Opinion ID: 1058222
Heading Depth: 2
Heading Rank: 4

Heading: The Commonwealth's Duty to Defend

Text: The School Board assigns error to the trial court's failure to hold that under the Plan the Commonwealth had a duty to defend the School Board. The obligation to defend is broader than [the] obligation to pay, and arises whenever the complaint alleges facts and circumstances, some of which would, if proved, fall within the risk covered by the policy. Virginia Elec. & Power Co. v. Northbrook Prop. & Cas. Ins. Co., 252 Va. 265, 268, 475 S.E.2d 264, 265 (1996). [I]f it is doubtful whether the case alleged is covered by the policy, the refusal of the insurer to defend is at its own risk. And, if it be shown subsequently upon development of the facts that the claim is covered by the policy, the insurer necessarily is liable for breach of its covenant to defend. Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 189, 397 S.E.2d 100, 102 (1990) (citations omitted). In its amended petition, the School Board asserted that the Commonwealth ... agrees to defend suits against the School Board. The School Board further alleged that because of the Commonwealth's failure to provide for the defense of the Jaynes family's claim, the School Board was forced to undertake a defense of the ... litigation at its own expense, thereby incurring litigation costs of $53,295.54. The trial court held that there was no coverage under the Plan; consequently, in its order on the School Board's petition, the trial court did not reach the question whether the Commonwealth breached its duty to defend. The School Board objected to the trial court's overall finding that there was no breach of the policy contract pursuant to the Plan which would give rise to damages for the School Board['s] attorneys fees incurred in defense of the underlying suit. On brief to this Court, the School Board argued that the duty to defend and the damages sought would be subject to review at retrial after remand. On brief, the Commonwealth argues that it had no duty under the Plan to provide a defense to the [School] Board or to reimburse it for defense costs because the Jaynes family's claim was clearly not covered by the Plan. The Commonwealth does not argue that defense costs are excluded pursuant to the Plan; rather, in support of its conclusion, the Commonwealth relies on its earlier arguments that the underlying litigation is excluded from coverage under the Plan. However, we hold that the Plan covers the Jaynes family's claim. Because the claim is covered by the policy, the insurer necessarily is liable for breach of its covenant to defend. Brenner, 240 Va. at 189, 397 S.E.2d at 102. The Plan contained the following provision: On matters covered by this [Plan], VaRISK 2 shall have the right and duty to defend any suit against the Covered Party, even if any allegations are groundless, false or fraudulent. In addition to providing compensation for liability, the Plan covered [a]ll expenses incurred by the [Plan], including defense costs. The Plan defined [d]efense [c]osts as all fees and expenses relating to the adjustment, investigation, defense or litigation of a claim including attorney's fees incurred by the [Plan], court costs applicable to the defense and interest on judgments accruing after entry of judgment. Given the plain meaning of these contract provisions, the Commonwealth had the duty to defend the School Board, and bear the costs associated with that defense. Due to its failure to comply with the terms of the Plan, the Commonwealth is liable for the defense costs incurred by the School Board in defense of the Jaynes family's claim in District Court and on appeal to the Fourth Circuit, as well as the costs associated with this contract coverage litigation. Accordingly, the trial court erred in failing to hold that the Commonwealth breached its duty to defend, and in denying the School Board's claim for attorney's fees related to the defense of the lawsuit and the prosecution of this action to recover its damages.