Duty to Defend: Recovery of Fees, Costs

When the insurer claims it has no duty to defend but loses that question in court, policyholders often have a powerful weapon available to them: the ability to recover costs and attorneys’ fees incurred in successfully prosecuting coverage actions, even in the absence of bad faith.

Even standing alone the potential obligation for these fees a formidable consideration and in some states, attorneys fees are counted as damages for the purpose of assessing the reasonableness of punitive damages. In other words, attorneys’ fees might be used to ratchet up the amount of punitive damages.

On the other hand, if it is later determined that an insurer did not actually owe a duty to defend, the insurer may attempt to recover defense costs and fees for proving that it had no duty. Whether it can recover costs and fees may depend on the mix of covered and non-covered claims and the timing of when claims were submitted for review. Courts are divided as to the insured's right to recover pre-tender defense costs.

Our panel will discuss how and when attorneys’ fees can be recovered in litigation over coverage and the insurer’s duty to defend. The program will discuss how policyholders can recover costs and attorneys’ fees when they successfully prosecute coverage actions, even in the absence of bad faith claims handling. The program will also discuss the rights of insurers to reimbursement of defense costs if it is determined that the insurer had no duty to defend.

Our panel will review these and other key issues:

• What legal rationale supports the insurer's right to reimbursement of defense costs for uncovered claims?
• What are a policyholder's legal arguments to defeat an insurer's claim for reimbursement?
• What exceptions exist to the "American Rule" that a party pays its own litigation costs which would allow policyholders to collect from insurers who lose the duty to defend argument?

After the presentations, our panel will engage in a live question and answer session with participants so they can answer your questions about these important issues directly.

Other Speakers:

Eliot M. Harris (Williams Kastner)