Does Business Insurance Cover a Lawsuit Against My Company in California?

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

Possibly, so ask before paying for a defense yourself. In California, a liability insurer must defend any lawsuit that potentially seeks damages within the policy's coverage, a duty broader than the duty to pay a judgment. Whether a suit qualifies depends on the complaint and the policy wording, which for a trademark suit usually means the advertising injury terms and exclusions. Tender the complaint promptly and in writing to every insurer whose policy might apply. Kolmogorov Law, P.C. defends businesses in Orange County, Los Angeles, and across California.

Call (909) 235-6116 or contact us online to discuss a lawsuit against your business and whether insurance may respond.

What the duty to defend means in California

A liability policy usually makes two promises. The insurer will pay covered damages, and it will defend suits that seek them. The second promise is the broader one.

The California Supreme Court has said the insurer must defend a suit that potentially seeks damages within the coverage, and may owe a defense even in a case where no damages are ever awarded. The question is answered first by comparing the complaint with the policy. Facts outside the complaint also count when they reveal a possibility of coverage. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295.)

The burdens favor the policyholder. The insured need only show that the claim may fall within coverage; the insurer must prove it cannot. (Montrose, supra, 6 Cal.4th at p. 300.)

Potential is the operative word. None of this decides whether a particular lawsuit is covered. The policy's own wording does that.

Which policies to check

Most owners think only of the general liability policy. I ask for every policy the company has bought in the last several years, because different policies answer different lawsuits.

General liability: bodily injury, property damage, and "personal and advertising injury."
Directors and officers or management liability: claims against the company's leaders, a topic tied to our page on officer and director personal liability.
Errors and omissions: claims that professional services were performed badly.
Cyber: data incidents and, in some policies, website privacy claims.
Employment practices: claims by employees and former employees.

Check expired policies too. Some policies respond based on when the events happened, others based on when the claim was made and reported.

A trademark suit shows why the wording matters. Advertising injury coverage often reaches some advertising-related claims, yet many forms exclude trademark infringement while still covering trade dress or slogan infringement in an advertisement. Two policies sold under the same name can give opposite answers.

How to tender the defense

Tender means asking the insurer to defend, and it should be done in writing. Send the summons and complaint to each insurer and to your broker, identify the policy, and ask for a written coverage position. Read each policy's notice clause and follow it. A demand letter can be tendered the same way, and our page on receiving a demand letter explains why notice should go out that week.

Three practical points.

Do it now. Policies require prompt notice, and claims-made policies usually require the claim to be reported within a set period. Late notice can cost coverage. California generally requires the insurer to show that the delay prejudiced it, but that rule has limits and is not worth testing.

The court's deadline does not wait for the insurer. The response to the complaint is still due on time, as our first 30 days guide explains.

Fees incurred before tender are often not reimbursed, because many policies bar payments made without the insurer's consent. That is one more reason not to wait.

When the insurer defends under a reservation of rights

A common response is a letter agreeing to defend while reserving the right to deny coverage later. Read it closely.

When a complaint mixes claims that are potentially covered with claims that are not, the insurer must defend the entire action. (Buss v. Superior Court (1997) 16 Cal.4th 35, 48.) It may later seek reimbursement if it reserved the right to do so, but only of defense costs it can allocate solely to claims that were not even potentially covered. (Buss, supra, 16 Cal.4th at pp. 53, 61, fn. 27.)

A reservation of rights can also change who your lawyer is. If the insurer reserves its rights on an issue, and the lawyer it first retained could control the outcome of that coverage issue through the defense, a conflict of interest may exist. Where a conflict creates the duty, the insurer must provide independent counsel unless the insured waives the right in writing. (Civ. Code, § 2860, subds. (a), (b).)

There are limits. A punitive damages claim does not create a conflict, and neither does a demand above the policy limits standing alone. The insurer may require minimum qualifications, and unless the policy provides otherwise it pays independent counsel only the rates it actually pays lawyers it retains for similar cases in the same community. (Civ. Code, § 2860, subds. (b), (c).)

When the insurer says no

A denial letter states the insurer's position, and that position can be tested.

Compare the stated reasons with the policy and the complaint. If the letter overlooks an allegation or a fact that points toward coverage, send the information and ask for reconsideration in writing. Keep defending the lawsuit in the meantime, because the plaintiff's case moves on regardless.

An insurer that wrongly refuses to defend takes a risk of its own. Those disputes are covered on our pages about insurance bad faith and insurance litigation.

How we approach insurance in a new lawsuit

At the first meeting we read the policies alongside the complaint. We prepare the tender, track the insurer's response, and defend the case while the coverage question is sorted out. When the insurer appoints its own counsel, we can advise on whether the statute gives you the right to choose.

Coverage often affects strategy as well, including who selects counsel and whose consent a settlement needs. That matters most in expensive cases such as a class action. Our business litigation practice page describes the cases we handle in the Orange County and Los Angeles Superior Courts and in the Central District of California.

What to bring to the first meeting

The summons and complaint, or the demand letter.
Every business insurance policy from the past several years, including declarations pages and endorsements.
Any letters or emails already exchanged with the broker or the insurer.
The contract or advertisement the dispute is about.

Frequently asked questions

My company was sued for trademark infringement. Will our general liability policy pay for a lawyer?

It depends on the policy's advertising injury wording. Many general liability forms exclude trademark infringement but cover trade dress or slogan infringement in an advertisement, and complaints often plead several theories together. Under California law the insurer must defend if any claim is potentially covered, so tender the complaint in writing and ask for a written coverage position.

Our insurer agreed to defend us but sent a reservation of rights letter. Do we get to choose our own lawyer?

Sometimes. Under California Civil Code section 2860, the insurer must provide independent counsel when its reservation of rights creates a conflict of interest, meaning the appointed lawyer could control the outcome of the coverage issue. Not every reservation does that. If you qualify, the insurer's payment is generally limited to the rates it actually pays lawyers it retains for similar cases.

What does duty to defend mean in California?

It is the insurer's obligation to hire and pay for lawyers to defend a lawsuit against its policyholder. California courts apply it whenever the suit potentially seeks damages the policy covers, judged by the complaint and the facts the insurer knows. The duty is broader than the duty to indemnify and can exist even if the plaintiff ultimately recovers nothing.

What is a tender of defense?

A tender is the request, best made in writing, that an insurer defend a claim or lawsuit. A California business tenders by sending the complaint or demand letter to each insurer whose policy might apply, usually through the broker as well, and identifying the policy. Insurers generally measure their obligations from that date, so early tender protects the right to reimbursement.

Does business insurance cover a breach of contract lawsuit?

Often it does not. General liability policies respond mainly to claims for bodily injury, property damage, and listed offenses, and a failure to pay or perform a contract is usually none of those. Management liability or errors and omissions policies sometimes respond, depending on their exclusions. In California the test is potential coverage, so tender when in doubt.

Talk to a California business litigation attorney

If your business has been sued and you are unsure whether insurance applies, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents businesses in Orange County, Los Angeles, and throughout California.

This page provides general information about California law and is not legal advice. Outcomes depend on the policy, the facts, and the court.