When might an insurer terminate its defense of a lawsuit?

An insurer might terminate its defense of a lawsuit when it pays the limit of liability on the policy because doing so generally fulfills their obligations under the policy. Once the insurer has paid the maximum amount that they are liable for under the terms of the policy, they are typically no longer responsible for providing a defense. This is based on the principle that the insurer's duty to defend is linked to the extent of coverage provided by the policy.

The termination of defense would also hinge on the fact that the liability limits represent the insurer's financial responsibility, and once that amount is exhausted, the insurer's contractual obligations are met. This is critical in understanding the insurer's role as it relates to both defense and indemnification in a legal settlement or court case.