When an insurer accepts an insured’s tender and agrees to provide a defense, it is often an afterthought as to whether the insurer can actually recoup those defense costs or indemnity payments from the insured or defense counsel if things go south. But in certain circumstances, insurance carriers can, and sometimes do, seek to recoup defense costs—and occasionally even attempt to pursue defense counsel for malpractice.
Part I of this two-part article, published by the ABA’s Insurance Coverage Litigation Committee (ICLC), addresses how and where an insurer may directly pursue malpractice claims against defense counsel. While the majority of courts that have addressed the issue allow insurers to bring claims against defense counsel, there is a split between jurisdictions over the legal bases for those claims, which can also affect the likelihood of success. The three primary vehicles, discussed below, are (1) the tripartite relationship, (2) as third-party beneficiaries, and (3) contractual or equitable subrogation.
It is not always the ultimate verdict or settlement, however, that the insurer is keen to recover. As litigation costs continue to soar, an insurer’s obligation to defend can sometimes be more valuable to the insured—and more costly to the insurer—than the indemnity obligation. A second and separate issue is when and how insurers can seek reimbursement of defense costs from the insured if it is later found that a duty to defend was not owed in the first place for some or all of the claims. This second issue will be discussed in Part II of this two-part article.
Co-authoring the articles with me are Jalen Brown at Reed Smith, Kristin Davis at Thompson HD, Peter Georgiton at Dinsmore & Shohl LLP, and Mark Hart at Hand Arendall Harrison Sale. Read the article here.