Recoupment of Defense Costs

June 2016 of Defense Costs Dennis Ventura dventura@tresslerllp.com Dana Kanellakes dkanellakes@tresslerllp.com

of Defense Costs Alabama Yes Non Waiver Agreement Mount Airy Ins. Co. v. The Doe Law Firm, 668 So. 2d 534, 538 (Ala. 1995) (suggesting that to preserve a right to reimbursement, the insured must obtain a written nonwaiver agreement or a court order granting insurer authority to participate in settlement without waiving right. ). in Undecided Undecided Voluntary payment doctrine precludes reimbursement of defense costs Where one party voluntarily pays... to satisfy the legal demand of another. E.g., Scottsdale Ins. Co. v. Ala. Mun. Ins. Co., No. 2:11 cv 0668 MEF, 2012 WL 4477656, at *4 (M.D. Ala. Sept. 28, 2012). Alaska No Att ys Liability Protection Soc., Inc. v. Ingaldson Fitzgerald, No. S 15683, 2016 WL 1171299, at *9 (Alaska Mar. 25, 2016) (denying enforcement of policy provisions entitling insurers to reimbursement of fees and costs incurred by the defense of claims under a reservation of rights). Arizona No Great Am. Ins. Co. v. PCR Venture of Phx. LLC, No. 13 00570, 2015 WL 10008627, at No No This decision was decided March 26, 2016. As such, the period for re hearing has not yet expired and this decision may be subject to change. No No Tressler LLP 2016 2 *A mixed action is one that contains, or may contain, both covered and non covered claims.

of Defense Costs *6 (D. Ariz. Dec. 28, 2015) (predicting that the Arizona Supreme Court would not permit recoupment of defense costs). in Arkansas No Statutory California Yes Unilateral Med. Liability Mut. Ins. Co. v. Alan Curtis Enterprises, Inc., 285 S.W.3d 233, 238 (Ark. 2008) (disallowing reimbursement of defense costs upon a reservation of rights letter). As to claims at least potentially covered, the insurer may not seek reimbursement for defense costs. However, in a mixed action, as to claims that are not even potentially covered, the insurer may seek reimbursement. Buss v. Superior Court, 939 P.2d 766, 775 76 (Cal. 1997). An insured may reserve its No No No Yes An insurer bears the burden of proof for reimbursement... that defense expenses are solely allocable to claims not potentially covered. Hanes v. Armed Forces Ins. Exchange, No. 12 05410, 2014 WL 3784289 (N.D. Cal. July 31, 2014) (citing Buss, 939 P.2d at 778). Tressler LLP 2016 3

of Defense Costs right to reimbursement of defense costs unilaterally. Buss, 939 P.2d at N.27. in Colorado Yes Unilateral Hecla Min. Co. v. N.H. Ins. Co., 881 P.2d 1083, 1089 (Colo. 1991) (finding that an insurer has right to seek recoupment if coverage ultimately is found not to exist); Valley Forge Ins. Co., v. Health Care Mgmt. Partners, 616 F.3d 1086, 1093 94 (10th Cir. 2010) (interpreting Colorado law, reservation of right to reimbursement by letter is sufficient to recover defense costs where insured accepts defense and coverage is found not to exist). No Undecided Connecticut Yes The Connecticut Supreme Court has yet to rule on this issue. However, Conn. District courts have followed California s ruling in Buss, Yes Undecided Where an insurer defends against an action that includes claims not even potentially covered by the insurance policy, a court will order Tressler LLP 2016 4

of Defense Costs Delaware Yes District of Columbia Undecided No Instructive Florida Yes Bilateral allowing for recoupment of defense costs where there is no possibility of coverage. Nationwide Mut. Ins. Co. v. Mortensen, 3:00 CV 1180, 2011 WL 2881314, (D. Conn. July 18, 2011); Security Ins. Co. of Hartford v. Lumbermens Mut. Cas. Co., 826 A.2d 107 (D. Conn. 2003). Where an insurer has a duty to defend all claims, it may seek reimbursement from insured for those expenses incurred on claims which may be proven to fall outside the policy coverage. Nationwide Mut. Ins. Co. v. Flagg, 789 A.2d 586, 597 (Del. Super. Ct. 2001). in reimbursement for the cost of defending against uncovered claims. Security Ins., 826 A.2d at 125 (applying a pro rata allocation method for periods not covered under policy). Undecided Yes No Instructive District courts predicted that the Florida Supreme Court would allow for recoupment of defense costs where defense under reservation of rights by mutually accepted Yes Undecided Failure by an insured to reject a nonwaiver agreement within reasonable time constitutes as acceptance of an insurer s defense under a reservation of rights. Nationwide Mut. Ins. Tressler LLP 2016 5

of Defense Costs Georgia Yes Bilateral counsel is agreed to by the insured. Colony Ins. Co. v. G&E Tires & Serv. Inc., 777 So. 2d 1034, 1039 (Fla. Dist. Ct. App. 2000); Jim Black & Assocs. v. Transcon. Ins. Co., 932 So. 2d 516, 518 (Fla. Dist. Ct. App. 2006). Compare Transp. Ins. Co. v. Freedom Electronics Inc., 264 F. Supp. 2d 1214, 1221 (N.D. Ga. 2003) (refusing to recognize a right of reimbursement without an express policy provision, or an express reservation accepted by the insured); with Illinois Union Ins. Co. v. NRI Const. Inc., 846 F. Supp. 2d 1366 (N.D. Ga. 2012) (predicting the Georgia Supreme Court would adopt the majority approach to allow recoupment of defense costs under a reservation of rights that is accepted without objection). in Co. v. Royall, 588 F. Supp. 2d 1306, 1318 (M.D. Fla. 2008). Yes Undecided An insured must act reasonably promptly in preserving its rights to assert a particular ground for noncoverage, or else those rights are waived. Ga. Interlocal Risk Mgmt. Agency v. City of Sandy Springs, Georgia, A16A0134, 2016 WL 3025726 (Ga. Ct. App. May 24, 2016). Hawaii Yes Bilateral Scottsdale Ins. Co. v. Sullivan Yes Undecided Tressler LLP 2016 6

of Defense Costs Idaho Yes Express Policy Illinois Yes Express Policy Props., Inc., No. 04 00550, 2 7 WL 2247795, at *7 (D. Haw. Aug. 2, 2007) (following California law to hold that reimbursement of defense costs where insurer expressly reserved the right to recoup such costs and insured accepts its defense is consistent with Hawaii Supreme Court law). An insurer may only recoup its defense costs if it has included an express provision for reimbursement within the policy. Huntsman Advanced Materials v. OneBeacon America Ins. Co., No. 1:08 CV 00229, 2012 WL 480011, at *10 (D. Idaho Feb. 13, 2012). Gen. Agents. Ins. Co. of Am. V. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1103 04 (Ill. 2005) (holding that an insurer is not entitled to in Undecided Undecided A reservation of rights letter alone does not entitle an insurer to reimbursement of defense costs. A reservation of rights letter preserves only those rights that are listed in the policy. St. Paul Fire & Marine Ins. Co. v. Holland Realty, Inc., No. CV07 390, 2008 WL 3255645, at *8 (D. Idaho Aug. 6, 2008). Tressler LLP 2016 7

of Defense Costs reimbursement of defense costs, absent an express provision stating otherwise). in Indiana Undecided No Instructive Iowa Yes Express Policy Kansas Undecided No Instructive No Instructive Pekin Ins. Co. v. Tysa, 3:05 CV 00030, 2006 WL 3827232, at *19 (S.D. Iowa Dec. 27, 2006) (predicting that the Iowa Supreme Court would not allow for reimbursement of defense costs unless expressly provided for within the language of the policy). No Instructive Undecided Undecided Reimbursement of settlement payment was not allowed because of failure to provide for such basis of recoupment under the policy. Houston Cas. Co. v. Sprint Nextel Corp., No. 01:09 CV 1387, 2010 WL 4852649 (E.D. Va. Nov. 22, 2010) (interpreting Kansas law, which may be used as a potential predictor of future Kansas decisions regarding Tressler LLP 2016 8

of Defense Costs Kentucky Yes Unilateral Louisiana Undecided No Instructive Travelers Prop. Cas. Co. of Am. v. Hillerich & Bradsby Co., 589 F.3d 257, 268 (6th Cir. 2010) (predicting that Kentucky will allow reimbursement for an insurer after a unilateral reservation of rights). One district court interpreting Louisiana law noted that as an equitable policy matter, insurers should be allowed expressly reserve objections regarding coverage to seek reimbursement if it is later determined that no coverage existed. Bridger Lake LLC v. Seneca Ins. Co., Civ. A. No. 11 0342, 2014 WL 849893, at *4 (W.D. La. Mar. 4, 2014). in recoupment of defense costs). Undecided Yes The 6th Circuits prediction in Travelers Prop. is only dicta as the Court ultimately found that Travelers owed a duty to defend. Maine Undecided No Instructive No Instructive Maryland No Perdue Farms, Inc. v. Travelers Cas. & Surety Co. of Am., 448 F.3d 252, 258 (4th Cir. 2006) (interpreting Maryland law to Undecided No Tressler LLP 2016 9

of Defense Costs Massachusetts Undecided No Instructive Michigan Yes Unilateral disallow even partial reimbursement of defense costs, despite an insurer s reservation of rights). No Massachusetts court has reached the issue of reimbursement of defense costs. But see Welch Foods Inc. v. Nat l Fire Ins. Co., No. 09 12087, 2011 WL 576600, at *3 (D. Mass. Feb. 9, 2011) (declaring the Supreme Court of Pennsylvania s decision in Jerry s Sports as most likely to be applied under Mass. law). Travelers Prop. & Cas. Co. v. R.L. Polk & Co., No. 06 12895, 2008 WL 786678, at *1 2 (E.D. Mich. Mar. 24, 2008) (following California law to hold that a unilateral reservation of rights is sufficient notice which may entitle an insurer to recoup defense costs for those claims clearly and unequivocally in No Yes Tressler LLP 2016 10

of Defense Costs Minnesota Yes Express Policy Mississippi Yes Express Policy not covered by the policy). Westchester Fire Ins. Co. v. Wallerich, 563 F.3d 707, 719 (8th Cir. 2009) (interpreting Minnesota law to conclude that an insurer may include an express provision reserving its right to recoup defense costs, but may not unilaterally alter the policy through a reservation of rights letter). Addressing the right to reimbursement in general, no right to reimbursement exists where the policy does not expressly provide such a right. Certain Underwriters at Lloyd s London v. Magnolia Mgmt. Corp., No. 3:04 CV 540, 2009 WL 1873026, at *1 (S.D. Miss. June 26, 2009) (applying the test from United Nat l. Ins. Co. v. SST Fitness Corp., 309 F.3d 914, 921 (6th Cir. 2003)). in Undecided Undecided Mississippi s voluntary payment doctrine bars the recovery of costs for defending against non covered claims. Miss. Farm Bureau Cas. Ins. Co. v. Amerisure Ins. Co., No. 3:11 CV 706, 2013 WL 286364, at *6 (S.D. Miss. Jan. 24, 2013) (addressing the voluntary payment doctrine in context of insurer v. insurer). Missouri No An insurer is not entitled to No No Tressler LLP 2016 11

of Defense Costs Montana Yes Unilateral Nebraska Undecided No Instructive in reimbursement of defense costs where there is no duty to defend. Liberty Mut. Ins. Co. v. FAG Bearings Corp., 153 F.3d 919, 924 (8th Cir. 1998) (applying Missouri law). Horace Mann Ins. Co. v. Yes Undecided Hanke, 312 P.3d 429, 436 (Mont. 2013) (declaring that a unilateral reservation of rights is sufficient to recoup defense costs when it is determined that there is no duty to defend); See also Travelers Cas. & Surety Co. v. Ribi Immunochem Res. Inc., 108 P.3d 469, 480 (Mont. 2005). No Instructive Nevada Yes Bilateral For an insurer to recoup defense costs for claims not potentially covered by the policy, there must be a clear understanding between parties that the insurer reserved such a right. Capitol Tressler LLP 2016 12

of Defense Costs Indemnity Corp. v. Blazer, 51 F. Supp. 1080, 1090 (D. Nev. 1999) (applying Nevada law). in New Hampshire Undecided No Instructive New Jersey Yes New Mexico Yes Unilateral No Instructive Where an insurer, having honored its duty to defend, [seeks] reimbursement from an insured for fees incurred in defending uncovered claims,... the right of reimbursement exists because the insured would be unjustly enriched in benefitting by, without paying for, the defense of a noncovered claim. Hebela v. Healthcare Ins. Co., 370 N.J. Super. 260, 279 (App. Div. 2004) (citing Buss v. Superior Court, 939 P.2d 766, 776 78 (Cal. 1997). An insurer was entitled to recoup defense costs for noncovered claims given that such reservation was timely and referred specifically to the Undecided Undecided Under N.J. law, an insurer is only obligated to pay for potentially covered defense costs. Therefore, insurers attempt to reach an agreement with their insured upfront. SL Indus., Inc. v. Am. Motorists Ins. Co., 128 N.J. 188 (1992). No Undecided Tressler LLP 2016 13

of Defense Costs New York Yes Express Policy North Carolina Undecided No Instructive North Dakota Undecided No Instructive Ohio Yes Unilateral in possibility that insurer might seek reimbursement. Resure, Inc. v. Chemical Distributors, Inc., 927 F. Supp. 190, 194 (M.D. La. 1996) (applying New Mexico law, while noting that an insured s objection to insurer s reservation of rights would negate insurer s ability to recoup defense costs). Gen. Star Indemnity Co. v. Driven Sports, Inc., 80 F. Supp. 3d 442, 460 61 (E.D.N.Y. 2015) (predicting that the New York Court of Appeals would allow insurer to recoup defense costs where right is expressly reserved in the policy, but cites some N.Y. cases where recoupment was allowed). No Instructive No Instructive In a narrow holding, an Ohio Court of Appeals stated that an insurer is entitled to recoup Yes Undecided Tressler LLP 2016 14

of Defense Costs defense costs under a reservation of rights, only after the court has determined that no duty to defend exists. Chiquita Brands Int l, Inc. v. Nat l Ins. Co. of Pittsburgh, No. C 140492, 2015 WL 9594035, at *5 (Ohio Ct. App. Dec. 30, 2015). in Oklahoma Undecided No Instructive See also Motorists Mut. Ins. Co. v. Trainor, 294 N.E.2d 874 (Ohio 1973) (holding that an insurer may defend pursuant to a unilateral reservation of rights, so long as notice is provided to the insured). The Supreme Court of Oklahoma has yet to rule on the issue of recoupment of defense costs. Fed. Ins. Co. v. S.W. Wire Cloth, Inc., No. 95 C 689, 1999 WL 33544427, at *7 (N.D. Okla. Feb. 8, 1999) (refusing to impose own judgment where state courts should be left to expand Tressler LLP 2016 15

of Defense Costs Oregon Undecided No Instructive Pennsylvania Yes Express Policy Rhode Island Undecided No Instructive in common law). No Instructive Am. And Foreign Ins. Co. v. Jerry s Sport Center, Inc., 2 A.3d 526, 529 (Pa. 2010) (adopting the minority view, thereby holding that an insurer may not recoup defense costs under a reservation of rights, absent an express policy provision in the written insurance contract). Undecided Undecided The burden of proving that a claim is not covered, and thus whether an express policy provision excludes coverage and reserves the right to recoup defense costs, rests with the insurer. Allstate Prop. & Cas. Ins. Co. v. Winslow, 66 F. Supp. 3d 661, 670 (W.D. Pa. 2014). No Instructive Undecided Undecided Rhode Island has yet to rule on the issue of reimbursement of defense costs. However, as a general matter, Rhode Island law proscribes great weight to express terms of an insurance contract. Affiliated F.M. Ins. Co. v. Emp. Reinsurance Co., 369 F. Supp. 2d 217 (D.R.I. 2005). No Instructive South Carolina Undecided No Instructive South Dakota Undecided No Instructive No Instructive Tressler LLP 2016 16

of Defense Costs Tennessee Yes Unilateral Texas Yes Express Policy An insurer may recoup defense costs under a reservation of rights, provided that it gives proper notice to the insured that it is not waiving its right to reimbursement for claims which are later determined not covered under the policy. Cincinnati Ins. Co. v. Grand Pointe, LLC, 501 F. Supp. 2d 1145, 1166 (E.D. Tenn. 2007) (predicting that the Tennessee Supreme Court would adopt the majority rule and allow for recoupment of defense costs). Matagorda Cty. v. Tex. Ass n of Counties, Cty. Gov t Risk Mgmt. Pool, 975 S.W.2d 782, 784 (Tex. App. 1998) (refusing to allow insurer to recoup defense costs where not expressly provided for in policy), aff d, 52 S.W.3d 128 (Tex. 2000). in Yes Undecided A reservation of rights must specifically address what rights are being reserved and in what circumstances. Allstate Ins. Co. v. Dixon, No. 01 A 01 9011CH00421, 1991 WL 79549, at *4 (Tenn. Ct. App. May 17, 1991). No Undecided The Texas Supreme Court has not allowed for recoupment of settlement costs where settlement demand falls outside policy limits. Excess Underwriters at Lloyd s London v. Frank s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 43 (Tex. 2008) (suggesting that the Texas Supreme Court Tressler LLP 2016 17

of Defense Costs Utah Yes Express Policy Vermont Undecided No Instructive Virginia Yes Express Policy Washington Yes Express Policy An insurer may not recoup defense costs unless expressly provided for by the terms of the policy. U.S. Fidelity v. U.S. Sports Specialty, 270 P.3d 464, 468 (Utah 2012). in would not allow recoupment of defense costs following a ruling of no duty to defend). No Instructive Protection Strategies, Inc. v. Starr Indemnity & Liability Co., No. 1:13 CV 00763, 2014 WL 1655370, at *9 (E.D. Va. Apr. 23, 2014) (interpreting Virginia law to allow recoupment as an available remedy when it is expressly written into the policy. ). Nat l Surety Corp. v. Immunex Corp., 297 P.3d 688, 693 94 (Wash. 2013) (en banc) (following the reasoning from Jerry s Sport Center, Inc., 606 Pa. 584, disallowing reimbursement is most Tressler LLP 2016 18

of Defense Costs consistent with current Washington law, except where provided for in the language of the policy). in West Virginia Undecided No Instructive Wisconsin Undecided No Instructive Wyoming Yes Express Policy No Instructive A Wisconsin rule allowing reimbursement would defeat, rather than preserve, parties legitimate expectations. Sentry Ins. Mut. Co. v. Regal Ware, Inc., No. 10 CV 168, 2012 WL 1088585, at *4 (W.D. Wis. Mar. 30, 2012) (interpreting Wisconsin law to predict that the Wisconsin Supreme court would not allow for reimbursement). Shoshone First Bank v. Pac. Emp. Ins. Co., 2 P.3d 510, 513 14 (Wyo. 2000) (holding that unless an agreement to the contrary is found in the policy, the insurer is liable for all of the costs of defending the action). Undecided Undecided Allocation of defense costs between covered and noncovered claims is not permitted. Shoshone First Bank, 2 P.3d at 515 16. Tressler LLP 2016 19

of Defense Costs Contacts Dennis Ventura dventura@tresslerllp.com T: 312.627.4089 Dana Kanellakes dkanellakes@tresslerllp.com T: 312.627.4086 Locations Chicago Willis Tower 233 S. Wacker Drive, 22 nd Floor Chicago, IL 60614 312.627.4000 Los Angeles 1901 Avenue of the Stars Suite 450 Los Angeles, CA 90067 310.203.4800 Orange County Jamboree Center 2 Park Plaza, Suite 1050 Irvine, CA 92614 949.336.1200 New York 1 Penn Plaza Suite 4701 New York, NY 10119 646.833.0900 Tressler LLP 2016 20