If you ever have referred a claim to your commercial general liability (CGL) insurance carrier for defense of a lawsuit, you probably received a dense letter quoting and interpreting your policy and providing coverage analysis. Such a letter will often be styled as a "reservation of rights" letter whereby the carrier agrees to provide a defense, subject to certain limitations, and notifies you coverage for a claim may not apply. It is a common and certainly understandable reaction to skim or skip the legalese and simply flip to the last page and read the conclusion to find out whether the insurer will be providing a defense. But lurking within those pages may be potentially devastating language that can put you on the hook for tens of thousands of dollars in attorneys' fees.
The language at issue may be only a sentence or two buried in the coverage analysis, such as: "Insurer reserves the right to seek recovery of defense costs incurred in the defense of the insured in the event that it is determined that no such defense was owed." In some states, this reservation is ineffective. In others, it is enforceable but only if the insured does not respond and object. In other states, it is enforceable regardless of any objection by the insured.
It is important you understand the rules that apply to your policy. Typically, the law governing the policy is the law of the state in which the policy is issued. In most cases, if a lawsuit is filed alleging you are responsible for bodily injury or damage to property other than the work itself, you can forward the claim to your CGL carrier, who must appoint an attorney to defend the claim even if uncovered claimssuch as damage to the roofare included in the lawsuit. The traditional interpretation and application of the rules governing CGL carriers' duty to defend and indemnify their insured entitles you to a complete defense against all claims, including those individual claims for which insurance would not be available, with the understanding that any sums awarded to the plaintiff for uncovered losses would be paid by you.