Following is a brief description of this insurance axiom in operation on a state-by-state basis. The cases cited are not necessarily those that first brought any given law into being; rather, many are more current cases that demonstrate the state case law as currently applied.

Alabama

Alabama uses a modified “four corners” test, whereby the allegations in the complaint are viewed in light of the policy language. In Alfa Mutual Insurance Co. Inc. v. Morrison, 613 So. 2d 381 ( Ala. 1993), the state supreme court stated “the insurance company's duty to defend its insured is determined by the language of the insurance policy and by the allegations in the complaint giving rise to the suit against the insured.” But if the allegations suggest the complaint will not be covered, other facts may be taken into consideration. The insurer has a duty to investigate if allegations are unclear.

If the insurer has doubts about coverage, a reservation of rights letter must be sent; otherwise the insurer cannot undertake a defense and later assert its right to deny coverage. See Home Insurance Co. v. Rice, 585 So. 2d 859 ( Ala. 1991), in which the court found that there need not be actual prejudice to the insured before the insurer that failed to deny the duty to defend was estopped to deny that duty.