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The issues confronted concerning Reimbursement of Indemnity sought by the Liability Insurance Company in the case discussed below are discussed at length in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:4 (Shepard's/McGraw-Hill Second Edition; 2009 Supplement West Publishing Company). The Policyholder's-Insured's recovery of Defense Expenses it incurred after a Liability Insurer wrongfully refused to defend it, are similarly addressed at length in id. § 13:13.
Travelers has hit a home run in a case where it ran the risk of being home-towned. It filed an action for reimbursement of settlement funds it expended on behalf of its Policyholder, Hillerich & Bradsby, in an underlying case which was filed against the bat-maker in the Eastern District of Michigan. The Travelers filed its action for reimbursement in the same Court, the Eastern District of Michigan. Hillerich & Bradsby's motion to transfer the case to its Headquarters District in the Western District of Kentucky was granted. Download Travelers Property Casualty Co. v. Hillerich and Bradsby Co. (6th Cir. Case Nos. 09-5113, 09-5136 Opinion Filed March 12, 2010); also reported as Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *1 (6th Cir. March 12, 2010)(subscription required to access Westlaw).
On appeal, a panel of the Sixth Circuit was confronted with the same open issue of Kentucky Law that confronted the Trial Court:
Kentucky has not specifically spoken on the issue presented in this case, which is whether Travelers can seek reimbursement of settlement for non-covered claims when it funded the settlement under a reservation of rights, when Hillerich was given notice of its intent to seek reimbursement, and when Hillerich retained meaningful control of the defense and negotiation process. In particular, Kentucky has not addressed whether an insurer can unilaterally reserve a right to reimbursement over the objection of the insured.
Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *5 (6th Cir. March 12, 2010). The Sixth Circuit panel, like the Trial Judge, predicted that Kentucky would follow what the Sixth Circuit held was the majority view on this novel question:
Therefore, we conclude that Kentucky, like the majority of jurisdictions, will allow reimbursement for an insurer after a unilateral reservation of rights by the insurer over the objection of the insured in at least the narrow circumstances posed in this case and in cases such as Blue Ridge [Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489, 106 Cal. Rptr. 2d 535, 22 P.3d 313 (Cal. 2001)]. This reimbursement right arises under an implied-in-law contract theory to allow an insurer to seek reimbursement when [quoting the District Court, which quoted from Blue Ridge:] "(1) the insurer has timely asserted a reservation of rights; (2) the insurer has notified the insured of its intent to seek reimbursement; and (3) the insured has meaningful control of the defense and negotiation process."
Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *8 (6th Cir. March 12, 2010). The Sixth Circuit was not through with its work in this case, however.
The Sixth Circuit further held that the Insured, Hillerich & Bradsby, had driven home some of its defense fees. It turns out that Travelers had a duty to defend the first amended complaint in the underlying case, based upon "one allegation". Kentucky Insurance Law determines the Duty to Defend under a standard of potential liability on the part of the Insured under a complaint. Accordingly, there was a duty to defend such a complaint under Kentucky Law. Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *12 (6th Cir. March 12, 2010). The amended complaint was "constructively tendered" by Hillerich to The Travelers when Hillerich sent a draft of it to The Travelers and again sent it to The Travelers after the amended complaint was filed in the underlying case -- without change. The Sixth Circuit held that, under Kentucky Law, The Travelers had a Duty to Defend the amended complaint from and after the date that the amended complaint was filed in the underlying case. Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *14 (6th Cir. March 12, 2010). Accordingly, The Travelers was responsible for the Insured's Defense Fees and Costs from that date.
Note: Both sides scored in the Travelers v. Hillerich & Bradsby Sixth Circuit case. The author's recently published article in Insurance Litigation Reporter anticipates many of the same and other issues presented by Settlement decisions: Dennis J. Wall, "The Era of Initiating Settlement Negotiations: What Is A Liability Insurer to Do?" 32 Insurance Litigation Rptr. 1 (2010), which is now available here: Download Article. Dennis J. Wall, The Era of Initiating Settlement Negotiations What Is An Insurance Company To Do. Published in 32 Insurance Lit Rptr 1 (2010).
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