If Insurers Have an Alleged 'Right' to Reimbursement, Where Does It Come From?

8. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF DEFENSE COSTS)

The Insurer does not assume any duty to defend. The Insured shall defend and contest any Claim made against them. ' When the Insurer has not assumed the defense of a Claim pursuant to Clause B, the Insurer shall advance nevertheless, at the written request of the Insured, Defense Costs prior to the final disposition of a Claim. Such advanced payments by the Insurer shall be repaid to the Insurer by the Insured, severally according to their respective interests, in the event and to the extent that the Insured shall not be entitled under the terms and conditions of this policy to payment of such Loss.

That CGL policies do not contain similar advance or recoupment provisions does not somehow leave the issue of recoupment open. The typical CGL policy contains not only a defense provision, mandating that an insurer defend any claim that potentially falls within the scope of the policy's coverage, but also an integration provision. The duty to defend is not contingent on a court ruling that the claim is covered by the policy's indemnity provision. Thus, the parties' entire agreement includes the insurer's promise to provide a defense ' without any allowance for reimbursement ' for all potentially covered claims even if they are groundless, frivolous, illogical, false or fraudulent.

That insurers elect against including an express reimbursement requirement in their policies leaves no room to imply one from the parties' obligations to fulfill their contract. Courts cannot “write” better contracts for insurers than insurers write for themselves, even under the penumbra of the duty of good faith. This is particularly so where the lack of a reimbursement term is not an oversight, but a conscious decision by the insurance contract's primary drafter.

Where a claim is not covered under a liability policy, the insurer is within its rights to deny coverage. When the insurer that writes a policy cannot determine with certainty whether a tendered claim is covered, the insurer cannot shift the risk of that uncertainty, or its defense obligation, to its policyholder under the letter or spirit of its contract. If the insurer lacks the conviction to deny a tendered claim, and defends it under a reservation of rights, the insurer tacitly admits that the claim is potentially covered, and the insurer must defend that potentially covered claim. If the obligation to fulfill the contract has a place in the analysis, it demands an insurer respect and accept its defense obligations. Meaning, the insurer should refrain from seeking to limit its duty to defend to its duty to indemnify, and deprive its policyholder of an important policy benefit ' the insurer's defense against potentially covered claims.

The Supreme Court of Pennsylvania recently held, in American & Foreign Insurance Co. v. Jerry's Sport Center, Inc., 2 A.3d 526, 536-44 (Pa. 2010), that an insured need not reimburse an insurer for defense costs it pays under a reservation of rights absent an express policy provision requiring otherwise. The court observed that “it is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the insurer's duty to defend.” Id. at 541. The court explained that while a judgment finding no coverage relieves an insurer of a continuing defense obligation, it does not somehow retroactively void the insurer's defense obligations during periods of uncertainty. Id. at 542. Thus, the Pennsylvania court determined that disallowing reimbursement, when an insurer's policy does not call for it, best comports with the parties' contract and Pennsylvania law's broad duty to defend. Id. at 544.

Equitable Theories

Some insurers seeking recoupment argue that their “right” to recoupment arises in equity. They claim that they did not bargain for an obligation to defend uncovered claims. Therefore, they contend that when a court declares a claim uncovered, the court should order policyholders to reimburse the defense costs the insurers have expended so that the policyholders are not unjustly enriched.

The Supreme Court of Utah recently rejected such a theory in U.S. Fidelity & Guaranty Co. v. U.S. Sports Specialty Ass'n, 270 P.3d 464, 466-69 (Utah 2012). The insurer there argued for reimbursement because it informed its policyholder when it accepted the defense that it was making a potentially non-covered payment and would seek reimbursement. The insurer urged that the policyholder had the ability to assume its own defense if it objected to the insurer's offered terms and that the policyholder failed to do so. The insurer therefore argued that its right to reimbursement arose in equity. Id. at 468. The Utah court disagreed, reminding that unjust enrichment is an equitable remedy, which cannot be invoked where there is an express contract and, therefore, a remedy under the contract at law. Id.

The Utah Supreme Court also rejected reimbursement on policy grounds. It opined that allowing recoupment would distort the bargained-for allocation of risk between the insurer and its policyholder as it relates to who will defend potentially covered claims. Id. at 470. The court likewise rejected the suggestion that the possibility of a threatened bad faith claim against the insurer somehow supported a reimbursement claim. Id. at 470-71. The Utah court observed that an insurer that acts reasonably in evaluating a claim cannot be liable for violating the covenant of good faith and fair dealing, even if the insurer denies a claim that is later found to be covered. Id. at 471.

Equity also cannot give rise to an insurer's alleged right to reimbursement because there is an express and integrated contract on the subject matter of defense. It dictates that where coverage is uncertain, the insurer will defend at its own expense. Notably, insurers seeking reimbursement sometimes argue that their policies provide that they have no obligation to defend suits to which their insurance does not apply. But the insurance policy provisions to which they cite only allow insurers to deny coverage when they conclude that tendered claims are not even potentially covered by their policies. When an insurer elects to defend ' because the facts are not well developed or their contract is not sufficiently clear ' it admits the potential for coverage and is obligated to defend at its expense.

There is nothing unfair that must be remedied. Where coverage for a claim is uncertain, there is no undeserved benefit conferred; the insurer, without a policy allowing for advancement of funds, simply fulfills its own contractual undertaking to defend, and the policyholder simply gets what it already paid a premium for, a defense. Insurers who offer such policies, and regularly confront doubtful claims, of necessity factor this into their premium structure. But, even if it fails to understand the scope of the duty to defend under the policy it drafted, this does not excuse the insurer's regular performance or result in some compensable injustice.

Indeed, policyholders expect their liability policies to protect them against the expense of defending third-party lawsuits when those suits allege any potentially covered claims. This defense protection would be eroded if an insurer were allowed to recoup defense costs. The policyholder would be left with insurance protection akin to an excess policy. Its policy would only reimburse ultimate net loss, but offer no duty to defend it against potentially covered claims. When an insurer sells an integrated policy obligating it to defend, at its own cost, potentially covered claims, a policyholder fairly and reasonably expects a fully funded defense ' this is particularly true when an insurer knows how to draft reimbursement provisions and incorporates them into its other contracts, but does not do so for the policyholder's contract.

An insurer's right of reimbursement also cannot arise in equity because the insurer offers a defense for its own benefit. Liability policies describe the insurer's defense obligation as both an insurer's right and duty because the insurer often has the right to select and appoint defense counsel. The insurer also may have the right to control a claim's defense and strategy, including controlling any settlement. As the Third Circuit recognized when rejecting an insurer's unjust enrichment theory in Terra Nova Insurance Co. v. 900 Bar, Inc., 887 F.2d 1213 (3d Cir. 1989), an insurer that offers a defense under a reservation of rights when there is uncertainty as to coverage avoids the risk that a policyholder's poorly funded or executed defense will expose the insurer to greater costs if it turns out the claim is covered:

Faced with uncertainty as to its duty to indemnify, an insurer offers a defense under a reservation of rights to avoid the risks that an inept or lackadaisical defense of the underlying action may expose it to if it turns out there is a duty to indemnify. At the same time, the insurer wishes to preserve its right to contest the duty to indemnify if the defense is successful. Thus, such an offer is made at least as much for the insurer's own benefit as for the policyholder's. If the insurer could recover defense costs, the policyholder would be required to pay for the insurer's action in protecting itself against the estoppel to deny coverage that would be implied if it undertook the defense without a reservation of rights. Id. at 1219-20.

Thus, since defending the entire case serves the insurer's interests, the policyholder cannot reasonably be said to be unjustly enriched when it receives a defense for potentially covered claims, and no alleged right of reimbursement can arise in equity.

Implied Contracts and Reservation of Rights Letters

Some insurers argue that their alleged right of recoupment arises from the implied contract created by their reservation of rights letters. Those insurers contend that they have conditioned their offer to defend and then paid for the policyholder's defense of what the insurer regards as uncovered claims. The policyholder, supposedly by accepting a defense on these offered terms, is deemed to have accepted an implied contract allowing for an insurer's recoupment. See, e.g., Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 2 A.3d 526, 529-30 (Pa. 2010).

The Pennsylvania Supreme Court in Jerry's Sport rejected that a right of reimbursement could arise from a reservation of rights letter. It explained that a reservation of rights letter merely reiterates the defenses and exclusions set forth in the policy; it does not create a new contract. Id. The U.S. District Court for the District of Massachusetts agreed in Welch Foods, Inc. v. National Union Fire Insurance Co., No. 09-12087-RWZ, 2011 U.S. Dist. LEXIS 17134 (D. Mass. Feb. 9, 2011). The policyholder there sought coverage for claims alleging unfair competition and false advertising. The relevant insurance policy set forth the insurer's obligation to defend, without mention of any right of reimbursement. Id. at *8. One of the insurers, nonetheless, paid defense costs subject to a reservation of rights letter, while purporting to reserve its right to seek recoupment. Id. at *3. On cross motions, the court agreed that the underlying claims were not covered but denied the insurer's request for reimbursement. Id. at *7. The court explained that an insurer has a duty to defend that is not extinguished by a court or jury's determination that an underlying claim is not, in fact, covered. Id. at *9. The court observed that while it may be difficult for an insurer to determine whether a claim is potentially covered upon its tender, insurers are in the business of making such decisions and must accept the risk when their decision to pay defense fees is wrong. Id. at *9. Thus, the insurer's unilateral reservation of a reimbursement “right,” which was “neither approved nor acknowledged” by the policyholder, did not support its reimbursement theory. Id. at *10 n. 2.

Likewise, in Westchester Fire Insurance Company v. Wallerich, 563 F.3d 707 (8th Cir. 2009), the Eighth Circuit Court of Appeals declined to find that a D&O insurer had a right of recoupment based on its reservation of rights letter, even though the court ultimately determined that the underlying claim was not covered. The Wallerich court explained that the insurer could have included a reimbursement provision in its policy. Id. at 718-19. Having opted not to do so, the insurer could not unilaterally amend the policy by including a purported (and disputed) “right” to reimbursement in its reservation of rights letter. Id. The court found that the insurer, having offered an interim defense without giving up any rights to the policyholder, had no viable basis for its reimbursement claim. Id.

Conclusions

The Washington Court of Appeals in National Surety Corp. v. Immunex Corp., 256 P.3d 439 (Wash. Ct. App. 2011), got it right when it determined that an insurer has no “right” of reimbursement. As the appellate court properly found, the insurer's duty to defend arose when the underlying price-fixing complaint, alleging a potentially covered claim, was filed against the policyholder. Id. at 445. The insurer was not relieved of its duty to defend until the claims were shown to be “clearly not covered by the policy.” Id. As payment of defense costs for claims that are potentially covered is part of the bargained-for benefit between the parties, the insurer was obligated to defend until the court declared that no duty to defend existed. Id. at 446. The policy offered no right of recoupment. The reservation of rights letter created no new right of reimbursement. Id. at 447. The policyholder was not unjustly enriched. So no right of reimbursement arose in equity. Rather, the insurer benefited itself by defending the potentially covered claims. Id.

In answer to the Washington Supreme Court's question in Immunex, the “right” to reimbursement arises, if at all, from an express advancement or recoupment provision in an insurance policy. Insurers know how to incorporate these provisions in their contracts. When they sell a duty to defend policy with no such provision, the insurers have no right to recoupment. They have instead opted to defend potentially covered claims that may ultimately be found to be uncovered. Being in the business of risk assessment, insurers can account for such exposure and set their premiums accordingly. But they have no “right” of reimbursement ' let alone one that arises from the policyholder's good faith obligations to fulfill the policy.

Sherilyn Pastor, a member of this newsletter's Board of Editors, is a partner at McCarter & English, LLP, where she is practice group leader of the firm's Insurance Coverage Group. Pastor is co-chair of the ABA Section of Litigation's Insurance Coverage Litigation Committee. She counsels and litigates on behalf of corporate policyholders throughout the country and has recovered millions of dollars of insurance assets, by settlement or judgment, on behalf of policyholder clients. This publication is not intended to provide legal advice. Issues relating to insurance coverage are fact-specific, and their resolution will depend on the precise policy terms involved and the law governing the disputes, which varies from state to state. The views expressed in this publication are not necessarily those of McCarter & English, LLP or its clients.

In May 2012, the Washington Supreme Court held oral argument in National Surety Corporation v. Immunex Corp. , 256 P.3d 439 (Wash. Ct. App. 2011), on an insurer's claim for reimbursement of defense costs. As the insurer's policy contained no provision allowing it reimbursement from its policyholder, the court quickly got to the heart of the matter, asking: If the policy is silent, where does the supposed right of reimbursement come from? The insurer's attorney argued that the right to reimbursement arises from an insurer's and policyholder's good faith obligations to fulfill the policy. But other insurers and their counsel have elsewhere taken other, indeed conflicting, positions regarding the supposed basis for their reimbursement claims. Some insurers admit that the right does not arise from their policies' letter or spirit, and instead argue that a separate, implied contract, embodied in their reservation of rights letters, allows for reimbursement. Other insurers claim no contractual right to reimbursement and instead argue that a policyholder's duty to reimburse them arises in equity to prevent alleged unjust enrichment. This article considers these conflicting theories as well as policyholders' views that insurers have no right to reimbursement in law or equity absent an express contractual provision relating to advancement of fees or recoupment.

Liability Policies and the Duty to Defend

Most commercial general liability (“CGL”) insurance policies do not contain advancement or reimbursement provisions. They could, because insurers know how to draft these provisions. Directors and officers (“D&O”) liability insurance policies often contain provisions allowing an insurer to advance defense costs, in return for a policyholder's promise to repay such costs if a court later decides that all or part of a claim is not covered. For example, American International
Companies' Not-For-Profit Protector' liability insurance policy provides:

8. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF DEFENSE COSTS)

The Insurer does not assume any duty to defend. The Insured shall defend and contest any Claim made against them. ' When the Insurer has not assumed the defense of a Claim pursuant to Clause B, the Insurer shall advance nevertheless, at the written request of the Insured, Defense Costs prior to the final disposition of a Claim. Such advanced payments by the Insurer shall be repaid to the Insurer by the Insured, severally according to their respective interests, in the event and to the extent that the Insured shall not be entitled under the terms and conditions of this policy to payment of such Loss.

That CGL policies do not contain similar advance or recoupment provisions does not somehow leave the issue of recoupment open. The typical CGL policy contains not only a defense provision, mandating that an insurer defend any claim that potentially falls within the scope of the policy's coverage, but also an integration provision. The duty to defend is not contingent on a court ruling that the claim is covered by the policy's indemnity provision. Thus, the parties' entire agreement includes the insurer's promise to provide a defense ' without any allowance for reimbursement ' for all potentially covered claims even if they are groundless, frivolous, illogical, false or fraudulent.

That insurers elect against including an express reimbursement requirement in their policies leaves no room to imply one from the parties' obligations to fulfill their contract. Courts cannot “write” better contracts for insurers than insurers write for themselves, even under the penumbra of the duty of good faith. This is particularly so where the lack of a reimbursement term is not an oversight, but a conscious decision by the insurance contract's primary drafter.

Where a claim is not covered under a liability policy, the insurer is within its rights to deny coverage. When the insurer that writes a policy cannot determine with certainty whether a tendered claim is covered, the insurer cannot shift the risk of that uncertainty, or its defense obligation, to its policyholder under the letter or spirit of its contract. If the insurer lacks the conviction to deny a tendered claim, and defends it under a reservation of rights, the insurer tacitly admits that the claim is potentially covered, and the insurer must defend that potentially covered claim. If the obligation to fulfill the contract has a place in the analysis, it demands an insurer respect and accept its defense obligations. Meaning, the insurer should refrain from seeking to limit its duty to defend to its duty to indemnify, and deprive its policyholder of an important policy benefit ' the insurer's defense against potentially covered claims.

The Supreme Court of Pennsylvania recently held, in American & Foreign Insurance Co. v. Jerry's Sport Center, Inc. , 2 A.3d 526, 536-44 (Pa. 2010), that an insured need not reimburse an insurer for defense costs it pays under a reservation of rights absent an express policy provision requiring otherwise. The court observed that “it is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the insurer's duty to defend.” Id. at 541. The court explained that while a judgment finding no coverage relieves an insurer of a continuing defense obligation, it does not somehow retroactively void the insurer's defense obligations during periods of uncertainty. Id. at 542. Thus, the Pennsylvania court determined that disallowing reimbursement, when an insurer's policy does not call for it, best comports with the parties' contract and Pennsylvania law's broad duty to defend. Id. at 544.

Equitable Theories

Some insurers seeking recoupment argue that their “right” to recoupment arises in equity. They claim that they did not bargain for an obligation to defend uncovered claims. Therefore, they contend that when a court declares a claim uncovered, the court should order policyholders to reimburse the defense costs the insurers have expended so that the policyholders are not unjustly enriched.

The Supreme Court of Utah recently rejected such a theory in U.S. Fidelity & Guaranty Co. v. U.S. Sports Specialty Ass'n , 270 P.3d 464, 466-69 (Utah 2012). The insurer there argued for reimbursement because it informed its policyholder when it accepted the defense that it was making a potentially non-covered payment and would seek reimbursement. The insurer urged that the policyholder had the ability to assume its own defense if it objected to the insurer's offered terms and that the policyholder failed to do so. The insurer therefore argued that its right to reimbursement arose in equity. Id. at 468. The Utah court disagreed, reminding that unjust enrichment is an equitable remedy, which cannot be invoked where there is an express contract and, therefore, a remedy under the contract at law. Id.

The Utah Supreme Court also rejected reimbursement on policy grounds. It opined that allowing recoupment would distort the bargained-for allocation of risk between the insurer and its policyholder as it relates to who will defend potentially covered claims. Id. at 470. The court likewise rejected the suggestion that the possibility of a threatened bad faith claim against the insurer somehow supported a reimbursement claim. Id. at 470-71. The Utah court observed that an insurer that acts reasonably in evaluating a claim cannot be liable for violating the covenant of good faith and fair dealing, even if the insurer denies a claim that is later found to be covered. Id. at 471.

Equity also cannot give rise to an insurer's alleged right to reimbursement because there is an express and integrated contract on the subject matter of defense. It dictates that where coverage is uncertain, the insurer will defend at its own expense. Notably, insurers seeking reimbursement sometimes argue that their policies provide that they have no obligation to defend suits to which their insurance does not apply. But the insurance policy provisions to which they cite only allow insurers to deny coverage when they conclude that tendered claims are not even potentially covered by their policies. When an insurer elects to defend ' because the facts are not well developed or their contract is not sufficiently clear ' it admits the potential for coverage and is obligated to defend at its expense.

There is nothing unfair that must be remedied. Where coverage for a claim is uncertain, there is no undeserved benefit conferred; the insurer, without a policy allowing for advancement of funds, simply fulfills its own contractual undertaking to defend, and the policyholder simply gets what it already paid a premium for, a defense. Insurers who offer such policies, and regularly confront doubtful claims, of necessity factor this into their premium structure. But, even if it fails to understand the scope of the duty to defend under the policy it drafted, this does not excuse the insurer's regular performance or result in some compensable injustice.

Indeed, policyholders expect their liability policies to protect them against the expense of defending third-party lawsuits when those suits allege any potentially covered claims. This defense protection would be eroded if an insurer were allowed to recoup defense costs. The policyholder would be left with insurance protection akin to an excess policy. Its policy would only reimburse ultimate net loss, but offer no duty to defend it against potentially covered claims. When an insurer sells an integrated policy obligating it to defend, at its own cost, potentially covered claims, a policyholder fairly and reasonably expects a fully funded defense ' this is particularly true when an insurer knows how to draft reimbursement provisions and incorporates them into its other contracts, but does not do so for the policyholder's contract.

An insurer's right of reimbursement also cannot arise in equity because the insurer offers a defense for its own benefit. Liability policies describe the insurer's defense obligation as both an insurer's right and duty because the insurer often has the right to select and appoint defense counsel. The insurer also may have the right to control a claim's defense and strategy, including controlling any settlement. As the Third Circuit recognized when rejecting an insurer's unjust enrichment theory in Terra Nova Insurance Co. v. 900 Bar, Inc., 887 F.2d 1213 (3d Cir. 1989), an insurer that offers a defense under a reservation of rights when there is uncertainty as to coverage avoids the risk that a policyholder's poorly funded or executed defense will expose the insurer to greater costs if it turns out the claim is covered:

Faced with uncertainty as to its duty to indemnify, an insurer offers a defense under a reservation of rights to avoid the risks that an inept or lackadaisical defense of the underlying action may expose it to if it turns out there is a duty to indemnify. At the same time, the insurer wishes to preserve its right to contest the duty to indemnify if the defense is successful. Thus, such an offer is made at least as much for the insurer's own benefit as for the policyholder's. If the insurer could recover defense costs, the policyholder would be required to pay for the insurer's action in protecting itself against the estoppel to deny coverage that would be implied if it undertook the defense without a reservation of rights. Id. at 1219-20.

Thus, since defending the entire case serves the insurer's interests, the policyholder cannot reasonably be said to be unjustly enriched when it receives a defense for potentially covered claims, and no alleged right of reimbursement can arise in equity.

Implied Contracts and Reservation of Rights Letters

Some insurers argue that their alleged right of recoupment arises from the implied contract created by their reservation of rights letters. Those insurers contend that they have conditioned their offer to defend and then paid for the policyholder's defense of what the insurer regards as uncovered claims. The policyholder, supposedly by accepting a defense on these offered terms, is deemed to have accepted an implied contract allowing for an insurer's recoupment. See, e.g., Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc. , 2 A.3d 526, 529-30 (Pa. 2010).

The Pennsylvania Supreme Court in Jerry's Sport rejected that a right of reimbursement could arise from a reservation of rights letter. It explained that a reservation of rights letter merely reiterates the defenses and exclusions set forth in the policy; it does not create a new contract. Id. The U.S. District Court for the District of Massachusetts agreed in Welch Foods, Inc. v. National Union Fire Insurance Co., No. 09-12087-RWZ, 2011 U.S. Dist. LEXIS 17134 (D. Mass. Feb. 9, 2011). The policyholder there sought coverage for claims alleging unfair competition and false advertising. The relevant insurance policy set forth the insurer's obligation to defend, without mention of any right of reimbursement. Id. at *8. One of the insurers, nonetheless, paid defense costs subject to a reservation of rights letter, while purporting to reserve its right to seek recoupment. Id. at *3. On cross motions, the court agreed that the underlying claims were not covered but denied the insurer's request for reimbursement. Id. at *7. The court explained that an insurer has a duty to defend that is not extinguished by a court or jury's determination that an underlying claim is not, in fact, covered. Id. at *9. The court observed that while it may be difficult for an insurer to determine whether a claim is potentially covered upon its tender, insurers are in the business of making such decisions and must accept the risk when their decision to pay defense fees is wrong. Id. at *9. Thus, the insurer's unilateral reservation of a reimbursement “right,” which was “neither approved nor acknowledged” by the policyholder, did not support its reimbursement theory. Id. at *10 n. 2.

Likewise, in Westchester Fire Insurance Company v. Wallerich , 563 F.3d 707 (8th Cir. 2009), the Eighth Circuit Court of Appeals declined to find that a D&O insurer had a right of recoupment based on its reservation of rights letter, even though the court ultimately determined that the underlying claim was not covered. The Wallerich court explained that the insurer could have included a reimbursement provision in its policy. Id. at 718-19. Having opted not to do so, the insurer could not unilaterally amend the policy by including a purported (and disputed) “right” to reimbursement in its reservation of rights letter. Id. The court found that the insurer, having offered an interim defense without giving up any rights to the policyholder, had no viable basis for its reimbursement claim. Id.

Conclusions

The Washington Court of Appeals in National Surety Corp. v. Immunex Corp. , 256 P.3d 439 (Wash. Ct. App. 2011), got it right when it determined that an insurer has no “right” of reimbursement. As the appellate court properly found, the insurer's duty to defend arose when the underlying price-fixing complaint, alleging a potentially covered claim, was filed against the policyholder. Id. at 445. The insurer was not relieved of its duty to defend until the claims were shown to be “clearly not covered by the policy.” Id. As payment of defense costs for claims that are potentially covered is part of the bargained-for benefit between the parties, the insurer was obligated to defend until the court declared that no duty to defend existed. Id. at 446. The policy offered no right of recoupment. The reservation of rights letter created no new right of reimbursement. Id. at 447. The policyholder was not unjustly enriched. So no right of reimbursement arose in equity. Rather, the insurer benefited itself by defending the potentially covered claims. Id.

In answer to the Washington Supreme Court's question in Immunex, the “right” to reimbursement arises, if at all, from an express advancement or recoupment provision in an insurance policy. Insurers know how to incorporate these provisions in their contracts. When they sell a duty to defend policy with no such provision, the insurers have no right to recoupment. They have instead opted to defend potentially covered claims that may ultimately be found to be uncovered. Being in the business of risk assessment, insurers can account for such exposure and set their premiums accordingly. But they have no “right” of reimbursement ' let alone one that arises from the policyholder's good faith obligations to fulfill the policy.

Sherilyn Pastor, a member of this newsletter's Board of Editors, is a partner at McCarter & English, LLP, where she is practice group leader of the firm's Insurance Coverage Group. Pastor is co-chair of the ABA Section of Litigation's Insurance Coverage Litigation Committee. She counsels and litigates on behalf of corporate policyholders throughout the country and has recovered millions of dollars of insurance assets, by settlement or judgment, on behalf of policyholder clients. This publication is not intended to provide legal advice. Issues relating to insurance coverage are fact-specific, and their resolution will depend on the precise policy terms involved and the law governing the disputes, which varies from state to state. The views expressed in this publication are not necessarily those of McCarter & English, LLP or its clients.