Which statement best differentiates the defense obligation from the indemnity obligation under liability policies?

Which statement best differentiates the defense obligation from the indemnity obligation under liability policies?

• A. Indemnity is the insurer's duty to defend the insured.
• B. Both defense and indemnity are the insurer's duties to defend.
• C. The definitions are identical in all liability policies.
• D. Defense is the insurer's duty to defend the insured; indemnity is the insurer's duty to pay covered judgments or settlements within limits.

Answer: (D)

Defense versus indemnity are two separate obligations in liability policies. The defense obligation is the insurer’s duty to provide legal defense for the insured against covered claims—assigning and paying for defense counsel, and handling defense costs as the claim is pursued. The indemnity obligation, on the other hand, is the insurer’s duty to pay judgments or settlements that arise from covered claims, up to the policy’s limits. This distinction matters because one deals with ongoing defense and litigation costs, while the other involves paying amounts that arise from outcomes of the claim. The statement that correctly captures this difference says the insurer must defend the insured, and must pay covered judgments or settlements within limits. The other options mix up these roles or claim the definitions are identical, which isn’t accurate since defense and indemnity describe different duties and are not the same across all liability policies.

Defense versus indemnity are two separate obligations in liability policies. The defense obligation is the insurer’s duty to provide legal defense for the insured against covered claims—assigning and paying for defense counsel, and handling defense costs as the claim is pursued. The indemnity obligation, on the other hand, is the insurer’s duty to pay judgments or settlements that arise from covered claims, up to the policy’s limits. This distinction matters because one deals with ongoing defense and litigation costs, while the other involves paying amounts that arise from outcomes of the claim. The statement that correctly captures this difference says the insurer must defend the insured, and must pay covered judgments or settlements within limits. The other options mix up these roles or claim the definitions are identical, which isn’t accurate since defense and indemnity describe different duties and are not the same across all liability policies.