On July 21, U.S. District Court Judge Claudia Wilken handed insureds a significant victory in a coverage case for Seagate, a computer hard drive manufacturer. Download 2010-07-21 Order re defts MTC and plffs MSJ (2) Farella represents Seagate in that action. Judge Wilken granted Seagate partial summary judgment on its claim that the Insurance Company of the State of Pennsylvania ("ISOP") breached its duty to defend by delaying in paying and failing to pay defense costs after it had agreed to defend three sets of underlying actions. Judge Wilken also denied a motion filed by ISOP and National Union Fire Insurance Company of Pittsburgh, PA ("National Union") seeking to compel arbitration under California Civil Code section 2860. Section 2860 allows insurers to limit fees paid to independent counsel to the attorneys fee rate charged by panel defense counsel in the defense of similar matters. Judge Wilken found that ISOP's breach of its duty to defend and undisputed evidence showing that National Union also had failed to sufficiently fund Seagate's defense precluded the insurers from taking advantage of section 2860.
This ruling is significant because it gives insureds more ammunition in arguing that an insurer's short and/or slow payment of defense costs, which can often arise over disputes about billing rates or allocation of fees between covered and non-covered claims, constitutes a breach of the duty to defend. We have argued this position on many occasions, but the directness with which Judge Wilken addressed and resolved this issue will be helpful in future disputes over insurers' non-payment or delayed payment of defense costs.