Insurance Law: Duty to Defend; Duty to Indemnify

What is required of my auto insurance company if I’m sued in a car accident lawsuit?

 You raise an important question.  After all, month after month, you dutifully pay your automobile insurance premiums.  If another driver injures you in an auto accident, you probably know that you can file a personal injury lawsuit against the at-fault driver for your injuries.  But, what if you are the at-fault party?  In that case, what exactly are you entitled to when it comes time for the insurance company to do their job?  In Texas, the rights and responsibilities of both you, the insured, and the insurance company are defined by the contract you entered into when you purchased or renewed you automobile insurance policy.  Generally, your car insurance contract likely imposes upon your insurance company the duty to defend against a claim.  For the insurance company’s duty to defend to be triggered, the claim must be within the scope of coverage.  Whether a claim falls within our outside of the scope of coverage depends on the terms of you auto policy.  However, as in most areas of life, insurance law is not always clear-cut, and disputes can and do arise about whether a claim is covered.  Under Texas law, all doubts about whether a potential claim is within the scope of coverage should be resolved in favor of the customer. 

Your insurance company also has a duty to indemnify you, the insured, against claims.  What this means is that if a claim is within the scope of coverage, and the claim is meritorious, the insurance company must pay that claim.  Of course, the insurance company is only obligated to pay up to your policy limits.  The scope of the duty to indemnify is explained in a landmark Texas Supreme Court case, G. A. Stowers Furniture Co. v. American Indemnity Co.  The doctrine emanating from that case requires that an insurance company accept a settlement offer for a claim that is made within policy limits, if it appears likely that the claim is meritorious and that the claim, if taken to trial, may result in a larger verdict.