Does a carrier have a duty to defend once policy limits have been exhausted?

Most insurance policies contain language similar to the below:

 

We will settle or defend, as we consider appropriate, any claim or suit for damage covered by this policy. We will do this at our expense, using attorneys of our choice. This agreement to settle or defend claims or suits ends when we have paid the limit of our liability.  (emphasis added)

 

Pursuant to the plain language of the policy, the duty to defend ends once policy limits have been exhausted. This applies even if multiple insureds have been sued for the same claim. See Underwriters Guarantee Ins. Co. v. Nationwide Mut. Fire Ins. Co., 578 So. 2d 34, 35 (Fla. 4th DCA 1991) (“[The insurer] was not obligated by its contract to continue defending the additional insured after payment of its policy limits in settlement for its named insured.”); See also Contreras v. U.S. Sec. Ins. Co, 927 So. 2d 16, 21 (Fla. 4th DCA 2006) (“Under the terms of its policy, had U.S. Security paid out its limits, its duty to settle or defend would have ceased.”).

 

In Underwriters, a non-settling insured alleged that the insurer’s policy limits settlement on behalf of only one insured constituted a breach of the contract as to the non-settling insured. The Fourth DCA held that in that instance, the insured did not have a duty to defend the remaining, non-released insured. It reasoned that because the policy relieved the insurer of its duty to defend any suit once it had paid its policy limits, the insurer was not obligated by its contract to continue to defend the additional insured after payment of the policy limits in settlement for its named insured. Id. at 35.

 

Thus, from a pure policy language perspective, the duty to defend ends when the policy limits have been exhausted in payment of a claim. To note, an “offer” or tender of the policy limits does not suffice. There has to be actual payment and acceptance of the payment.

 

In the case of multiple insureds, a non-setting insured could potentially bring a claim of bad faith against an insurer who chooses to settle with one insured to the detriment of another. The non-settling insured would have to prove that the settlement with the other insured was made in bad faith in order to recover any damages. See Shin Crest PTE, Ltd. v. AIU Ins. Co., 368 F. App’x 14 (11th Cir. 2010)(Liability insurer fulfilled its duty to insured manufacturer, following settlement of underlying personal injury claims for policy limits on behalf of co-insured, and insurer thus did not breach its duty of good faith, where insurer simply followed Florida law in electing to settle on behalf of co-insured to detriment of manufacturers, plaintiffs in underlying action were unwilling to settle with manufacturer, insurer tried unsuccessfully to obtain release from liability for manufacturer, and there was no indication that insurer knew of any admission by plaintiffs that they would have settled their claims globally if presented with offer for policy limits at mediation.)