if their insurer should provide them with a defense of the case.  This is true even if they already contacted their insurer themselves, requested coverage, and were denied.  Sometimes all that is required to reverse the insurer’s refusal to defend is a well-written letter from the insured’s attorney, providing a detailed analysis as to why the insurer has a duty to provide a defense.

However, the insurer will still sometimes refuse to defend the insured even after the insured’s attorney has provided the insurer with his opinion as to why the underlying lawsuit against the insured falls within the policy’s terms.  In those cases, it may be wise to consider a declaratory action against the insurer.

A declaratory action is where the insured files suit against his insurer, and asks the court for a declaration as to whether the underlying lawsuit against the insured implicates the insurer’s duty to defend him[1].  A declaratory action is like any other lawsuit, except that the judge is being asked to analyze the facts of the underlying lawsuit as they pertain to the policy at issue, and then determine if there is a duty to defend and/or indemnify the insured for the claims being alleged in the underlying suit; no damages are being sought.  A declaratory action can be a powerful tool in litigation, informing the insured and insurer of their respective rights and duties under the insurance contract, and providing the parties to the underlying action with strong motives in deciding whether to settle the case or not.  Further, under Florida Statute §627.428, attorney’s fees may be awarded to the insured if he prevails in his declaratory action for coverage that was previously denied.

Therefore, if an insurer has denied an insured’s initial demand for a defense or indemnification, it is advisable for the insured to have his attorney review the policy at issue to provide a legal opinion as to whether the insurer actually should be providing a defense or indemnifying the insured.