The Complex Insurance Coverage Reporter – May 2020

The Insurer’s Duty to Defend and Pre-Suit Demand Letters
What Constitutes a “Suit”?

By: Eric B. Hermanson and Austin D. Moody

Commercial general liability (CGL) policies typically provide that an insurer will defend a “suit” that seeks covered “damages” that the insured may be “legally obligated to pay.” This seems simple enough.

But can an insurer have any obligation to its insured even before a “suit” is filed? Because of judicial interpretation of the policy language, the answer may be less straightforward than it would seem.

Conflicting Case Results

Consider two cases, decided less than a decade apart by federal courts in Massachusetts, which applied the same policy language to the same type of statutory pre-suit demand—and arrived at seemingly divergent conclusions.

Cytosol: Finding Duty to Defend. In Cytosol Laboratories, Inc. v. Federal Insurance Co., 536 F. Supp. 2d 80 (D. Mass. 2008), a seller of recalled products served the manufacturer with a pre-suit demand as required by Massachusetts General Laws, chapter 93A (Chapter 93A). Under this Massachusetts statute, plaintiffs are required to send such a letter at least 30 days before bringing suit for “unfair or deceptive acts or practices in the conduct of any trade or commerce.”[1] The purpose of the demand letter requirement is to avoid unnecessary litigation by giving the recipient the opportunity to respond with a reasonable settlement offer; if the recipient does not make a “reasonable offer of settlement,” it becomes liable for treble damages and attorney fees.[2]

In Cytosol, the manufacturer forwarded the Chapter 93A demand letter to its insurer and asked that the insurer attempt to resolve these claims without the seller filing suit. The insurer declined, arguing that the demand letter did not trigger a duty to defend. It said no duty was owed until litigation actually was initiated against the insured. The manufacturer then sued the insurer.

The court disagreed with the insurer’s position that the demand letter did not trigger a duty. Analogizing to potentially responsible party (PRP) notices under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) notices, the court found the insured’s duty to defend was triggered, because an insured’s failure to respond to a Chapter 93A demand letter would significantly affect the insured’s ability to defend itself in a subsequent action arising out of the same subject matter.

Sanders: No Duty to Defend. In contrast, a different district court—and the U.S. Court of Appeals for the First Circuit—more recently reached a very different result. The facts of Sanders v. Phoenix Insurance Co., 843 F.3d 37 (1st Cir. 2017), are somewhat lurid. A divorce attorney (Doe) had an intimate relationship with a client (Sanders). The client committed suicide.

Sanders’s estate (Estate) blamed Doe for the death. It served Doe with a pre-suit demand letter under Chapter 93A. Doe forwarded the letter to his professional liability carrier, which declined to defend. Fearing reputational damage if his name was exposed in public court documents, Doe entered into settlement discussions with the Estate, and eventually resolved the issue without suit.

The insurer argued successfully before the district court that, notwithstanding Cytosol, it had no obligation to defend the insured based on the demand letter. The First Circuit agreed, affirming that the insurer has no obligation to provide a defense in the absence of a suit. Because Sanders’s claim was resolved prior to litigation, the courts found, Doe’s policy was not triggered, and no defense obligation arose.

How could two different courts—considering the same language—reach such different results?

The CGL “Suit” Requirement

A typical CGL policy insuring agreement begins as follows:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. . . We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result. . . .[3]

Current policies typically define “suit” as follows:

“Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage,” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent;

b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent[.][4]

General Rule: No Pre-Suit Duties or Obligations

As the court in Sanders noted, this policy language does not require an insurer to involve itself with a claim absent a suit. In most cases, insurers may, and often do, properly resist such involvement. The insurer who chooses not to become involved in the defense of a matter that is merely threatened, not yet filed, is protected by this policy language, and is acting entirely within its legal rights.

In some cases, of course, insurers may choose to become involved with the handling of a claim, prior to the filing of an actual lawsuit, for practical reasons. The insurer will see its interests as aligned with the interests of its insured, and it may want to take steps—even before suit is filed—to avoid a lawsuit and head off a potentially larger future liability that may be covered under the policy. There is nothing wrong with such involvement, so long as it is recognized that an insurer who elects to become involved on this basis is doing so based on a business judgment, and not out of contractual compulsion.

Cases Imposing Obligations in Distinct Situations

However, despite the general rule, there are some cases, like Cytosol, where courts have required insurers to step in, as a matter of legal obligation, and “defend” against pre-suit demands, i.e., demands prior to commencement of a suit. How to explain these cases, in light of the policy language?

In general, these cases fall into several broad categories: 1) cases treating pre-suit demands as sufficiently coercive to qualify as suits, 2) cases treating pre-suit demands as a form of alternative dispute resolution (ADR), and 3) cases treating pre-suit demands as costs recoverable in anticipation of litigation.

Sufficiently Coercive to Qualify As Suits. The first line of cases involves statutory pre-suit demands that are required by law before a claimant is allowed to proceed to suit. In some jurisdictions, the recipients of these demands may face significant coercive consequences—analogous to a kind of default judgment—if they fail to respond properly.

Thus, in the environmental context, some courts have extended the term suit to certain proceedings they deem to be adversarial and coercive, such as administrative cleanup orders, CERCLA PRP notices, and administrative proceedings. See, e,g., Hazen Paper Co. v. U.S. Fid. & Guar. Co., 555 N.E.2d 576, 581–82 (Mass. 1990).

Another example is presented by state “right to repair” statutes that have been enacted in the context of construction-defect litigation.[5] These laws usually require a claimant to notify a contractor of alleged defects, and follow certain procedural requirements, before bringing suit. The contractor then has the opportunity to respond and repair the defect if it chooses. If the contractor fails to respond, consequences may follow. Some courts treat these statutorily mandated pre-suit repair demands as coercive and analogize them to PRP notices or other communications by environmental regulators or administrative agencies. See, e.g., Clarendon Am. Ins. Co. v. StarNet Ins. Co., 113 Cal. Rptr. 3d 585 (Ct. App. 2011), rev. dismissed, 248 P.3d 191 (Cal. 2011).

The court in Cytosol applied similar reasoning. A defendant who gets a Chapter 93A demand letter and fails to make a reasonable offer of settlement may be liable for enhanced penalties, including treble damages and attorney fees. These consequences, the court held, made the Chapter 93A demand analogous to a CERCLA PRP notice, and required an insurer to offer a defense.

Form of ADR. In a second line of cases, some courts have found a duty to defend triggered by a demand letter under right-to-repair statutes on the basis that the statutory pre-suit process is, in effect, a form of ADR.

For example, in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 232 So. 3d 273 (Fla. 2017), the Florida Supreme Court addressed the state’s statutory right-to-repair process. The court found that while a pre-suit repair process was not a “civil proceeding,” it fell within the second part of the CGL policy definition, i.e., “[a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.”

Applying this reasoning, the court found that a pre-suit demand might trigger a duty to defend but was subject to the further requirement that the insured submit to the process with the insurer’s consent. This outcome is arguably consistent with the terms of the policy, and purports to strike a balance of interests—that is, allowing, but not requiring, insurers to participate in the pre-suit claim resolution process.

Costs Recoverable in Anticipation of Litigation. A third line of cases arises in the context of pre-suit demands that trigger coverage under multiple policies. In these cases, one insurer may agree to undertake defense on a voluntary basis, despite the absence of clear policy language requiring it to do so. Sometime later, after suit is filed, that insurer seeks recovery from the other insurer(s) for the defense costs that it has incurred, including the costs that it incurred in voluntarily responding to the pre-suit demand.

In these circumstances, some courts have granted the “defending” insurer a right to obtain reimbursement from the other carrier(s), notwithstanding the language of the other carrier(s) policy(ies), which imposes no such duty.

For example, in Arch Ins. Co. v. Scottsdale Ins. Co., No. C09-0602 RSM, 2010 U.S. Dist. LEXIS 115256 (W.D. Wash. Oct. 27, 2010), a crane collapsed during construction of a tower in Bellevue, Washington. The general contractor notified its insurer of the accident and the likelihood of litigation. The insurer appointed counsel and assumed various pre-suit expenses: storing the remains of the crane, retaining experts to examine the crane in preparation for litigation, making efforts to settle, and advocating for the general contractor during investigations. The insurer also tendered the defense to the crane operator’s insurer because the general contractor was an additional insured on that policy. The second insurer declined to defend, on various grounds. In the ensuing coverage litigation, the court determined that the second insurer had, in fact, owed the general contractor a defense. It then found that the duty extended to the pre-suit costs that the first insurer had incurred.

Rulings such as this are hard to justify under the language of the insurance contracts at issue. They are seen most naturally as a reflection of courts’ perceived equitable power “to do justice” by punishing the insurer who has adhered to the language of its policy. But courts do not serve justice by overriding clear policy language and imposing duties on insurers not contained in the policy. To the contrary, these expansive judicial interpretations may introduce uncertainty of outcome and cause insurers to assume obligations that their policies were not priced to cover. Such uncertainty raises the cost of insurance for all policyholders.


Insurers generally have no obligation to defend under their policies until an actual suit is filed. In some cases—such as where insurers view their interests as aligned with their insureds—insurers may agree voluntarily to assist an insured in responding to a pre-suit demand. But in others, the insurer may justifiably choose not to do so.

There is also a small class of cases in which courts have departed from the general duty-to-defend principle and have imposed an obligation on insurers to pay pre-suit defense costs. These cases, though limited to their unique facts, are troubling in that they fail to properly take account of the language of the insurer’s policy or, depending on the circumstances, the assumptions on which it was issued and priced.

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[1]. Mass. Gen. Laws ch. 93A § 2(a).

[2]. Id. §§ 9, 11.

[3]. See, e.g., ISO Commercial Gen. Liab. Form CG 00 01 12 07, § I(1)(a) (2006).

[4]. Id. § V(18)(a)–(b).

[5]. See, e.g., Alaska Stat. §§ 09.45.881–09.45.899; Ariz. Rev. Stat. §§ 12-1361–12-1366; Cal. Civ. Code 895–945.5; Colo. Rev. Stat. §§13-20-802–13-20-807; Fla. Stat. §§ 558.001–558.005; Nev. Rev. Stat. §§ 40.600–40.695; Tex. Prop. Code Ann. §§ 27.001–27.007.