Duty to defend
The liability insurer's obligation, under US law, to defend the insured as soon as a claim could potentially fall within cover, broader than the duty to indemnify, which European policies organize differently.
In a liability policy, the insurer can commit to the insured's defense in two ways. Under the first, dominant in the United States, it has a duty to defend: it must take on and control the defense as soon as the claim, as pleaded, could potentially fall within cover, even if it is groundless, even if only some of the counts are covered. This duty is broader than the duty to indemnify, which arises only if liability is established and covered, and breaching it exposes the insurer to bad faith judgments. Under the second, common in financial lines and in European markets, the insurer reimburses defense costs incurred by the insured, which chooses its counsel and runs the case, often subject to prior agreement on costs. In French law the insurer may take control of the litigation, with the consequence article L. 113-17 sets for its defenses. The choice between these models determines who controls strategy and settlement, and therefore a large part of the final cost of the claim.
In a 1966 case known by the insured's name, Gray, the California Supreme Court held that the insurer had to defend its insured sued for assault, even though intentional acts were excluded, because the complaint could lead to liability for a covered unintentional act: the mere potential for coverage was enough to give rise to the duty to defend.
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