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A liability policy imposes two separate and distinct duties upon an insurer: a duty to defend and a duty to indemnify. The duty to defend requires that the insurer provide legal counsel to its insured in the event of a lawsuit, while the duty to indemnify requires the insurer to satisfy a judgment entered against its insured. An insurer’s duty to defend can be triggered without activating the insurer’s duty to pay for the loss. This is because all jurisdictions find the duty to defend to be greater than the duty to indemnify.

The Majority Rule

Historically, the allegations in the complaint determine whether an insurer has a duty to defend. The “four corner rule” requires an insurer to defend its insured if any of the allegations in the complaint, even if untrue, would be covered under the policy. Over time, the four corner rule has been judicially eroded by expanding the triggering mechanism of an insurer’s duty to defend. Instead of strict comparison of the allegations in the complaint to the subject policy, a majority of jurisdictions require an insurer to provide a defense when it has extrinsic evidence—evidence known to the insurer learned through its investigations of the claim, even though that information is not pled in the complaint.

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