The Maine Supreme Court in Harlor v. Amica Mutual Ins. Co., 2016 WL 6518589 (ME November 3, 2016) held that when an insurance company refuses to defend its insured on a mixed complaint containing allegations of both potentially covered and uncovered claims the insurer would be liable only for that portion of the settlement between its insured and the claimants representing payment for covered claims.
In Harlor the insurance company concluded that the multi-count complaint filed against it’s insured, did not alleged covered damages. When the insurance company declined the defense of it’s insured the insured enter into a settlement agreement with the claimant, completely settling the claim on all counts. The insured than sued the insurance company alleging breach of contract. The Court concluded that the insurance company breached its duty to defend because at least one count of the complaint was potentially covered. The insured then argued that because the insurance company breached its duty to defend, the insurance company was liable for the entirety of the settlement that the insured entered into with the claimant. The Maine Supreme Court rejected this approach.
The Supreme Court recognized that there was a fundamental difference between the duty to defend and the duty to indemnify. The duty to indemnify involved actually covered claims where the facts have been proven was not based upon potentiality to be covered like the duty to defend. Because of this, the settlement needed to be allocated between covered and uncovered claims. The insurance company would only be obligated to pay that portion of the claim that was covered. It was the burden of the insurance company to establish the appropriate apportionment of liability between covered and non-covered claims and failure to meet that burden would make the insurance company liable for the entire settlement
The Maine Supreme Court rejected the insured’s argument that the insurance company should be obligated to pay the entirety of the judgment as consequential damages flowing from the duty to defend.