Coverage litigation asks a narrower question than bad faith litigation: not whether the insurer handled a claim reasonably, but whether the policy covers the loss at all. The duty to defend and the duty to indemnify are legally distinct and resolved on different timelines. Most jurisdictions apply an "eight corners" or comparable rule that compares only the four corners of the underlying complaint against the four corners of the policy to decide whether a defense is owed, resolving doubt in favor of a defense even where indemnity later proves unavailable. Insurers frequently file declaratory judgment actions to resolve this question early, often while simultaneously defending the underlying case under a reservation of rights that preserves the indemnity fight for later.

Exclusions are the insurer's tool for narrowing an otherwise broad coverage grant, and the insurer generally bears the burden of proving an exclusion applies, with exclusions construed narrowly against the drafter. Genuinely ambiguous policy language is typically resolved against the insurer under the doctrine of contra proferentem. Multiple-policy and excess-umbrella coordination issues, and the distinction between an "occurrence" trigger and a "claims-made" trigger, add further interpretive layers. Because a coverage determination can decide who pays for the underlying case long before that case's own liability and damages are resolved, coverage litigation frequently proceeds on a separate, sometimes stayed, track designed specifically to avoid prejudicing the insured in the underlying action.

The duty-to-defend fight resolves early and cheaply relative to the duty-to-indemnify fight, because the defense question is decided on the pleadings alone while indemnity usually waits for the underlying facts to be developed. That timing gap is why insurers so often defend under a reservation of rights: it satisfies the immediate defense obligation while preserving the indemnity question for a later, fact-developed declaratory judgment action. Exclusion drafting and ambiguity contests set the coverage ceiling long before the underlying case's liability or damages are ever decided, which is what separates a coverage dispute, was there ever coverage, from a bad-faith dispute over how a covered claim was handled, even though the two frequently run on parallel tracks in the same matter.