CASUALTY PROVISIONS · 6 MIN READ

Conditions, Defense Duties, and Bad Faith

Section IV Conditions runs the policy's machinery. Separation of Insureds applies the insurance separately to each insured against whom claim is made — so one partner's intentional act does not bar an innocent co-insured — while all insureds still share a single set of limits. The Duties condition requires prompt notice of an occurrence, but only knowledge held by designated persons (executive officers, partners, or specifically designated employees) starts the clock, and it forbids voluntary payments: an insured who pays an injured party without consent eats that payment, with a carve-back for first aid at the time of injury. Cancellation refunds are pro rata when the insurer cancels but may be short-rate — less than pro rata — when the first named insured cancels. The Other Insurance condition defaults concurrent primaries to pro-rata or equal-shares contribution, but the primary-and-noncontributory endorsement (CG 20 01) overrides it for additional insureds where a written contract requires, making the named insured's policy pay first without seeking contribution. Transfer of Rights preserves subrogation, which a waiver-of-subrogation endorsement can surrender for scheduled parties, and the made-whole doctrine in many states subordinates the insurer's recovery until the insured is fully compensated. Legal Action Against Us and the bankruptcy condition prevent direct actions and preserve coverage despite insolvency, and the premium audit and representations conditions round out the section. Defense obligations sit atop these conditions. The duty to defend is broader than the duty to indemnify: under the eight-corners rule, the insurer must defend whenever the allegations of the complaint, compared with the policy, potentially fall within coverage — with some jurisdictions allowing limited extrinsic evidence. Defending under a reservation of rights preserves coverage defenses, but when the reservation creates an actual conflict — defense counsel could steer fact findings that defeat coverage, as with the expected-or-intended exclusion — many jurisdictions entitle the insured to independent counsel at the carrier's expense. Whether defense costs erode limits distinguishes standard CGL (defense outside limits) from defense-within-limits structures, and a deductible differs from a self-insured retention: under an SIR the insured pays first and the duty to defend may not attach until the retention is exhausted, while a deductible is reimbursed to the insurer after it pays from dollar one. Settlement duties complete the picture. The national bad-faith framework requires an insurer controlling the defense to accept a reasonable within-limits settlement demand when liability is clear and damages will likely exceed limits; refusal exposes the carrier to the entire excess verdict plus bad-faith damages. Long-tail losses spanning multiple periods raise allocation battles — pro-rata time-on-risk versus joint-and-several all-sums approaches — and coverage disputes themselves are resolved through declaratory-judgment actions while the underlying case proceeds.