In most states, the test for whether an insurer will have a duty to defend is whether the suit against the insured might eventuate in a judgment covered by the duty to indemnify, that is, the insurance company’s obligation to pay for the damages owed by the insured on account of bodily injury, property damage, or wrongful acts. If the claim against the insured permits proof of a covered indemnity claim, the insurer has a duty to defend. Thus, if a “lesser included offense” would be covered by the duty to indemnify, the insurer has the obligation to mount a defense. E.g., Abrams v. General Star Indem. Co., 67 P.3d 931 (Ore. 2003) (conversion claim).

Naturally, if an insurer has a duty to defend where the claim or suit against the insured (only) might result in a covered judgment, the insurer’s obligation to defend may apply even though the judgment ends up being uncovered. E.g., Tanner v. State Farm Fire & Cas. Co., 874 So.2d 1058 (Ala. 2003); Automobile Ins. Co. v. Cook (N.Y. July 26, 2006). (Note that public policy does not prevent the insurer from having a duty to defend even if that public policy would bar the insurer from indemnifying the insured for its deliberate misconduct. E.g., Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076 (Cal. 1993).) In this way, the duty to defend is broader than is the duty to indemnify: a claim might need to be defended even if it need not be paid -- or it is uncertain whether initially the claim will need to be paid by the insurance company. E.g., Fresno Econ. Import Used Cars, Inc. v. United States F&G Co., 142 Cal. Rptr. 681, 685 (Cal. App. 1977). (Note if that certainty that there is no duty to indemnify comes into focus from the undisputed facts developed in the underlying case, the insurer may be able to terminate its defense, prospectively. See Firco Inc. v. Fireman's Fund Ins. Co., 343 P.2d 311 (Cal. App. 1959); Mayerson, Insurance Recovery of Litigation Costs, at 1000 & n. 16; see also Sterlite Corp. v. Continental Cas. Co., 458 N.E.2d 338, 344 (Mass. Ct. App. 1983) (holding that an insurer "can, by certain steps, get clear of the duty [to defend] from and after the time when it demonstrates with conclusive effect on the third party that as a matter of fact -- as distinguished from the appearances of the complaint and policy -- the third party cannot establish a claim within the insurance," but that "[w]hat is not permitted is that an insurer shall escape its duty to defend the insured against a liability arising on the face of the complaint and the policy by dint of its own assertion that there is no coverage in fact.") .

But what about the situation where the allegations of the complaint, if true, show there is no duty to indemnify and there is no covered lesser-included offense? Insurers typically argue, often with success, that there is no duty to defend such a complaint. E.g., Farmland Mut. Ins. Co. v. Scruggs, 886 So. 2d 714 (Miss. 2004). The paradigm case involves allegations of an intentional tort against the insured the essential elements of which negate coverage.

The intentional consequences of an intentional act may still be the basis for coverage, where the legal consequences are not anticipated by the insured. The Illinois Court of Appeal addressed a recurring fact pattern recently, where a contractor cut down trees on the wrong property. Finding it “immaterial that the underlying complaint alleges intentional torts,” the Illinois court found that the insured did not expect liability for the physical injury of cutting down the trees. Pekin Ins. Co. v. Miller, 854 N.E.2d 693, 696 (Ill. App. 2006).

Recently, the Eighth Circuit was called upon to get involved with a domestic love triangle, in which the insured had an affair with someone’s wife, and the cuckold filed suit for alienation of affections. The policy provided coverage for “loss,” defined as an “accident . . . which results in bodily injury.” The insurer conceded that the injury at issue was bodily injury (though without any physical harm being alleged, cf. Lavanant v. General Accident Ins. Co., 595 N.E.2d 819 (N.Y. 1992). The insurer denied coverage, however, on the ground that affairs of the heart (or body) are not accidents or, in this case, that the cuckold’s injury was “expected or intended” by the insured.

The Eighth Circuit in Pins v. State Farm Fire and Cas. Co. (8th Cir. Feb. 8, 2007) analyzed the elements of proof for the tort claim of alienation of affections under the applicable law (South Dakota). The court found that “intent to injure the marital relationship” was the sine qua non of the tort. As the court explained, “ ‘the acts must have been done for the very purpose of accomplishing this result.’” Slip op. at 4 (citation omitted). The policyholder argued that the record was not sufficient to find conclusively that he expected/intended injury; but distinguishing prior authority, the Eighth Circuit found there were no circumstances where an “accidental loss was even arguably possible.” Slip op. at 5. The court concluded that proof of the underlying tort ipso facto and ipso jure meant the injury was expected or intended, holding:

[T]he comfort and consortium injuries alleged by [the husband] were sufficient to state a claim for alienation of affections, and under South Dakota law, [the husband] could not recover on this claim unless he proved that Pins intended to cause those specific injuries. In these circumstances, any ‘loss’ to [the husband] was ‘expected or intended’ by Pins and could not be deemed an ‘accident.’ Therefore, State Farm had no contractual duty to defend.

Slip op. at 5. Put differently, the court found that State Farm issued a homeowner’s policy, not a home-wrecker’s policy.

The Eighth Circuit’s conclusion that there was no duty to defend where the elements of proof by definition negated coverage is consistent with a Tenth Circuit opinion decided two months before, Notwen Crop. v. American Economy Ins. Co. (10th Cir. Dec. 1, 2006). The gravamen of the underlying tort in Notwen was that trade secrets were misappropriated and the tortfeasor-insured allegedly used corporate and bankruptcy maneuvers to try to shield its misconduct. While recognizing that unintended consequences of an intentional act still may qualify as covered conduct, the court found that the complaint against Notwen admitted of no such possibility. Compare Cincinnati Ins. Co. v. Eastern Atl. Ins. Co., 260 F.3d 742 (7th Cir. 2001). As in Pins, the policyholder sought to argue that there was a dispute of fact whether it was culpable and that those facts should be aired out in the underlying action – which the insurer should be defending. The Tenth Circuit rejected this argument in part reasoning:

[T]he argument is patently circular, rendering the exclusion of intentional torts from the liability policy meaningless, at least under the circumstances presented here: it asserts, in effect, that a duty to defend against intentional-tort claims excluded under the policy is nevertheless triggered whenever the insured seeks to defend itself (with the insurer’s assistance) in a lawsuit alleging intentional-tort claims.

Cf. Evett v. Corbin, 305 S.E.2d 469, 472 (Mo. 1957). While courts are reluctant to confer on insureds the power to compel their insurers to defend solely by their incanting a denial of the allegations, policyholders reasonably do expect their insurers will protect them when they are wrongly accused of torts.

Many insurance-coverage lawyers are familiar with the California Supreme Court’s landmark decision in Gray v. Zurich Ins. Co., 419 P.2d 168 (Cal. 1966), but there is a lesser-known companion case to Gray decided concurrently that addresses the important issue of insurers’ duty to defend against intentional torts. Lowell v. Maryland Cas. Co., 65 Cal.2d 298 (1966). Standard liability policies provide that the insurer will defend an insured “even if such suit is groundless, false or fraudulent.” The California Supreme Court in Lowell found this "groundless, false or fraudulent" language to be key in giving rise to a reasonable expectation that the insurer will defend a suit that if the allegations were true would not be covered but where the insured also could obtain a defense verdict of non-liability. (This is different from an insured not being liable for intentional injury but being held liable of the lesser-included offense of negligently caused injury.) So long as there was a substantial basis for the insured’s contention of non-liability, the insurer is required to defend:

The insured could reasonably expect that the insurer would furnish him a defense against the “groundless” charge that the insured had committed an assault and battery against the third party. The insured would not expect that the insurer could avoid the obligation of defense on the ground that such obligation covered only ‘accidents” which were indemnifiable under the policy and that an assault and battery was not such an indemnifiable “accident.” The policy promised a defense “even if [the third party] suit is groundless.”

65 Cal. 2d at 301. Lowell was in some regards an easy case because the insured obtained a defense verdict in the tort case and the policy expressly afforded defense to "groundless, false or fraudulent" claims; the exclusion for assault and battery did not apply (since the insured was found “not guilty”). See Travelers Ins. Co. v. North Seattle Christian and Missionary Alliance, 650 P.2d 250, 254 (Wash. 1982). Thus, given that Lowell was -- if defense were not granted -- an insured who would be left with a gap in coverage for defense costs that inurred to the insurer's benefit (by avoiding a potentially larger loss or a change in the course of the mounting of the successful defense, cf. Arenson v. National Auto. & Cas. Ins. Co. , 48 Cal.2d 528 (1957) ), the court reached out to find an obligation to reimburse the cost of the successful defense. Nevertheless, forty years after Lowell insurers and insureds continue to tangle over the applicability of the duty to defend to cases of intentional torts.