Appeals court rules against insurer on defense costs
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A federal appeals court reversed a lower court decision Monday and ruled against an RSUI Group Inc. unit in a dispute over a policyholder’s defense.
Landmark American Insurance, a unit of Atlanta-based RSUI, appointed a law firm to defend policyholder Taisei Construction Corp. in litigation over alleged construction defects in a Los Angeles development, according to court papers in Landmark American insurance Co. v. Taisei Construction Corp. et. al.
Landmark had the right to retain counsel of its own choosing under its policy. But Taisei already had its own counsel, and demanded the insurer’s counsel withdraw from the case, which it did, according to Landmark’s complaint.
The insurer filed suit against the construction company in U.S. District Court in Pasadena, California, seeking a declaration the company had breached its duty to cooperate under the policy in selecting its own counsel, and that it was not obligated to pay defense costs.
The district court ruled in the insurer’s favor but was overturned by a unanimous three-judge appeals court panel of the 9th U.S. Circuit Court of Appeals in San Francisco.
The district court presumed the policyholder’s action caused substantial prejudice against the insurer, but did not conduct an independent analysis of the issue, the ruling said.
“The issue of substantial prejudice is one of fact to be resolved by the trial court the first instance,” the ruling said, adding, “it is far from undisputed based on the existing record that Landmark did actually suffer substantial prejudice.”
The case was remanded to the district court for further proceedings.
Attorneys in the case did not respond to requests for comment.
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