Insurance Coverage for Claims Alleging Breach of Preexisting Duty: Limitations on the Eaton Vance Rule
Insurance Coverage for Claims Alleging Breach of Preexisting Duty: Limitations on the Eaton Vance Rule Determining the Source of the Insureds Obligation to Pay an Underlying Claim Liability insurance covers, among other things, an insured’s legal obligation to pay damages to a third party arising out of a claim against the insured for breach of a duty owed to that third party. But what if the damages the insured becomes liable to pay – whether by settlement or court order after a judgment – constitute nothing more than amounts the insured already had a pre-existing contractual or statutory duty to pay, irrespective of whether any claim had been made alleging a breach? This latter category of damages is generally not covered by liability insurance because the insured’s obligation to pay does not result from the third-party “claim”; rather, it results from the pre-existing contractual or statutory obligation. The distinction between covered and non-covered damages for breach of a pre-existing duty is often difficult to see and even harder to explain coherently, for attorneys and judges alike. A significant body of confusing – and sometimes inaccurate, contradictory, and inartfully worded – case law has developed on these issues. Relying on these cases, it is now relatively common for insurers to look for every opportunity to disclaim indemnity coverage for any claim seeking damages based [...]