Opinion ID: 1879737
Heading Depth: 1
Heading Rank: 7

Heading: The Duty to Defend on All Counts Issue.

Text: Last, we must decide whether the appellants' duty under the policies to defend First Newton on the negligence claims gives rise to a duty to defend the bank on all counts of the Iske-Nearmyer petition. Like the district court, we think it does, even if the other counts are outside of the policy's coverage. The appellants contend that in Iowa an insurer is obliged to defend an insured only when a claim against the insured subjects the insurer to potential liability under the policy. This contention is correct, as far as it goes. See, e.g., McAndrews, 349 N.W.2d at 119; Malcolm, 259 N.W.2d at 835. We are, however, faced with more than a single claim against First Newton. The allegations of negligence, which we have already held to be within the umbrella policy's coverage, make up but one of several. When both covered and possibly noncovered [4] claims are raised in the same suit against the the insured, the potential exists for the insurer to have either the duty to defend both or the duty to defend only the covered claims. The appellants contend that the Iowa cases involving single claims should be read to mean that an insurer has the duty to defend only the covered claims of a multi-count petition. We have not previously considered this contention. Several other courts, however, have decided the scope of an insurer's duty in such a situation. The apparent majority rule is that when an action against an insured involves both covered and noncovered claims, the insurer is liable for recovery of damages on only the covered claims but has a duty to defend the entire action. Western Casualty & Sur. Co. v. International Spas of Ariz., Inc., 130 Ariz. 76, 79-80, 634 P.2d 3, 6-7 (App.1981) (and authorities cited therein); accord Harborside Refrigerated Servs., Inc. v. IARW Ins. Co., Ltd., 759 F.2d 829, 830 (11th Cir.1985); Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir.1983); Howard v. Russell Stover Candies, Inc., 649 F.2d 620, 625 (8th Cir.1981); Detroit Edison Co. v. Michigan Mut. Ins. Co., 102 Mich.App. 136, 142, 301 N.W.2d 832, 835 (1980); American Employers' Ins. Co. v. Continental Casualty Co., 85 N.M. 346, 349, 512 P.2d 674, 677 (1973); 7C Appleman § 4684.01, at 106; 44 Am.Jur.2d Insurance § 1418, at 365 (1982). The duty to defend is broader than the duty to indemnify. 7C Appleman § 4684.01, at 102; accord Harborside, 759 F.2d at 830; Howard, 649 F.2d at 625. This difference exists because it is impossible to determine the basis, if any, upon which the plaintiff will recover until the action is completed. Western Casualty, 130 Ariz. at 79, 634 P.2d at 6; Howard, 649 F.2d at 625. Some courts, however, have held that an insurer does not have to provide a defense against claims outside of the policy, even when the suit involves covered claims as well. See 7C Appleman § 4684.01, at 107 & n. 59. The apparent rationale for such a holding is that the parties to the insurance policy only contracted for the defense of covered claims by the insurer. See, e.g., Waite v. Aetna Casualty & Sur. Co., 77 Wash.2d 850, 855, 467 P.2d 847, 851 (1970). We think the majority rule is the better one. It assures that the insured will have a coherent, coordinated defense aimed at defeating all of the claims, rather than separate defenses that might work at cross purposes, since the insurer will be interested primarily in defeating the covered claims. Moreover, we think the reasonable expectation of the insured would be that the insurer would defend the entire action, rather than just part of it. If, as the appellants fear, there is an inherent conflict of interest between them and First Newton, they can simply allow the bank to retain its own counsel and then reimburse it for the cost of the entire defense. See Howard, 649 F.2d at 625; 4 Am.Jur.2d Insurance § 1415, at 359. Such a conflict does not relieve the appellants of their duty to defend the entire suit. See Howard, 649 F.2d at 625; 44 Am.Jur.2d Insurance § 1415, at 359. In summary, because there is at least one covered claim in the Iske-Nearmyer suit against First Newton, the appellants must provide a defense on all counts in that action.