The insurer’s defense obligation ends when which occurs?

• A. The insured wins the case
• B. The insurer decides to end defense
• C. The policy limit is exhausted
• D. The claim is settled

Answer: (C)

The key idea here is that the insurer’s duty to defend an insured under a liability policy lasts only as long as there is coverage left to pay for that defense. Defense costs, settlements, and judgments all count against the policy limit, and once the total amount paid or owed reaches that limit, there is no further coverage to fund additional defense or payouts. So the insurer’s defense obligation ends when the policy limit is exhausted.

That rule holds regardless of the outcome of the case. A favorable judgment for the insured or a settlement does not by itself automatically end the obligation unless those actions have consumed the remaining limit. The insurer cannot continue defending beyond the limit, and it cannot arbitrarily end the defense while there is still available coverage.