A Massachusetts USA court held that the insurer did not have to prosecute counterclaims against a former vice president of the insured company who was suing for wrongful termination in an action defended by the insurers in terms of the policy.

The court held that the policy only required the defence of claims made against the insured. Although the local law requires the insurers to defend the insured from all claims brought against it regardless of whether the claims are covered, its duty to defend did not include an obligation to prosecute the company’s claims for misappropriation of funds. The counterclaims were not inextricably intertwined with the main claims because they weren’t necessary to defeat the age discrimination claims made by the former vice president.

This limitation will apply in South Africa if the duty to defend clause is drafted to make this clear.

(Mount Vernon Fire Insurance Company v VisionAid Inc.)