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Chubb prevails in defense cost dispute with Berkley

Chubb prevails in defense cost dispute with Berkley

 A W.R. Berkley Corp. unit, as the primary insurer, is liable to a Chubb Ltd. unit, an excess insurer, for $8 million in costs plus interest incurred in defending a mutual policyholder, said a federal appeals court Wednesday in resolving a long-running, complex case.

“This case is a fight between two insurers over which insurer bears the liability for defense costs incurred by their joint insured in an underlying lawsuit,” said the 6th U.S. Circuit Court of Appeals in Cincinnati in its ruling in IMG Worldwide Inc. et al. and Westchester Fire Insurance Co. v. Great Divide Insurance Co.

Des Moines, Iowa-based Great Divide, the Berkley unit, was the primary commercial general liability insurer for New York-based IMG Worldwide, a sports management company, from 2005 to 2009, providing a $1 million-per-occurrence limit and a $2 million general aggregate limit, with no limit on its liability for defense costs, according to the ruling.

Chubb unit Westchester, based in Philadelphia, was IMG’s excess insurer from 2007 to 2009, providing various coverages, including $25 million in umbrella coverage in excess of the Great Divide CGL coverage, according to the ruling. It also owed a duty to defend Westchester without limitation, according to the ruling.

In 2008, several individuals sued IMG alleging injury from a Florida real estate project. Both insurers refused to defend the company on the grounds its potential liability did not fall within the policies because the claims were not for property damage, said the ruling.

IMG settled the litigation in 2010 and sought reimbursement from both insurers for the $5 million IMG agreed to pay the plaintiffs and $8 million in defense costs.

In September 2010, Great Divide settled with IMG for $1.25 million, agreeing the $1 million exhausted the per-occurrence limit and that the remaining $250,000 would satisfy IMG’s claim against Great Divide to indemnify IMG.

In 2011, IMG sued Westchester in U.S. District Court in Cleveland, alleging failure to indemnify covered losses and breach of duty to defend it in the Florida litigation. A jury returned a verdict for IMG for failure to indemnify, finding IMG had suffered $3.9 million in losses.

The District Court upheld that award, but denied IMG’s motion for judgment against Westchester as to defense costs, concluding Westchester owed no duty to defend IMG in the Florida litigation.

In 2014, the 6th Circuit affirmed the jury’s award but reversed the judgment on the issue of Westchester’s duty to defend, according to the ruling.

On remand, the District Court ruled Great Divide was liable “under the principles of equity” to reimburse Westchester for the defense costs it was ordered to pay to IMG. It entered judgment in Westchester’s favor for an additional $9.2 million, reflecting $8 million in defense costs plus interest.

A three-judge appeals court panel upheld the award. When “Great Divide settled its obligations with IMG, that settlement never shifted the duty to defend or to pay defense costs onto Westchester,” said the ruling.

“At that point, the Florida litigation was over and Westchester could do nothing about defenses costs. No party suggests that Great Divide acted in bad faith.

“Still, but for Great Divide’s refusal to defend the Florida litigation, Westchester would have incurred no liability for the defense costs. Thus, as the District Court concluded, fairness dictates an equitable adjustment to reflect the obligation owed by Great Divide as the primary insurer,” said the ruling.

“Great Divide had the sole duty to defend the lawsuit, and its obligations to a known excess insurer did not vanish when Westchester’s liability accrued as a consequence of Great Divide’s inaction,” said the appellate panel in affirming the lower court’s ruling.


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