Does Insurer Have Duty to Defend Non-Covered Lawsuit When Insured Proclaims Innocence?


By: Bill Buechner

An insurer’s duty to defend is generally determined by comparing the allegations in the complaint to the insurance policy.  If the allegations in the complaint arguably or potentially bring the claim within coverage, the insurer has a duty to defend the lawsuit, even if the allegations are false or unfounded.  Conversely, if the allegations in the complaint unambiguously demonstrate that the claims asserted are not covered under the policy, then the insurer does not owe a duty to defend.  Many states, including Georgia, provide for an exception to this rule when the insured informs the insurer of “true facts” that would bring a claim within the scope of coverage.  In that situation, the insurer has an obligation to conduct a reasonable investigation into the insured’s contentions and then determine whether there is a potential for coverage, in which case a duty to defend is triggered.   See, e.g., Colonial Oil Industries, Inc. v. Underwriters Subscribing to Policy Nos. T031504670 and T031504671, 268 Ga. 561, 491 S.E.2d 337 (1997).

When confronted with a lawsuit for which there is no coverage on its face, an insured sometimes will attempt to obtain a defense by informing the insurer that it denies the allegations in the complaint that are outside of coverage and then claim that the “true facts” therefore demonstrate that it is entitled to a defense.  Such an argument has some appeal on the surface, and a federal court in Georgia recently found a duty to defend in part on this basis.

Although there is relatively little case law directly addressing this issue, the logical conclusion of such an argument is that any insured could claim an entitlement to a defense in a lawsuit asserting only non-covered claims simply by denying the allegations in the lawsuit and demanding that the insurer provide a defense based on these “true facts.”   Obviously, that is not the intent of the typical insurance policy.  At least one court has rejected this “I didn’t do it” theory for a duty to defend a lawsuit asserting only non-covered claims. Nationwide Property & Cas. Ins. Co. v. O’Neill, 2013 WL 5972471, at *1 n.1 (M.D. Ga. 2013).

When confronted with such a tactic, an insurer should confer with coverage counsel before deciding whether to continue disclaiming coverage or whether to defend under a reservation of rights and then file a declaratory judgment action.