Insurers’ Obligation to Indemnify
Under an insurance policy, an insurance company has two principal obligations. One of those obligations is the insurance company’s duty to indemnify the insured in the event of a claim within the policy’s coverage. The insurance company’s duty to indemnify is usually triggered when the insured’s legal obligation to pay damages is established either through a court judgment or a settlement. The duty to indemnify depends on facts and not speculation. This makes the duty to indemnify narrower in scope than an insurance company’s duty to defend an insured.
The duty to indemnify an insured is controlled by statute and common law. After an insured presents a claim to an insurance company, the insurance company must do something. If the insurance company fails to take appropriate action, it may be stopped from denying coverage based on an available defense, like the insured’s failure to give the insurance company proper notice of the claim. If the insurance company accepts the claim, it must indemnify the insured to the limits set forth in the insurance policy. Alternatively, the insurance company may disclaim coverage or it may proceed under a reservation of rights.
Once an insurance company accepts a claim for damage to an automobile, for instance, the insurance company under the terms of the policy will either have repairs made or reimburse the insured for the cost of the repairs made by the insured. If the insurance policy gives the insurance company the right to repair or replace the automobile’s damaged parts, the insurance company must make that decision within the time fixed by the policy or a reasonable time, if no time is fixed in the policy. What a reasonable time is depends upon the circumstances.
An insurance company’s election to repair a damaged automobile is binding on the insured. It creates a new contract under which the insurance company is bound to restore the vehicle. If the insured suffers damages from the insurance company’s delay in making the repairs, the insured may be able to recover damages for the loss of the use of the automobile. Those damages can be measured in the reasonable rental value of the vehicle. An insurance company’s obligation to repair a vehicle is not fulfilled until it pays for the cost of the repair less any deductible provided by the insurance policy.