Insurance: Carrier Obtaining Reimbursement Of All Defense Costs Against Insured Had Some Of It Taken Away On Appeal Because Only Subsequent Facts Showed No Potential For Coverage

 

Defense Costs Were Properly Paid by Carrier Until Subsequent Investigation Showed No Coverage Potential.

     Insured must be breathing somewhat easier after the appellate result in Certain Underwriters at Lloyd’s London v. Mestmaker, Case No. F066016 (5^th Dist. Apr. 29, 2014) (unpublished), which reviewed a lower judge order directing the insured to pay back $235,958.98 in fees/costs expended by carrier in defending insured in a Colorado federal court action. The trial judge determined that there was no potential for coverage such that carrier had no obligation to defend, meaning insured had to reimburse off of the principal of advanced fees/expenses (plus interest thereon).

     On appeal, this one got reversed. The reason was that the facts demonstrated that the “no coverage” scenario was only evident based on subsequently developed facts, which translated to defense costs only ceasing on a prospective basis from the point these facts became known. (Tamrac, Inc. v. CIGA, 63 Cal.App.4^th 751, 758 (1998).) So, the matter was remanded for the trial judge to determine what defense costs needed to be reimbursed from the point in time where the potential for coverage was discovered to be non-existent.