What is the difference between defense and indemnification?
What does is really mean when you agree to defend as well as indemnify? It means that long before any legal liability is established, you have an obligation to retain an attorney and mount a defense on your client’s behalf. Under most circumstances, this is an obligation your insurer will likely refuse to accommodate. Remember, contractual liability coverage may afford compensation for defense costs once negligence is established, but absent negligence, there is no coverage. As a practical matter, the problem may well go away once the specific circumstances surrounding a loss are known. It may not be in your client’s interest to pursue your obligation to defend. On the other hand, your refusal or inability to retain counsel on behalf of your client could fuel the fires of the dispute. “Add it to the list” is an appropriate response here, but added fuel is not what is needed in a situation in which the interests of the parties might better be served by putting out the fire. Indemnify your client against costs of defense attributable to your negligence, if you must (and if your insurance stands behind it), but avoid agreeing to mount that defense if you can. That commitment is likely to be contrary to everyone’s interest in the long run.
PDI is an Indianapolis-based wholesale brokerage firm with a national network that includes thousands of insurance agents, brokers, architects, engineers and contractors in all 50 states. Since PDI’s beginning in 1980, we’ve handled a single line of coverage: errors & omissions (E&O) for design professionals. Contact Us today for a review of your design client's insurance program.