Michigan Duty to Defend, Reservations of Rights & Liability Coverage Defense

Potential covered liability can trigger a defense

The liability insurer should compare the complaint and known potentially relevant facts to the insuring agreement, definitions, exclusions, and endorsements. A claim may require a defense even if later-developed facts establish that the insurer has no duty to indemnify. Conversely, allegations that clearly fall outside the policy do not create coverage simply because the insured needs a defense.

Reservation of rights preserves disputed coverage issues

When the insurer accepts the defense but disputes indemnity for one or more theories, exclusions, persons, vehicles, or damages, the reservation should identify the policy provisions and the factual/coverage issues that remain open. A vague reservation creates avoidable uncertainty for the insured, claimant, defense counsel, and later coverage court.

What the insured and claimant should preserve

• Complaint and amended pleadings.
• Complete liability policy and endorsements.
• Tender of defense and insurer response.
• Reservation-of-rights correspondence.
• Coverage opinions or declaratory-action pleadings that are discoverable or otherwise available.
• Settlement demands and communications showing excess exposure.

Defense counsel retained by the insurer represents the insured defendant, not the insurer’s coverage position. Coverage questions, settlement authority, and litigation defense should be kept conceptually separate even when the insurer funds both processes.