Opinion ID: 779726
Heading Depth: 3
Heading Rank: 1

Heading: Decisions from Other Jurisdictions

Text: 15 United National contends this court should, and the Ohio Supreme Court would, follow decisions from other jurisdictions that allow an insurer to recover defense costs when the insurer had no duty to defend. 16 In Colony Insurance Co. v. G & E Tires & Service, Inc., 777 So.2d 1034 (Fla.Ct. App.2000), the court decided whether an insurer could be reimbursed for defense costs when the insurer did not have a duty to defend. After reviewing cases from other jurisdictions, the court determined that the insurer was entitled to reimbursement of those costs. Id. at 1039. The court stated, Having accepted Colony's offer of a defense with a reservation of the right to seek reimbursement, G & E ought in fairness make Colony whole, now that it has been judicially determined that no duty to defend ever existed. Id. The court also looked to basic contract law and stated, A party cannot accept tendered performance while unilaterally altering the material terms on which it is offered. Id. (citing RESTATEMENT (SECOND) OF CONTRACTS § 69 (1981)). The court found that, when the insured accepted its defense, it also accepted the terms of the offer, including a potential for reimbursement. Id. 17 In Grinnell Mutual Reinsurance Co. v. Shierk, 996 F.Supp. 836 (S.D.Ill.1998), the court looked to other jurisdictions for guidance in deciding whether an insurer was entitled to reimbursement for defense costs. The court stated that to be entitled to reimbursement, an insurer must: 1) specifically reserve the right to seek reimbursement from its insured; and 2) provide the insured with adequate notice of this potential reimbursement. Id. at 839. The court held: 18 Shierk accepted the benefit of Grinnell's defense. Further, Shierk was fully apprised that Grinnell reserved its right to seek reimbursement in the event that it was later determined that it had no duty to defend him. As a result, although it appears that the Illinois courts have not yet had an opportunity to address the precise issue of reimbursement, the Court predicts that if the Illinois Supreme Court were faced with this precise issue, it would authorize the relief sought by Grinnell and order reimbursement of the costs of defense. 19 Id. (citations omitted). 20 In Resure, Inc. v. Chemical Distributors, Inc., 927 F.Supp. 190 (M.D.La.1996), the insurer sought reimbursement of defense costs following a reservation of its right to reimbursement. The court determined that the insured was entitled to reimbursement, stating: 21 Resure timely reserved its rights under the policy. That reservation specifically referred to the possibility that Resure might seek reimbursement for any and all costs of defense. There is nothing in the record to suggest CDI objected to the reservation. Accordingly, Resure is entitled to reimbursement for all costs of defense. 22 Id. at 194. 23 In Knapp v. Commonwealth Land Title Insurance Co., 932 F.Supp. 1169 (D.Minn. 1996), the insurer, in a reservation of rights letter, stated it would pay defense costs in a land title dispute and reserved the right to seek attorneys' fees and costs later. The court found that an insurer had a right to recover defense costs. Id. at 1172 ([W]here an insurer has properly met its duty and subsequently successfully challenges policy coverage, it should be entitled to the full benefit of such a challenge and be reimbursed for the benefits it bestowed, in good faith, to its insured.). The court stated that an insurer must clearly indicate a reservation of its right to seek reimbursement. Id. The court concluded, Under these circumstances, the Court finds it appropriate to determine that Knapp's silence in response to Commonwealth's reservations of rights letter, and subsequent acceptance of the defense provided by Commonwealth, constitutes an implied agreement to the reservation of rights. Id. 24 In First Federal Savings & Loan Association of Fargo, North Dakota v. Transamerica Title Insurance Co., 793 F.Supp. 265, 269 (D.Colo.1992) (citations omitted), the court stated, An insurance company may also reserve its right to deny its duty to defend and later recover for any attorney fees paid. The court determined that because the insured did not object to the insurer's reservation of rights, the insurer was entitled to reimbursement. Id. 25 A few cases, however, have not allowed recoupment of defense costs. See Terra Nova Ins. Co. v. 900 Bar Inc., 887 F.2d 1213 (3d Cir.1989); In re Hansel, 160 B.R. 66 (Bankr.S.D.Tex.1993); Shoshone First Bank v. Pacific Employers Ins. Co., 2 P.3d 510 (Wyo.2000). These cases, however, reject demands for recoupment on the basis of defects in the reservation of rights, rather than on the basis that recoupment depends on an express agreement by the insured. 26 In Terra Nova, 887 F.2d at 1217 and 1219, for example, the insurer appointed counsel for its insured subject to a general reservation of rights letter. The court found the insurer was not entitled to reimbursement for defense costs because of the general nature of the reservation of rights. Id. In Hansel, 160 B.R. at 70, the court stated, 27 Nowhere does either letter mention that Republic expects the insureds to reimburse it for the costs of defense of the state tort suit should it be found to have no duty to defend the insureds.... Even assuming Republic could have created this right through a subsequent agreement with the insureds, these letters fail to put the reader on notice that such a right is claimed. 28 The court found that, because the insurer did not provide timely notice of the reservation, the insurer was not entitled to reimbursement. Id. In Shoshone First Bank, 2 P.3d at 511, the court stated, we hold that the allocation and recovery of the costs attributable to the defense of claims that were not covered by the policy of insurance is not permitted under Wyoming law so long as one or more of the claims alleged is covered by the insurance policy. 29 Courts in other jurisdictions thus consistently have held that an insurer is entitled to reimbursement for defense costs when the insurer did not have a duty to defend any of the asserted claims where the insurer: 1) timely and explicitly reserves its right to recoup the costs; and 2) provides specific and adequate notice of the possibility of reimbursement. The general rule thus appears to be that, if these conditions are met, a reservation of rights is enforceable even absent an express agreement by the insured.