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Recoupment Revisited: Why the Majority Should Adopt the Minority Position
In its April 2005 issue, ICLB published an article discussing the varying approaches courts have taken when addressing whether an insurer may conditionally defend its insured and later obtain reimbursement of defense costs if it is determined that a claim is outside the scope of coverage. See Pastor, Sherilyn: Insurers' Rights to Recoup Defense Costs, Insurance Coverage Law Bulletin, Vol. 4, No. 3 at p. 1 (Apr. 2005). As the issue was going to press, the Illinois Supreme Court issued an opinion rejecting the purported right of recoupment. See General Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., No. 98814, 2005 WL 674685 (Ill. March 24, 2005). Noting that its position was the “minority” view, the court in General Agents declined to recognize the so-called “right of recoupment” both as a matter of contract law and a matter of policy. (For an in-depth review of the General Agents decision, see Case Notes at p. 7.) The court was right on both counts.
As a matter of contract law, there is typically no language in the insurance policies giving an insurer a right to obtain reimbursement of costs incurred in defending claims that may or may not be covered. The problem with allowing an insurer to use a reservation of rights letter to assert potential recoupment of defense costs is that the duty to defend, unlike the duty to indemnify, is determined at the outset of the litigation. A “reservation of rights” is a document sent by the insurer to the insured stating that a defense of a lawsuit will be provided, but that the insurer has questions concerning coverage and will withdraw from the defense in the event facts come to light showing that the claims at issue are not within the policy's scope. See, e.g., First Ins. Co. of Hawaii, Inc. v. State, by Minami, 665 P.2d 648, 649 (Haw. 1983) (“A reservation of rights agreement is notice by the insurer to the insured that the insurer will defend the insured but that the insurer is not waiving any defenses it may have under the policy.”). Thus, the reservation of rights letter deals with defenses to coverage ' in other words, to the ultimate duty to indemnify. If a claim clearly is outside the scope of coverage, the insurer has no need to reserve its rights in the first place. Conversely, if the insurer believes coverage is questionable enough that it feels the need to defend subject to a reservation of a right to assert recoupment, the claim must be at least “potentially” within coverage ' and, therefore, the duty to defend is triggered.
Critical to all of this is the fact that the duty to defend is determined ex ante. See Richmond, 35 Creighton L. Rev. 115, 130 (“An insurer's duty to defend is determined at the outset of litigation against its insured, when coverage questions often are unanswered, and when coverage issues may be unresolved.”). By asserting a right of recoupment, insurers are seeking to convert it to an ex poste determination. If there is a situation in which a claim clearly is not covered, the insurer has no obligation to defend in the first place. There is, therefore, no need to defend pursuant to a reservation of rights. If the coverage obligation is uncertain, however, the duty to defend exists until the insurer develops facts showing that there was no duty in the particular circumstance presented. In this situation, the insurer's duty to defend ceases prospectively from the subsequent determination of no coverage ' not retroactively from the beginning. See, e.g., Allstate Ins. Co. v. Conde, 595 So. 2d 1005, 1006 n.3 (Fla. Dist. Ct. App. 1992); Aerojet-General Corp. v. Transport Indem. Co., 948 P.2d 909, 920 (Cal. 1997).
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.
The Stranger to the Deed Rule
In 1987, a unanimous Court of Appeals reaffirmed the vitality of the "stranger to the deed" rule, which holds that if a grantor executes a deed to a grantee purporting to create an easement in a third party, the easement is invalid. Daniello v. Wagner, decided by the Second Department on November 29th, makes it clear that not all grantors (or their lawyers) have received the Court of Appeals' message, suggesting that the rule needs re-examination.