Opinion ID: 2318759
Heading Depth: 1
Heading Rank: 11

Heading: Home Defense Costs

Text: In its Post, Post-Trial Opinion, the Superior Court held that Home is not required to cover Hercules' defense costs. [110] The Superior Court relied on the plain language of Home's Ultimate Net Loss provision, which defines Ultimate Net Loss as: the amount payable in settlement of the liability of the Insured after making deductions for all recoveries and for other valid and collectible insurances, excepting however the policy(ies) of the Primary Insurer(s) and shall exclude all expenses and Costs. Costs are defined as: interest accruing after entry of judgment, investigation, adjustment and legal expenses (excluding, however, all office expenses of the Insured, all expenses for salaried employees and general retainer fees for counsel normally paid by the Insured). Hercules argues that this language is ambiguous, because it appears to exclude legal expenses from coverage, but then, by virtue of the parenthetical exception in the definition of costs, includes as covered general retainer fees for legal counsel and other expenses. Hercules argues that the exclusion of legal expenses and the inclusion of general retainer fees for counsel normally paid by the Insured are in conflict, and that the provisions must be read in its favor to include defense costs. [111] Hercules argues that an interpretation that flatly excludes defense costs necessarily disregards the parenthetical, instead of properly giving effect to all of the language in the insurance contract. We have concluded that the under the plain language of the provision at issue there is no coverage for the defense costs sought by Hercules. This is a result supported by substantial authority. In Continental Casualty v. Pittsburgh Corning Corp ., [112] the Seventh Circuit explained that the seeming inconsistency in the language is easily solved by reading the parenthetical not as an exception to the exclusion, but as a result of modular drafting of insurance contracts by virtue of which not just outside legal expenses but also associated in-house legal expenses are excluded. [113] Interpreting identical language, the Second Circuit has likewise held, We agree with Home's interpretation that post-judgment interest and legal expenses (in particular outside counsel fees) are excluded under the plain language of the policy. [114] We are persuaded by the analysis in these cases that the defense costs are not covered. We are not persuaded by Hercules' attempt to create ambiguity in the provisions at issue. An ambiguity exists when the contractual provisions are reasonably or fairly susceptible of different interpretations or two different meanings. [115] Both interpretations must be reasonable. [116] The provision at issue is not a model of drafting. Nevertheless, the only reasonable interpretation of the language is that it excludes coverage for defense costs. The argument that the provisions are inconsistent appears to rest on the premise that the excluded legal expenses and the seemingly included general retainer fees are the same or substantially the same set of expenses. [117] Hercules offers an alternative reading of the provision in order to deal with this perceived inconsistency. Under its alternative, the Ultimate Net Loss provision determines whether the coverage falls within the Ultimate Net Loss limits. Hercules argues that only `Ultimate Net Loss' payments  that is, settlements or judgments, exhaust the limits of the Home policy, whereas expenses and costs are covered outside of the Home policy's Ultimate Net Loss limits, except for Hercules in-house costs and general retainer fees that are not covered.  Thus, some legal expenses are covered but do not erode the policy limits, but general retainer fees are not covered at all. Hercules offers no convincing support for its reading in the terms of the contract itself. [118] There are cases that support Hercules' position that the language is ambiguous, and which consequently find coverage, but those cases do not embrace its alternative interpretation of that language. [119] We find that Hercules' interpretation makes little sense. For example, it presupposes a practical distinction between legal expenses and general retainer fees. Hercules argues that latter are not covered at all and the former are covered outside the Ultimate Net Loss limits. If this distinction is a sound one, however, as explained above there is no ambiguity in the provision to begin with: it simply defines costs as including legal expenses and excluding general retainer fees. Under this reading, there is no need to posit that the provision does not have to do with coverage. In any event, as noted above, Hercules is not seeking general retainer fees (or, for that matter, expenses for salaried employees, which are also addressed in the parenthetical.) Furthermore, Hercules' explanation of the parenthetical is inconsistent with its focus on ultimate net loss limits. As noted above, it proposes that the costs in the parenthetical are not covered at all. But it could just as easily be argued that the costs excluded in the parenthetical are covered but are treated differently simply in that they are subject to the Ultimate Net Loss limits. Hercules' argument, after all, is that the definition of costs operates not to create or deny coverage but to determine whether limits are eroded. Under this theory (which we reject based on the plain language of the provision), a natural reading of the parenthetical would be that the general retainer fees are covered, and are treated differently only in that they do erode the policy limits. Yet, Hercules reads the parenthetical as an exclusion of coverage. [120] Hercules has not advanced a coherent interpretation of the provision at issue sufficient to create ambiguity. As explained above, the only reasonable interpretation of the language is that defense costs are not covered.