The Duty to Defend "Inextricably Intertwined" Actions

May 2, 2012

IADC Insurance and Reinsurance Committee Newsletter

The following is an excerpt from, "The Duty to Defend 'Inextricably Intertwined' Actions," originally published in the April 2012 issue of the IADC Insurance and Reinsurance Committee Newsletter.

In most instances, when an insurer defends its insured against an action seeking damages that are potentially covered under the policy, the defense is relatively straight-forward – the insurer provides a defense to the action and ultimately indemnifies the insured for those portions of any judgment or settlement that are covered under the policy. However, during the course of that defense, the insured may be subjected to a separate action that, while not itself potentially covered under the policy, is related to the defense of the potentially-covered action. Or, it may be that the insured is compelled to file a counterclaim for affirmative relief in conjunction with the defense of the potentially-covered action. In either event, there is typically no coverage under the usual liability insurance policy for these tangential matters. Yet, policyholders have been heard to argue that the insurer should fund these otherwise non-covered actions as part of its defense obligation vis-à-vis its defense of the potentially-covered action. The argument heard in support of that position is the so-called “inextricably intertwined” theory, specifically, that the legal and factual issues to be litigated in the non-covered action are so “inextricably intertwined” with those to be litigated in the covered action that the defense of the former is reasonable and necessary for the defense of the latter.

While the majority of courts would appear to reject such an argument, there are courts in various jurisdictions that have at least entertained the notion that an insurer’s duty to defend may include costs related to “inextricably intertwined” actions. This article will present the decisions on both sides of this issue and note how, if at all, they can be reconciled.

For the full article, please use the following link: The Duty to Defend "Inextricably Intertwined" Actions.