Troast, J.d.c. (temporarily assigned).
[159 NJSuper Page 341] On this motion for summary judgment defendant Allstate Insurance Company seeks to be relieved from its obligation to defend its insured, Randolph H. Kocse. Allstate contends that as a result of making settlement payments of its policy limits it is discharged from its duty to defend. There is no reported case in this State which is controlling on the issue before the court, and as between the other jurisdictions there is a sharp division as to the rule to be applied. Annotation,
"Liability Insurer -- Duty to Defend," 27 A.L.R. 3d 1057.
The nature of this litigation and the facts giving rise to this controversy are set forth in an opinion reported at 152 N.J. Super. 371 (Law Div. 1977). On a prior motion in this case it was determined that Liberty Mutual Insurance Company was obligated to afford insurance coverage to Kocse as an excess insurance carrier. Liberty has appealed that decision and takes the position that it is not obligated to assume the defense, but it represents that it will assume the defense at its own cost and expense if the coverage question is decided adversely to Liberty by a court of last resort. Liberty contends that Allstate as primary carrier is obligated to continue with the defense of the insured and is not entitled to shift the obligation to defend to the excess carrier. Consequently, the court must determine whether Allstate as primary carrier is obligated to continue with Kocse's defense pending determination of Liberty's appeal, and if it is determined prior to the end of litigation against Kocse that there is no excess coverage, whether Allstate must continue to represent Kocse.
On this motion the court is called upon to construe the applicable provision of the insuring agreement which reads as follows:
Allstate will defend, at its own expense and with counsel of its choice, any lawsuit, even if groundless, false or fraudulent, against any insured for such damages which are payable under the terms of this Part, but may make such settlement of any claim or suit as it deems expedient.
Allstate argues that its obligation to defend its insured is limited to suits involving claims which are payable under its policy. Allstate contends that since it has paid the policy limit there are no longer claims against Kocse which it is obligated to pay, and therefore it is discharged from further performance of its obligation to defend.
In support of its position that its duty to defend is dependent upon a continuing obligation to pay claims against its insured Allstate cites Lumbermen's Mut. Cas. Co. v. McCarthy , 90 N.H. 320, 8 A.2d 750 (Sup. Ct. 1939). In Lumbermen's the court held the insurer's obligation to defend was a dependent promise, stating:
In Lumbermen's the insurer defended its insured through trial and exhausted the policy limits satisfying one of the judgments against the insured. Under these circumstances the New Hampshire court said:
Having elected to defend rather than to settle, the insurer's duty is to defend in good faith and with due diligence and in such a way as to protect the rights of the insured, but, having done so up to judgment and then having paid that judgment and incidental expenses to the full limit of its obligation, we are of the opinion that it thereafter has no duty of defense. [8 A 2d at 752; emphasis supplied]
There are a number of decisions in other jurisdictions in addition to Lumbermen's which support Allstate's position: Denham v. LaSalle-Madison Hotel Co. , 168 F.2d 576 (7 Cir. 1948), cert. den. 335 U.S. 871, 69 S. Ct. 167, 93 L. Ed. 415 (1948); Commercial Union Ins. Co. v. Adams , 231 F. Supp. 860 (S.D. Ind. 1964); Traveler's Indem. Co. v. New England Box Co. , 102 N.H. 380, 157 A.2d 765 (Sup. Ct. 1960); National Union Ins. Co. of Washington D.C., v. Phoenix Assur. Co. of New York , 301 A.2d 222 (D.C. App. 1973); General Cas. Co. v. Whipple , 328 F.2d 353 (7 Cir. 1964); Hartford Acc. and Indem. Co. v. South Carolina Ins. Co. ...