Most liability insurance policies include a provision that requires the insurance company to defend the insured in a legal proceeding, that is hire an attorney to represent the insured and pay the insured's legal expenses in defending the lawsuit, when the lawsuit alleges a claim which is covered under the terms of the policy. In a September 9, 2020 decision, the Connecticut Supreme Court reversed a trial court’s entry of summary judgment in favor of an insurer and ruled that an insurer may be obligated to defend an insured in a legal proceeding when there is legal uncertainty as to whether the claim alleged against the insured is covered under a liability insurance policy. The Court joined a number of other courts across the country which recognize the doctrine of legal uncertainty as it applies to an insurer’s broad duty to defend an insured under a liability policy.
In Nash Street, LLC v. Main Street America Assurance Company, 2020 WL 5415325 (Sept. 9, 2020), the Court ruled that the doctrine of legal uncertainty applies when it is unclear how a court might interpret the policy language at issue and, as a result, it is unclear whether the alleged injury falls within coverage. According to the Connecticut Supreme Court, when there is a split of authority in other jurisdictions as to the meaning of a particular policy provision and the appellate authority in the relevant jurisdiction has not opined on the issue, the legal uncertainty as to how a court might interpret the policy requires an insurer to defend the insured under the policy. By adopting the doctrine of legal uncertainty, the Supreme Court reaffirmed an insurer’s broad duty to defend an insured in a legal proceeding when an allegation of a complaint falls even possibly within coverage under a liability insurance policy. The Court recognized the long-standing principle that ambiguous language in an insurance policy must be construed in favor of coverage for the insured. Put another way, any uncertainty as to whether an alleged injury is covered under a liability insurance policy works in favor of coverage for the insured. According to the Court, the uncertainty may be factual or legal. Factual uncertainty arises when it is unclear from the face of the complaint whether an alleged injury occurred in a manner that is covered by the policy. The Court stated that when there is factual uncertainty, an insurer must defend the insured until it is determined by a court when a particular injury occurred. By comparison, legal uncertainty arises when it is unclear how a court might interpret the policy language at issue and, as a result, it is unclear whether the alleged injury falls within coverage. Legal uncertainty may arise either because the language in the insurance policy is ambiguous or because there is a question as to whether the cases governing the insurance policy will be read to impose coverage in a given situation.
The decision in Nash Street, LLC is a good decision for insurance policyholders because it reaffirms that an insurer must defend its insured in a lawsuit when there is any possibility that the claim alleged against the insured may be covered by a liability policy. The question as to whether the claims falls within the coverage provided by the policy may be due to ambiguous policy language, uncertainty with respect to whether particular facts brings the claim within the terms of the policy, or because of uncertainty as to how a court may interpret the policy language at issue. As a result of the Supreme Court’s decision, the opportunities for an insurance company to avoid its duty to defend an insured under a liability insurance policy may be even more limited. You can review the entire Connecticut Supreme Court decision here.