[Currently] determining whether the liability insurer should bear the defense obligation has become a focus issue in insurance litigation cases. Based on legislative theory and specific practice, this article proposes three principles: based on the content of the lawsuit, based on the facts, and reasonable speculation, to determine whether the liability insurer bears the defense obligation.

[Keywords] Liability insurance; Defense obligation; Establishment requirements

1、 The connotation of the defense obligation of the liability insurer

The defense obligation of a liability insurer refers to the obligation of the insurer to protect the interests of the insured and assume the defense of claims when a third party suffers damage and claims compensation with the insured as the object of litigation The defense obligation is a basic obligation that the liability insurer assumes towards the insured, and it is not subject to the obligation to pay insurance benefits. Due to the advantageous economic strength of the insurer, the use of defense obligations by the insurer is bound to greatly reduce the defense task of the insured.

（1） Assume defense obligations

The insurer replaces the insured in carrying out defense actions, and the insured grants all defense rights to the insurer. In the process of implementing defenses, it is generally inevitable to choose defense lawyers as litigation agents. Due to the insurer's strong understanding and familiarity with the legal business in the insurance field, compared to the insured, the insurer naturally has a certain amount of lawyer resources. They have a clear understanding of the strengths and weaknesses of lawyers and the characteristics of industry capabilities, and can discover and choose lawyers with superior defense capabilities and moderate costs with a sharper perspective. For general defense tasks, the legal institutions or legal personnel established within the insurance company can also implement defense actions. After the liability insurer assumes the defense obligation, the insured no longer needs to rack their brains in the litigation defense. The insured, when applying for liability insurance, not only has the single psychological expectation of receiving monetary compensation after the accident, but also hopes to be unaffected during the accident and subsequent processing, and to continue working and living as usual. The obligation to defend arises from this psychological expectation, and most insured individuals are unwilling to accept the act of hiring a lawyer after the accident when purchasing insurance. For ordinary insured individuals, this process may be physically and mentally exhausting. The insurer's assumption of defense obligations does not necessarily mean the complete transfer of all obligations of the insured, and the implied obligation of fair dealing cannot be transferred, in order to safeguard the interests of the insured. Once the insured is injured by the Malpractice of the defense lawyer employed by the insurer, the insurer shall bear the responsibility. Of course, when the insurer implements defense actions, the insured cannot jump out of the circle and also bears the obligation to fully assist the insurer in implementing defense strategies, submitting evidence to assist, participating in court hearings, and issuing evidence.

（2） Bear defense costs

Article 66 of the Insurance Law of the China points out that if the insured of liability insurance is brought for arbitration or litigation due to an insured event that causes damage to a third party, the insurer shall bear the arbitration or litigation costs and other necessary and reasonable costs paid by the insured, unless otherwise agreed in the contract 2] There are exceptions that are otherwise agreed upon in the contract. From the perspective of specific judicial practice, such exceptions are not uncommon, especially in motor vehicle insurance clauses where there are often separate agreements in the contract. From abroad, the costs involved in litigation defense are often not a small sum, and some cases are even astronomical. Even the defense costs of common cases are generally more than the agreed amount of insurance. Based on this, it is unfair in legal principle to require the insurer to bear all defense costs. If forced, it is bound to increase the amount of insurance premiums and transfer the risk to the insured. Therefore, from a fair perspective, the defense costs borne by the insurer should be the necessary costs. That is to say, after the accident, the insured shall promptly notify the insurer, and the insurer shall choose the defense lawyer. The defense expenses for this part shall be borne by the insurer. If, after the accident, the insured chooses and hires a lawyer to exercise the right of defense while notifying the insurer, as long as the reasons provided by the insured are legitimate and reasonable, the defense costs should be borne by the insurer. Of course, the insurer's defense obligation is based on honesty and credibility, in order to protect the interests of the insured from infringement and balance the interests between the insurer and the insured. If the insurer can prove that they do not assume the defense obligation or believe that the defense reason is not valid, the insurer should demand the defense fees already paid from the insured.

2、 Elements for Establishing the Obligation of Insurers to Defense

In liability insurance, the insurer's obligation to defend is of great help to the insured. It is generally believed that when a third party requests compensation through litigation, the insurer has a defense obligation towards the insured, but this is not the only condition for the insurer to assume the defense obligation. The core requirement is that there is a legal relationship between the claims of the third party litigation and the coverage of liability insurance. Specifically, there are three principles to follow.

（1） Based on the content of the lawsuit

From a legal perspective, as long as the content of the petition for compensation requested by a third party (usually the injured person) is actually included in the coverage of the liability insurance clause, regardless of whether the compensation request is true or false, and whether the reasons are sufficient, the insurer should bear the defense responsibility. That is to say, whether the insurer should bear the defense obligation depends on the specific content of the third-party lawsuit against the insured and the specific insurance clauses in the underwriting contract. If the claim for compensation does indeed comply with the specific insurance terms, the insurer's defense obligation is established. This is the so-called principle of determining based on the content of the complaint. There are three reasons for adopting this principle: firstly, this principle simplifies the operation process, excludes factors outside the complaint, and only needs to compare the claim of the complaint with specific insurance clauses to make a conclusion on the defense obligation; The second is to clarify the time point for assuming the defense obligation - after a third party claims compensation, but at this time there is no factual evidence to prove whether the claim for compensation belongs to a specific underwriting clause; Thirdly, without judicial intervention, the insurer unilaterally makes a determination of its contractual obligations, which is clearly not recognized by the judicial authorities. The principle based on the content of the complaint has obvious advantages. In liability insurance, the insurer's performance of the defense obligation can benefit the insured. But this often leads to the other extreme, where defense services are designed to protect the interests of the insured. If the insurer's defense obligations become a customary mode, the risk borne by the insurer will significantly increase, and the consequences will naturally not be good. Firstly, it increases the probability of the insured being sued. Compared to the insured, insurance companies have higher protection, which may lead to third-party litigation representatives being more willing to list insurance companies as litigation targets. Secondly, even if the insured benefits from the insurer's provision of defense obligations, the cost of defense for the insurer increases due to the increase in the number of defenses and lawsuits outside of the insurance coverage. Insurance companies are highly likely to convert this part of the expenditure into insurance costs and pass it on to the insured, resulting in an inevitable increase in the insured's premium. In addition, the probability of insurance defending interest disputes has greatly increased. Because whether the insurer bears the defense obligation is ultimately determined by the court based on whether the appeal content is related to the liability insurance terms. If there is no connection, the insurer's defense obligation can be exempted. For insurers, in order to break free from the obligation to provide defense for the insured, they always try to prove that the litigation content is not related to the insurance terms; But for the insured, the situation is inevitably the opposite, as they always try their best to prove that the litigation content is related to the underwriting terms.

（2） Based on the facts and circumstances

Judging whether the insurer should assume the defense obligation based on the rules of the litigation content is only one of the sufficient conditions. The fact that the litigation content is not related to the insurance conditions does not mean that the insurer may not assume the defense obligation. According to the factual situation, it refers to the relevant facts beyond the litigation content that the insurer should have known, and when there is a discrepancy between the litigation content and the non litigation facts, the insurer should bear the defense obligation. After a third party appeals for injury compensation, the insurer should have a comprehensive understanding of the content of the complaint and begin investigating various information related to it. When the facts of the investigation are related to the insurance terms, the insurer must assume the defense obligation. The adoption of the principle based on factual circumstances is to compensate for the shortcomings of the principle based on the content of the lawsuit. When a third party or their litigation representative drafts a lawsuit, in order to give themselves the initiative during the trial stage, the wording of the lawsuit is often too broad, and there may also be situations where the litigation request is changed during this period. To this end, the insurer needs to determine whether they have to assume the defense obligation in sufficient litigation content. Under such litigation conditions, it is difficult for the insurer to clarify the facts of third-party litigation claims by reading the litigation content. Judging whether to assume defense obligations based on the litigation content is obviously detrimental to the insured. The experience of the United States in this regard is worth learning from. In insurance practice, liability insurance contracts in the United States generally stipulate that the insured should notify the insurer of the fact of the claim 3) The List of courts of the United States held that under the current litigation system, after the litigation has reached the court, the insurer should not deprive the liability insurer of its defense obligation on the ground that it is difficult to find a clear defense obligation from the litigation content. Therefore, this single view of litigation content as a criterion for judgment should be expanded, taking into account specific facts in order to avoid possible erroneous judgments.

（3） Based on reasonable speculation

When the content of the complaint or the factual situation cannot be determined, it may lead to the insurer not bearing the defense obligation, which is extremely detrimental to the insured; From a legal perspective, it is also illegal. Therefore, determining whether the insurer has an obligation to provide defense services should also consider other factors comprehensively. As long as there is a reasonable speculative correlation between the litigation content and the underwriting terms, the insurer should be obligated to assume defense obligations. However, although this principle greatly expands the probability of insurers providing defense obligations, it blurs out the requirements for providing defense obligations. Because the accuracy of reasonable speculation itself is not high, allowing the insurer to bear this uncertain risk will lead to the insurer providing a defense for litigation that should not have been borne. In such a situation, the insurer will make a big fuss about designing insurance clauses, such as setting up exemption clauses to exempt defense obligations, or increasing premiums to ensure profits. There are many precedents in the West in this regard, which can be used for reference. For example, in the case of Watt v. Good State Insurance Company, the plaintiff Watt accused the insured Ramos of intentional harm and filed a lawsuit in a New York state court, demanding compensation from Ramos. During the trial, Ramos' lawyer denied Watt's accusations one by one, stating that the policy did not cover such intentional infringement liability, Of course, the insurer of Ramos, Haoda Insurance Company, cannot be responsible for paying for this and cannot provide defense services for Ramos. However, the court ultimately ruled that Haoda Insurance Company lost the lawsuit and compensated Watt 1 20000 US dollars. Afterwards, Ramos filed a lawsuit against Good State Insurance Company in court, accusing it of not fulfilling its defense obligations. The New York Supreme Court pointed out in the trial that if the claim made by the aggrieved third party can be included in the policy through reasonable speculation, then the insurer cannot refuse or evade providing defense services for the insured. This precedent has already been implemented as a standard in the United States. However, there are still some areas for reasonable speculation that are worth discussing. For example, in the process of determining liability, if it is found that the liability originates from facts outside the insurance coverage, the insurer should not be responsible for providing defense services. In summary, based on the content of the lawsuit, it is the simplest and most clear, but there may be deviations; Based on the facts, it is necessary to correct this deviation, but the process of determining the facts is complex and the time span is also large; In order to overcome the difficulties brought about by these two principles, principles based on reasonable speculation have emerged. But how to determine the reasonable nature has become another challenge. Therefore, the author believes that in specific judicial practice, it is necessary to comprehensively consider the overall situation, and whether the insurer should assume the defense obligation should be based on the factual situation, with the litigation content as an important measurement standard, and combined with reasonable speculation after limitations, in order to more scientifically and reasonably determine whether the liability insurer should assume the defense obligation.

3、 Conclusion

The defense obligation originated in Western countries, but China's insurance law does not provide specific and clear provisions for the defense obligation of the liability insurer. The insurer is not obligated to provide defense fees or defend for the insured. However, from the perspective of legal evolution, it is a trend to clarify the defense obligation of liability insurers. From the current situation in our country, this is particularly urgent. There is a significant difference in power between the insurer and the insured, which leads to the insurer always being in a favorable position when designing insurance contracts and weakening their defense obligations. Therefore, in legislation, while clarifying the interests of the insurer, it is necessary to maximize the protection of the interests of the insured, further refine and concretize the conditions for the insurer to assume defense obligations, and make clear provisions on the legal consequences of the insurer's breach of defense obligations.

[Reference]

Song Zhihua. Commentary on Insurance Law (Volume 5). Beijing: Law Press, 2013

Fan Qirong. Insurance Law. Beijing: Peking University Press, 2011

Malcolm A. Clarke. Insurance Contract Law. Translated by He Meihuan. Beijing: Peking University Press, 2002