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Definition of 'expenses' at center of insurer policy dispute


The term “expenses” in an insurance policy encompasses attorneys’ fees in a variety of contexts, said an appeals courting ruling in favor of Arch Specialty Insurance Co. in a dispute with Amerisure Mutual Insurance Co. on an underlying issue in the case.


Farmington Hills, Michigan-based Amerisure issued a Texas commercial package policy to Houston-based Admiral Glass & Mirror Co. in 2006 that provided coverage in excess of any coverage afforded by a controlled insurance program policy, according to Tuesday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Amerisure Mutual Insurance Co. v. Arch Specialty Insurance Co.

Admiral was sued for faulty work in 2010, according to the ruling, and tendered the lawsuit to Jersey City, New Jersey-based Arch as the primary insurer.

Arch eventually withdrew from defense for the lawsuit, contending that attorneys’ fees, defense costs and settlements of $2 million from defending Admiral and other subcontractor defendants had exhausted its policy limits.

Amerisure sued Arch in Texas state court for breach of contract, contending Arch had wrongfully refused to defend and indemnify Admiral, and the case was subsequently moved to federal court.

Issues in the complex litigation included Amerisure’s position that policy limits had not been exhausted because defense costs did not erode the policy limits.

“Amerisure argues the term ‘expenses’ in the policy doesn’t include attorneys’ fees and other costs of defense,” said a three-judge appeals panel in its unanimous ruling. “However, it has long been the law in Texas that the term ‘expense’ encompasses attorneys’ fees in a wide variety of contexts.”

“Giving it its ordinary meaning, when an insurer pays costs of defense, including attorneys’ fees, that is an ‘expense’ to the insurer. Absent some indication that a different meaning is intended, we see no reason to deviate from this ordinary meaning of the term,” said the ruling, in agreeing with Arch on this issue.