The first part of the clause states that the insurer will settle or defend any claim or suit. Only after the insurer has made this promise does the issue of when the duty ends come into play. Many courts have used this point in coming to the decision that the duty to defend can not end by an early tendering of the policy limits without obtaining a settlement or accepting a judgment against the insured. In other words, any ending of the duty to defend through the exhaustion of the policy limits must be by way of settlement or judgment and not simply by tendering the limits, that is, by paying into the court the policy limits even before a settlement or judgment is attained.

This reasoning is not an attempt to get around or ignore that part of the duty to defend clause that speaks of ending the duty when the limit of liability has been exhausted. It simply is an interpretation of the duty to defend clause in its entirety. It makes a clear, albeit fine, distinction between exhausting the policy limits without a settlement or judgment and exhausting the limits through a settlement or judgment, thus disposing of the claim; the first path is not seen as in keeping with the duty to defend clause as a whole, and the second one is.

The distinction may not be understandable to many in the insurance industry; however, that there is a distinction is a fact recognized not just by various courts around the country. Contrast the duty to defend clause of the PAP with that found in the commercial general liability (CGL) coverage form. The CGL form ties the ending of the duty to defend to using up the limits of the policy “in the payment of judgments or settlements”. In other words, the insurer, under the CGL form, promises that the duty to defend ends only when the policy limits have been used up in the course of carrying out the obligation to settle a claim or lawsuit against the insured. Thus, in contrast to the PAP, the wording in the CGL form clarifies just when the duty to defend ends and eases concerns that, by tendering the limits of the policy, the insurer could then avoid all burdens of defense, leaving the insured in the position of assuming the responsibility of defense when the insured may not be capable of handling such a task.

So, in any question about the duty to defend, look first to the wording of that clause on the particular coverage form; but, do so remembering that the sentence concerning the ending of that duty is just a part of the whole clause and has to be read in conjunction with the whole clause. Furthermore, the duty to defend is an independent contractual obligation on the part of the insurer and any payment of the policy limits that simply extracts the insurer from the claim process and does not release the insured from the claim, raises a question as to whether the insurer has performed its policy obligations in good faith.