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charset=iso-8859-1"> <meta name="distribution" content="global"/> <link href="styles/newsletter.css" rel="stylesheet" type="text/css" media="screen" /> </head> <body> <div id="newslettercontent"> <h3><br /> Seeking Reimbursement for Non-Covered Claims:</h3> <h3>Defining Insurers&rsquo; Rights </h3> <p>As claims professionals know well, insurers have two basic responsibilities to their policyholders.&nbsp; First, an insurer has a broad duty to defend a suit that contains at least one <span class="italic">potentially </span>covered claim.&nbsp; Second, an insurer has a narrower obligation to indemnify covered claims.&nbsp; Each duty creates situations in which insurers are obligated to pay costs or settlements for non-covered claims.<br /> <br /> In the past decade, two important California Supreme Court decisions have defined liability insurers reimbursement rights for defense costs and settlement payments.&nbsp; Insurer expenditures related to non-covered claims can be recovered under certain, limited circumstances.</p> <h3> Certain Defense Costs Are Recoverable</h3> <p> In the <span class="italic">Buss </span>case, the California Supreme Court determined that insurers are entitled to reimbursement for defense payments towards claims that are not potentially covered, based on the legal theory of restitution.&nbsp; Under that theory,&nbsp;a party who has been unjustly enriched is required to return the unintentional benefit. &nbsp;In other words, when a policyholder does not pay a premium for a particular type of coverage, it is unjust for an insurer to be forced to absorb the attendant defense costs.&nbsp; Those defense costs may be recovered, however, there are three important limiting factors.&nbsp; <br /> <br /> First, an insurer must specifically reserve its right to seek reimbursement <span class="italic">before </span>it assumes a defense, to give policyholders the option of assuming their own defense.&nbsp; Second, an insurer is only able to successfully seek reimbursement where defense costs are <span class="italic">solely</span> attributable to the non-covered claims.&nbsp; Finally, many policyholders lack the financial resources to make a reimbursement action worthwhile.&nbsp; The <span class="italic">Buss</span> case is an exception, in that the policyholder, Jerry Buss, is a wealthy sports-entertainment magnate.&nbsp; <br /> <br /> Sometimes, a potential claim for reimbursement can arise in &ldquo;mixed actions.&rdquo; &nbsp;In a mixed action, one or more claims are potentially covered under the policy, while at least one of the claims is not covered.&nbsp; Public policy dictates that an insurer must provide a<span class="italic"> complete</span> defense to all of the claims in a suit, even if only one claim is potentially covered.&nbsp; The question then becomes: can an insurance provider that defends a mixed action obtain reimbursement for defense costs allocated to those claims that are <span class="italic">not potentially covered</span> under the policy?&nbsp; The answer is yes, but an insurer&rsquo;s burden of proof is usually difficult. <br /> <br /> In reality, it is often difficult to parse out which, if any, defense activities were dedicated entirely to a particular non-covered claim.&nbsp; An insurance provider has the burden of proving, by a preponderance of the evidence, that the defense activities for which it is seeking reimbursement were directed <span class="italic">solely</span> at claims that were not potentially covered.&nbsp; For instance, if time is spent doing research that pertains to both covered and non-covered claims, no reimbursement is recoverable.&nbsp; In summary, insurers can obtain reimbursement of defense costs attributable <em>solely</em> to non-covered claims.</p> <h3> Settlement Payments for Non-Covered Claims Are also Recoverable, with Limitations</h3> <p> The other potential reimbursement scenario arises when an insurance company seeks to recover settlement payments made for non-covered claims.&nbsp; The <span class="italic">Blue Ridge</span> case, using the same principles of restitution relied upon in <em>Buss,</em> established the process by which an insurer can reserve its rights for reimbursement.<br /> <br /> First, an insurer must put its policyholder on notice that it is reserving its rights to seek reimbursement for settlement amounts attributable to non-covered claims.&nbsp; Second, an insurer must give its insured an opportunity to object to the reasonableness of the settlement amount and to assume its own defense.&nbsp; Most often, an insured will have no choice but to accept an insurer&rsquo;s decision to settle for the decided amount. &nbsp;If an insured accepts settlement of a case, it may not later claim bad faith for the settlement amount.<br /> <br /> As with defense fees, an insurer may recover settlement fees if it can prove that some or all claims are not covered.&nbsp; However, the <span class="italic">Blue Ridge</span> court noted that insurance companies bear a substantial risk that their policyholders will not be able to reimburse them.&nbsp; Overall, reimbursement for defense and indemnity costs are available, but only practical in certain situations.</p> If you have any further questions, Bolender &amp; Associates has available a detailed written analysis of the case law summarized above. Please call or email: <p> Jeffrey S. Bolender, Attorney<br /> <a href="mailto:jbolender@bolender-firm.com">jbolender@bolender-firm.com</a><br /> Bolender &amp; Associates<br /> Rolling Hills Office Plaza<br /> 2601 Airport Drive, Suite 360<br /> Torrance, California 90505</p> <div id="copyright"><span class="style3"> <input name="button" type="button" onclick="window.close()" value="Close Window" /> </span></div> <!-- <p><span class="bottomlinks"><a href="index.html" title="Law Firm" class="bottomlinks">Home</a> | <a href="bolender_attorney_profiles.html" title="Insurance Coverage Litigation Attorneys" class="bottomlinks"> Attorney Profiles </a> | <a href="bolender_practice_areas.html" title="Matters Concerning Insurance Coverage" class="bottomlinks"> Practice Areas</a> | <a href="bolender_publications.html" title="Proper Interpretation of Insurance Policies" class="bottomlinks">Publications</a> | <a href="contact_bolender_attorneys.html" title="Torrance California Business Litigation lawyer" class="bottomlinks"> Contact</a> | <a href="bolender_sitemap.html" title="Torrance California Business Litigation lawyer" class="bottomlinks"> Sitemap</a></span></p> --></div> <script type="text/javascript"> var gaJsHost = (("https:" == document.location.protocol) ? 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