In Part I (”When Can an Insurer Pursue a Malpractice Claim Against Defense Counsel Retained for an Insured”) of our two-part article published by the ABA’s Insurance Coverage Litigation Committee (ICLC), we addressed the circumstances in which an insurer can directly pursue malpractice claims against defense counsel. We observed that the majority of courts have allowed insurers to bring claims against defense counsel, and we discussed the three primary legal vehicles through which insurers can bring such claims. 

As we previewed in Part I, a related issue is how and when insurers can seek reimbursement of defense costs from the insured if it is later found that the insurer did not owe its insured a duty to defend. As in the cases discussed in Part I, there is a split of authority, with many jurisdictions still uncertain. 

In Part II, we discuss this split of authority and the requirements for an insurer to preserve a right to recoup defense costs, as well as practical considerations for insurers pursuing, and policyholders looking to fend off, a demand for recoupment. Although California was an early trendsetter in this area, with the decision in Buss v. Superior Court allowing a limited right to reimbursement becoming the majority view, a significant minority refuse to allow the insurer to seek reimbursement—a minority that may gain further traction in many jurisdictions. The Nevada Supreme Court split 4:3 on this issue, ruling in favor of reimbursement, but with a vehement dissent arguing against any such right. In contrast, Illinois has held that there is no right to reimbursement. 

Read Part I here and Part II here.

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.