Even when the contract reads like classic kid lit, it might not work out in the end.
photo: David Masters

These days, when insurers and policyholders debate whether or not there has been “direct physical loss or damage,” they are often talking about electronic information.  Far from Silicon Valley in both distance and subject matter, a Maine federal District Court recently considered that language and concluded that dry goods are not physically damaged merely because they are of inferior quality.

A Maine importer ordered towels from a Pakistani manufacturer.  When the shipping container arrived, the towels did not conform to what had been ordered.  To put it bluntly, as the importer did in its complaint, they were junk.  The importer sued for coverage under its Open Marine Cargo policy.

The policy, like most of its kind, reads like a Robert Louis Stevenson novel:  “Touching the adventures and perils which [the insurer] is contented to bear, and takes upon itself, in this voyage, they are of the seas, fires, jettisons, assailing thieves, barratry of the Master and Mariners, and all other like perils . . . .”  Less quaintly, the policy also covered “direct physical loss or damage through the acceptance by the Insured . . . of fraudulent bills of lading.”  According to the importer, the junky towels were a direct physical loss flowing from fraudulent bills of lading (a written receipt of goods for shipment).

Not so, said the Maine District Court: the bills of lading did not cause the insured to physically lose the goods, and they were not physically damaged.  Which begs the question, how does a fraudulent bill of lading ever cause physical loss or damage?  The court, however, found the provision unambiguous, and saw no need to consider what the parties meant the clause to cover.

Based on the few other cases in this area, it appears that the fraudulent bill of lading clause may have been added to cargo policies in response to a wave of cases in which the goods listed on the bill of lading did not exist.  Early versions of the clause did not require physical damage to property, but that restriction is now common.  One can well imagine that a provision insuring against the risk of purchasing non-existent goods may have tempted the unscrupulous to collude, leading insurers to restrict the coverage.

The case law does not shed light on what might be covered by the clause as worded in this case.  Perhaps it would cover a claim that the bill of lading misrepresented the conditions under which the goods would be shipped (for example, providing that the goods would be located in the hold when in fact they were kept on deck) and the property was damaged in transit.

The case is Home Fashions Distributor, Inc. v. Hanover Ins. Co., U.S. District Court for the District of Maine, Civil No. 3:12-CV-250-DBH (March 6, 2013).

About Harvey: I specialize in Insurance Law and Litigation at Anderson & Kreiger. My most recent post for Between the Lines discussed the “maelstrom” case – the latest decision interpreting Boston Gas.

Do we have to fight,
or can we turn this thing around?
Photo credit: Official U.S. Navy Imagery

In a divided area of duty-to-defend law, a Vermont trial court just handed down a well-reasoned decision that provides a useful model for future cases.  The key question in the coverage dispute was whether the insurer could look to information outside the complaint in determining that it had no duty to defend its insured against a third-party complaint.  States have taken a variety of approaches on this question.

(Full disclosure: I argued this case for Anderson & Kreiger on behalf of the insurer.)

The Vermont court concluded that an insurer may use extrinsic evidence in determining it has no duty to defend as long as the extrinsic evidence concerns a matter that is not disputed in the underlying suit.

In the case, the insured was a hospital whose insurance broadly barred coverage for claims containing allegations of sexual misconduct.  The plaintiff in the underlying case allegedly was sexually assaulted by another patient while she was a patient at the hospital.  In her complaint, however, she alleged only that she had been assaulted, without specifying the assault’s sexual nature.

The insurer thus agreed to defend under a reservation of rights in which the insurer reserved its right to withdraw from the defense if it was determined that plaintiff’s claim was not covered.  When the plaintiff’s interrogatory answers confirmed that she was alleging that the assault was a sexual assault, the insurer sought a declaration that it had no further duty to defend.

Ruling on the insurer’s and insured’s cross-motions for summary judgment, the Vermont court carefully distinguished between the underlying merits issue and the coverage issue.  The merits issue, the court stated, was whether the alleged sexual assault occurred.  In contrast, the coverage issue was whether the plaintiff was alleging that the assault was sexual — which she was.  Because the jury in the underlying case would have to determine whether the alleged assault occurred, but would not have to determine whether that assault was sexual or not, extrinsic evidence was permissible on the coverage issue.

While just one decision, the court’s approach and reasoning provide a useful road map that should be of value in duty to defend cases where the insurer’s reliance on extrinsic evidence is contested.

The case is ProSelect Insurance Co. v. Springfield Hospital.  

About Anne: I specialize in Insurance Law and Litigation at Anderson & Kreiger, primarily in the areas of professional malpractice, commercial liability and D&O insurance. I recently posted about an IL case that sheds light on how no-apology policies may fare under MA’s increasingly pro-apology medmal regime.

Insured-insurer relations
now look like this, post-Boston Gas
CC by barekim

For the most part, appellate courts addressing insurance allocation for claims of progressive injury under Massachusetts law have taken a fifty thousand foot view (see my previous posts on this subject here and here).  A recent federal District Court decision grapples with allocation in the trenches.  Its ruling on the issue of defense allocation is at odds with an earlier District Court decision.  It’s messy on the ground, and likely to get messier.

Does Boston Gas require pro rata, time-on-the-risk allocation of defense costs, as well as indemnity payments, making the insured responsible for defense costs for any period for which it did not have insurance?  No, said Judge Gertner in 2010, in the case of Peabody Essex Museum, Inc. v. United States Fire Ins. Co., District of Massachusetts Civil Action No. 06cv11209 (Sept. 30, 2010).

Judge Gertner begins by acknowledging that other courts have applied time-on-the-risk allocation to defense costs as well as indemnity.  However, she then observes, the duty to defend is independent of and broader than the duty to indemnify, and under Massachusetts law, when a complaint states a covered claim, the insurer is responsible for the entire defense.  Finally, Judge Gertner points to footnote 38 in Boston Gas, where the SJC distinguishes a First Circuit case applying Rhode Island law on the basis that it involved allocation of defense costs, while Boston Gas involves allocation of indemnity.

But in Graphic Arts Mutual Ins. Co. v. D.N. Lukens, Inc., District of Massachusetts Civil Action No. 11cv10460 (May 29, 2013), Judge Hillman concludes that defense costs for uninsured periods are allocated to the insured.  Judge Hillman points to Boston Gas’ citation of a Vermont Supreme Court case (one of those acknowledged by Judge Gertner) stating that it is fair to allocate to the insured the portion of the total defense and indemnity over which it chose to assume the risk.  Lukens does not discuss Judge Gertner’s decision in Peabody Essex, or the Boston Gas footnote suggesting that the SJC decided the issue of indemnity but not defense allocation.

Judge Hillman acknowledged that “this result has the potential for creating a maelstrom of disputes between insurers and insureds.”  To understand the storm that is brewing here, let’s look deeper into the dispute between Lukens and its insurer, Utica Mutual.  Utica had agreed to defend two asbestos exposure cases under a reservation of rights, including the right to time-on-the-risk allocation.  Under Utica’s analysis, this would result in allocation of 60% of the indemnity obligation to Lukens.  Lukens’ response was that, in light of the reservation, Lukens and not Utica was entitled to control the defense (presumably, Lukens was arguing that Utica was required to fund the entire cost of the defense by counsel selected and controlled by Lukens).

Judge Hillman also acknowledged the principle that, where an insurer reserves its rights, creating a conflict of interest between the insurer and the insured, the insurer is not entitled to retain control of the defense.  However, he agreed with Utica that its reservation did not create such a conflict.  Utica was agreeing to fully indemnify Lukens for the periods for which it issued insurance policies, just not for the periods when Lukens was uninsured.

Ordinarily, where an insurer is defending and there is no conflict of interest, the insurer’s right to defend includes the unfettered right to settle.  However, another ruling in Lukens states that, in a Boston Gas allocation scenario where a share is allocated to the insured, the insurer cannot settle without the insured’s written consent.

So, does Boston Gas require allocation of defense costs?  If so, what rules apply to the selection of counsel, the conduct of the defense, and the decision to settle?  After acknowledging the potential maelstrom, Judge Hillman expresses the hope that, in future progressive injury scenarios, the parties will work through these issues in the early stages of a claim.

About Harvey: I specialize in Insurance Law and Litigation at Anderson & Kreiger. My most recent post for Between the Lines described the ramifications of Boston Gas on personal injury claims.

Yes, Virginia, pro rata allocation does apply to asbestos injury claims.
CC by lancefisher

The Massachusetts Appeals Court determined in a recent case that, for purposes of allocation, differences in policy language did not require asbestos bodily injury claims to be treated differently from environmental property damage claims.

The facts of this case between Liberty Mutual and insured New England Insulation Company (NEIC) began with the Supreme Judicial Court’s decision in Boston Gas Co. v. Century Indem. Co., 454 Mass. 337 (2009).

Boston Gas held that, where fact-based allocation was not possible, coverage for progressive environmental contamination would be allocated among consecutive insurance policies pro rata based on time on the risk, allocating intervals during which there was no coverage to the insured.  In 2010, Liberty Mutual informed NEIC that it would apply the Boston Gas allocation method to future indemnity payments on asbestos claims against NEIC.  NEIC sued Liberty Mutual for breach of contract.  The suit was dismissed and NEIC appealed.

The issue on appeal was whether the Superior Court judge correctly concluded that the Boston Gas allocation should apply to NEIC, despite differences in wording between the Boston Gas policies and NEIC’s.

As in Boston Gas, trigger of coverage – what must happen during the policy period for potential coverage to commence – was not at issue, just allocation of indemnity payments among the policies that were triggered.  And, although the certified questions that Boston Gas answered were limited to cases of progressive environmental contamination, while the claims against NEIC were for bodily injury, the Appeals Court noted that NEIC was not arguing that “asbestos claims per se fall outside the framework established by Boston Gas.”

Instead, NEIC’s argument was that the Liberty policy’s definition of “bodily injury” to mean “bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom” required the use of joint and several allocation by making each triggered policy responsible for injuries that occur, but do not end, during the policy period.  In Boston Gas, the SJC appeared to acknowledge that an express provision that injury arising out of a covered occurrence and continuing beyond the policy period will be covered would be inconsistent with pro rata allocation.  NEIC argued that the “at any time resulting therefrom” language in the Liberty Mutual policies was such a provision.

The Appeals Court, however, did not buy it.   The language on which NEIC relied merely stood for the “unremarkable proposition” that, in cases where the time of injury is easily determined (such as an auto accident), the policy in place when the injury occurs covers all consequential damages.  It is only where an injury “develops insidiously over time” and the evidence does not permit a fact-based allocation that a court-imposed allocation method becomes necessary.  And that, said the Appeals Court, is equally true in asbestos cases and in cases of progressive environmental damage.

The case is New England Insulation Co., Inc. v. Liberty Mutual Ins. Co., Massachusetts Appeals Court No. 11-P-1617 (May 22, 2013).

About Harvey: I specialize in Insurance Law and Litigation at Anderson & Kreiger. My most recent post for Between the Lines discussed the ALI’s proposed new principles.

Democracy is great and all,
but a lot’s at stake in liability insurance.
CC by Cain and Todd Benson

The American Law Institute met this week.  Among other business, it voted on Monday to adopt portions of Tentative Draft No. 1 of its Principles of the Law of Liability Insurance.  The Principles have the potential to affect the future development of the law governing the interpretation of and performance under liability insurance policies.

Principles are different from Restatements, another form of guidance produced by the ALI.  Restatements codify the law as it exists.  Principles declare what the law should be.  As a result, the Principles propose rules that resolve some issues on which current law varies widely from jurisdiction to jurisdiction.  For the most part, the Principles have adopted a policyholder-friendly position in these areas.

For instance, state law varies on the question whether an insurer who breaches the duty to defend may still contest its duty to indemnify.  Under Section 21 of the draft Principles, a breach of the duty to defend would eliminate any right to contest coverage, although the insurer would be permitted to contest the reasonableness of a settlement.  Section 21 has been controversial and was not among the portions of the draft adopted in Monday’s vote.

The vote did address other  issues on which jurisdictions disagree.  For example, it adopted a rule that would make an insurer vicariously liable for malpractice by defense counsel selected by the insurer.  Many jurisdictions consider defense counsel to be an independent contractor for whose negligence an insurer is not liable.

Also among the portions of the Principles adopted this week is a rule that would permit rescission of an insurance policy for a material misrepresentation only if it is intentional or reckless.  A misrepresentation that does not meet this level of culpability would not void coverage.  Instead, the insurer’s remedies would be limited to charging an additional premium and prospective cancellation.  Some jurisdictions currently permit rescission for a material misrepresentation without any showing of fault, and an additional premium is not commonly available as a remedy for a material misrepresentation.

Tentative Draft No. 1 represents the beginning of the ALI’s liability insurance project.  Participants include law professors, judges, insurance companies, corporate policyholders, and attorneys practicing in the field.  The current draft addresses issues of insurance policy interpretation, waiver and estoppel, policyholder misrepresentations, and the duty to defend.  Issues to be addressed in the near future include settlement and the duty of cooperation.

Although the extent to which they will influence courts or legislatures remains to be seen, the Principles will surely be cited on issues where the governing law is silent or unsettled, and by parties advocating for change in a jurisdiction’s established law.

About Harvey: I specialize in Insurance Law and Litigation at Anderson & Kreiger. One of my most recent posts for Between the Lines describes how Facebook, Twitter and the like are changing CGL policies.

That age old question:
Is the broker’s heart with the fisherman or the sushi chef?
CC by slettvet

The Answer:  It Depends.

A recent federal District Court case provides a useful review of how courts answer the question whether an insurance intermediary is acting for the insurer or for the policyholder. As the court observed, the terms “broker” and “agent” as used in the insurance industry are confusing.  The answer turns on the facts and the function the intermediary performs.

Although you might expect a wholesale broker to be more closely aligned with the insurer, in this case, where the broker did not have authority to bind the insurer or issue policies, the court held that it acted on behalf of the policyholder for purposes of accepting delivery of the policy.

The policyholder went to a retail broker to purchase a policy.  The retail broker, in turn, went to a wholesale broker.  The wholesale broker placed the coverage with a surplus lines insurer, which issued a binder.  Eventually, the insurer sent the policy to the wholesale broker, which passed the policy on to the retail broker, which provided it to the policyholder.

The ultimate issue in the case, whether the insurer needed to show prejudice in order to disclaim coverage for late notice, involved a recently enacted New York statute.  The statute would only apply if the policy was delivered after the statute’s effective date.  The wholesale broker received the policy before that date.  Was the wholesale broker acting for the policyholder when it received the policy?  In this case, yes, the court concluded.

Presumptively, an insurance broker works for the policyholder, and an insurance agent works for the insurer.  However, “agent” is also a legal term for one who acts on another’s behalf, so a broker is also an agent, either for the policyholder or the insurer.

The use of one term or the other to describe an insurance intermediary is not determinative.  Also, the relationship is not fixed: an insurance intermediary may act on behalf of the insurer in some capacities, and on behalf of the policyholder in others.  The fact finder must consider the nature of the relationship between the parties based on the facts of the specific transaction at issue.

In this case, the wholesale broker did not have authority to issue binders on behalf of this insurer, as it did for many of the other insurers with whom it placed business.  So while the court found that delivery of the policy to the wholesale broker in this case was effectively delivery to the insured, the outcome might have been different in another case where the wholesale broker had authority to bind coverage.

The case is B&A Demolition and Removal, Inc. v. Markel Ins. Co., United States District Court for the Eastern District of New York, Number 11-cv-0572 (April 18, 2013).

About Harvey: I specialize in Insurance Law and Litigation at Anderson & Kreiger. One of my most recent posts for Between the Lines describes how Facebook, Twitter and the like are changing CGL policies.

Never Ignore Error Messages
in the 7th Circuit
CC by abraham.williams

A recent Seventh Circuit case is a vivid reminder of the danger of not reporting to your professional liability insurer an incident that may result in a claim. The Court held that if a professional has reason to know an error may result in a claim, it has knowledge sufficient to require immediate notice to its insurer. Prejudice is not relevant to notice under a claims-made policy.

The insured was a law firm that represented the buyer in a commercial real estate deal.  An associate failed to deliver the signed contract to the seller, and the seller rescinded.  The associate asked the seller to reconsider and took responsibility for the mistake.  The seller filed suit in Alabama for a declaration that the contract was void.  The buyer then filed suit in Ohio, the state specified in both the contract’s choice of venue and choice of law clauses.  The buyer consulted with Ohio counsel who opined that Ohio law did not require delivery to be valid.

That was the state of affairs at the renewal date for the law firm’s claims-made-and-reported malpractice policy.  The firm did not report the incident, either as a potential claim or on its renewal application.  The buyer’s motion to dismiss the seller’s Alabama suit was denied, and the Ohio court stayed the buyer’s suit.  The Alabama court eventually declared the contract void.

After the policy renewal date, the buyer told the law firm that he was considering a malpractice claim.  The firm immediately notified its insurer.

Too late, the Seventh Circuit (applying Indiana law) held.

The policies for both the incident year and the notice year contained a discovery clause requiring notice of an incident which may give rise to a claim.  The application required the insured to disclose such circumstances.  The policy excluded coverage if the firm knew or should reasonably have known of any circumstance that might be expected to be the basis of the claim.

But the client didn’t raise the issue of malpractice during the incident year, the firm argued.  The firm also claimed it thought the client would win in Ohio and the contract would be enforced.  And the insurer wasn’t prejudiced by the delay.

The Seventh Circuit rejected each of these arguments, as described above.  The moral of the story: if you wait for the other shoe to drop, you may wind up going barefoot.

The case is Koransky, Bouwer & Poracky, P.C. v. The Bar Plan Mutual Ins. Co., United States Court of Appeals for the Seventh Circuit, No. 12-1579 (April 2, 2013).

About Harvey: I specialize in Insurance Law and Litigation at Anderson & Kreiger. My most recent post for Between the Lines describes how Facebook, Twitter and the like are changing CGL policies.

Insurance Nightmare:
Water Displays
in the Wrong Setting
CC by m.bjerke

An insured who plays fast and loose with an element of loss that is fixed and knowable risks losing coverage for its legitimate losses. That’s what happened in the latest iteration of a federal District Court case that Between the Lines first covered last May.

The court’s first summary judgment decision had been a win for the insured. The judge ruled that the sinking of the insured’s warehouse floor due to seepage from a burst pipe was not excluded “earth movement.”  But the judge also allowed the insurer to pursue a defense based on misrepresentations in the insured’s claim for loss of rental income from a warehouse tenant.  Now, the judge has granted summary judgment for the insurer, declaring the policy void.

The warehouse owner’s insurance agent told the insurer that the tenant had been paying $4,150 per month until the pipe burst, and left due to the loss.  Based on this information, the insurance company paid an advance on the lost rent claim, with the understanding that it would determine the exact amount due later.

But discovery revealed a different story – the tenant never left the premises or stopped paying rent (although it did reduce its rent payments after the pipe burst).  The insured argued that it did not receive any payment to which it was not entitled: the lost income from the rent reduction eventually exceeded the insurer’s advance.

This made no difference, the court concluded.  The policy stated that it was void if the insured concealed or misrepresented a material fact concerning a claim.  Under case law, a misrepresentation voids a policy if it is material and intentional. Here, there was no dispute as to either of those elements.

Lastly, the fact that the misrepresentations came through the insured’s agent did not create a question of fact as to the insured’s intent.  The e-mails from the agent were forwarded to the insured, which admitted it knew they were false.

The case is Espedito Realty, LLC v. National Fire Ins. Co. of Hartford, United States District Court for the District of Massachusetts Civil Action No. 10-cv-30039-MAP (March 29, 2013).

About Harvey: I specialize in Insurance Law and Litigation at Anderson & Kreiger. My most recent post for Between the Lines describes how Facebook, Twitter and the like are changing CGL policies.

Insurance Whether or Not
It Works Out This Well
CC by KassandraBay

The Second Circuit recently weighed in on the frequently disputed issue of coverage for claims arising from defects in the insured’s work.  In Scottsdale Insurance Company v. R.I. Pools, (2^nd Cir. March 21, 2013) (applying Connecticut law), the court concluded that such claims may allege a covered “occurrence,” at least where a subcontractor performed the work. In so doing, the Court took the somewhat unusual step of relying on an exclusion to define a covered “occurrence.”

In Scottsdale v. R.I. Pools, a general liability insurer sought a ruling that it had no duty to defend or indemnify R.I. Pools, a swimming pool installer, for a series of suits brought by the installer’s customers complaining of cracking, flaking and deteriorating concrete, causing the pools to lose water and in some cases, rendering them unusable.

R.I. Pools used third parties to supply concrete for the pools and shoot concrete into the ground.   Like most general liability policies, the Scottsdale policy covered injury “caused by an occurrence.”  The district court granted Scottsdale’s motion for summary judgment reasoning that defects in the insured’s work cannot be considered “accidents,” and therefore do not constitute covered “occurrences.”   Adding insult to injury, the court also ordered the insured to reimburse Scottsdale for defense costs the insurer had paid to defend the customers’ suits.

The Second Circuit reversed and remanded for further findings.   The court explained that the lower court had relied primarily on Jakobson Shipyard, Inc. v. Aetna Casualty & Surety Co., 961 F.2d 387 (2d. Cir. 1992).  Jakobson concerned a claim brought against a shipyard by a purchaser of tugboats who alleged that the boats’ steering mechanisms, built by the shipyard, were defective. Jakobson held no coverage because a loss resulting from faulty workmanship in breach of a contract did not result from an accident and thus did not constitute an “occurrence.”

Although R.I. Pool’s policy contained a similar insuring clause, the policy also included an exclusion for damage to the insured’s work which, in turn, contained an exception stating that the exclusion does not apply “if the damaged work. . . was performed on [the insured’s] behalf by a sub-contractor.”   The Second Circuit concluded that “[w]hereas Jakobson held that the insured’s faulty workmanship could not be a covered occurrence under the policy, the present policies expressly provide that in some circumstances the insured’s own work is covered. As coverage is limited by the policy to ‘occurrences’ and defects in the insured’s own work, in some circumstances are covered, these policies, unlike the Jakobson policy, unmistakably include defects in the insured’s own work within the category of an ‘occurrence.’”

In other words, the court looked to the exception to the exclusion for damage to the insured’s work to define an “occurrence,” although neither the exclusion nor the exception defines that term.  In so doing, the court used an approach that is inconsistent with other decisions concluding that exclusions cannot be used to create coverage.  See Certain Interested Underwriters at Lloyd’s, London v. Stolberg, discussed [here].    The Court could have reached the same holding by revisiting the issue of whether faulty workmanship can be an “occurrence” if the faulty workmanship is performed by a subcontractor.   Instead, by relying on an exception to an exclusion to define an “occurrence,” R.I. Pool may be limited to those insureds who are wise enough or lucky enough to have purchased a general liability policy with a subcontractor exception, and a subcontractor to blame.

R.I. Pools also throws more cold water on insurers who attempt to recover costs spent defending their insureds.  The court held that because the duty to defend exists until it is “legally determined” that there is no possibility for coverage, Scottsdale was not entitled to reimbursement for defense costs it previously expended.  For a further discussion of the hurdles an insurer faces when seeking to recover defense and settlement costs from an insured, see here. 

About Tamara: I specialize in Insurance Law and Litigation at Anderson & Kreiger. One of my recent blog posts concerned Rhode Island’s surprising interpretation of its medical mandatory coverage laws.

Not Getting that Money Back
CC by purpleslog

In Massachusetts, the answer would appear to be “no.”  In the recent Metropolitan Life Ins. Co. v. Cotter, the SJC held against an insurer seeking reimbursement for benefits it had paid out, even though it agreed with the insurer that it had had no obligation to provide continuing benefits.  Although the insurer had reserved the right to reimbursement when making the payments – alerting the insured that it was seeking a judicial determination of its obligation to pay – the court held that those actions were insufficient for two reasons: the policy did not provide for it, and the insured did not agree to it.

Cotter, concerns a disability insurer that first paid substantial benefits.  Later, it reviewed the insured’s condition, sought expert medical advice, and concluded that, while the insured was seeking care, he was not seeking care “appropriate for the condition causing the disability.”  The insurer then advised its insured that while it would continue to pay benefits, it was instituting a lawsuit to determine its continuing obligation to pay benefits.  At that time, it also advised the insured that it was reserving its right to seek reimbursement of the continuing payments.

The trial judge concluded that the insurer’s policy interpretation was correct, and it was no long obligated to pay benefits.  However, he held that the insurer was not entitled to reimbursement, despite its reservation of rights to do so, because the policy did not provide for it, and the insured did not agree to it.

While Cotter involved a first party disability policy, this case has significant implications for third party policies as well.  In upholding the trial court decision, the SJC did discuss its decision regarding a third party policy in Medical Malpractice Joint Underwriting Ass’n v. Goldberg, 425 Mass. 46 (1997) (a case argued by attorneys from this firm), in which the court held that a liability insurer could not settle a case under a reservation of rights and seek reimbursement from its insureds.

Increasingly in the third party context, insurers are defending under a reservation of rights to seek reimbursement of defense costs.  While the court in Cotter leaves some room for insurers to seek reimbursement, the combination of Goldberg and Cotter suggests that, in Massachusetts at least, the burden will be too high to overcome, unless the policy explicitly provides for it (and most policies do not).

The case is Metropolitan Life Ins. Co. v. Cotter, ___ Mass. ___ (2013).

About Steve: I specialize in Insurance Law and Litigation at Anderson & Kreiger.  My most recent blog post discussed a recent case that shows how powerful certain terms can be when used in exclusions.