Type: Articles Published
Courts in several states apply a strict rule to enforce the duty to defend found in most liability insurance policies. This rule encourages insurers to honor their defense obligations by extending liability for breaching a duty to defend beyond the standard compensatory damages of the insured’s costs of defense. Under this rule, “an insurer will be precluded from denying coverage after it has unjustifiably refused to defend.” The insurer will be liable for a settlement the insured reaches or a judgment against the insured, even where the judgment is based on a claim that falls outside its policy’s coverage. The rule is commonly called the “Illinois estoppel rule”3 because it developed in Illinois and the Illinois Supreme Court has traditionally been its “leading proponent.