The short answer
A liability insurer’s duty to defend means paying for your lawyers. Its duty to indemnify means paying a settlement or judgment. In Illinois, the duty to defend is broader: it applies whenever the lawsuit alleges facts that could potentially fall within coverage, even if the claims turn out to be groundless.
Why it matters
In a business lawsuit, legal fees can rival or exceed the eventual settlement. If even one claim in the lawsuit is potentially covered, the insurer generally must defend the whole case. And an Illinois insurer that refuses to defend and is later found wrong can lose its coverage defenses altogether.
Where it fits in your case
As soon as a lawsuit or claim arrives. Whether the insurer must defend is usually decided early, from the complaint. Whether it must pay is resolved later, once the facts are known.
What to expect
The comparison. Courts compare the complaint’s allegations to the policy and read the complaint generously in your favor. What the claim is called matters less than the facts it alleges.
Notice starts the clock. The insurer’s obligation generally begins once it knows about the lawsuit. Legal bills from before that point are often not recoverable.
More than one policy. Several policies may respond, including older policies and policies under which you are an additional insured. In some situations, Illinois lets an insured with more than one applicable policy choose which insurer defends.
Defense with conditions. The insurer may defend while reserving the right to deny payment later. That reservation can create rights of its own.
Payment comes later. The duty to indemnify depends on what is actually proven or agreed, not just what was alleged.
What to do now
Send the complaint to every insurer that might be involved, in writing, as soon as possible.
Do not wait to see how the case develops before notifying insurers.
Ask for the insurer’s position in writing.
If the insurer refuses, have the policy reviewed. Denials that rely on labels, such as “this is just a contract dispute,” are often worth challenging.
What we need from you
The complaint, every potentially applicable policy, and the date and method of each notice you have sent.
Common misconceptions
“The lawsuit isn’t covered, so there’s no defense.” The defense question turns on what is alleged, not the final facts.
“Our lawyer’s bills from before we told the insurer will be paid.” Often they will not be.
“The insurer decides based on what really happened.” For the defense, the complaint controls.