What are the primary obligations of the insurer?

The primary duties of an insurer in an insurance contract are as follows:

Payment for Losses

An insured is responsible for indemnifying the policyholder or paying for the losses suffered by the insured or a third party as a result of a covered risk.

Example: Lynn gets into an automobile accident that is his fault. The insurance carrier may be obligated to pay the cost of Lynn’s injuries, the injuries to the other driver, and the cost of damages to both Lynn and the other drivers car.

Duty to Defend

An insurer generally has the duty to defend or pay the legal expenses of an insured who is subject to a legal action for the covered risk.

Example: Hank has professional liability insurance for his accounting practice, the insurer will be obligated to defend Hank if a client brings a civil action against Hank alleging negligence in his accounting services.

Subrogation

An insured inherits the identified interest of the insured based upon the occurrence of the covered risk. The insurer may then seek recovery or contribution for harm suffered (funds paid to the insured or third parties) based upon the harm to the insureds interest.

The majority of all civil litigation in the United States involves insurance coverage. Failure of an insurer to comply with its duties under an insurance policy is a common subject of litigation, known as bad-faith refusal.