Recent case law has involved several Claims for allegedly Wrongful Denial of a Duty to Defend, with Claims for Consequential Damages as a result.
In Rieser v. Evanston Insurance Co., Download FREE ACCESS Rieser v. Evanston Insurance Co. (S.D. Cal. Case No. 09CV1104, Opinion Filed June 15, 2010) also published as 2010 WL 2487074 (S.D. Cal. June 15, 2010)(Westlaw subscription required to access Westlaw), a Federal Judge described what she thinks are two lines of "Breach of Contract" Consequential Damages awards under California law in such cases. These two lines of awards will be found in the case law of many States besides California: (1) "Default" cases in which the Liability Insurer wrongfully denies all Coverage including a Duty to Defend, and as a consequence the Insured goes into default, i.e., a Default is entered against the Insured in the underlying case; and (2) "Defense" cases in which the Insured successfully defends itself after the Disclaimer of all Coverage and then sues to recover its Defense Fees and Expenses incurred in the underlying case. Rieser, 2010 WL 2487074 at *2-*3.
In the Rieser case, the Federal Court decided that a "victory by unopposed motion for summary judgment is certainly a form of victory by default" in the underlying case. "As such, the Court finds that there remains a genuine issue of material fact for the jury" as to whether the Judgment entered as a consequence in the underlying case against the Insured "can be said to be a foreseeable and proximate result of Defendant's breach of its duty to defend." Id. at *3.
Claims for Consequential Damages for alleged Breach of Contract by Wrongful Refusal to Defend are also at issue in the case of Post v. St. Paul Travelers Insurance Co., Download ACCESS FREE Post v. St. Paul Travelers Insurance Co. (E.D. Pa. Case No. 06.CV.4587, Memorandum Order signed June 15, 2010, Filed June 16, 2010) also published as 2010 WL 2490750 (E.D. Pa. June 15, 2010)(Westlaw subscription required to access Westlaw). The Plaintiffs-Insureds alleged Breach of Contract Claims and Bad Faith Claims, among other Claims, as a result of an Insurance Company's allegedly wrongful refusals to defend them. At the time of this decision, the Court had granted a Motion for Summary Judgment on the Breach of Contract Claims in favor of the Insureds-Plaintiffs, and had also granted the Insurance Company's Motion for Summary Judgment on the Bad Faith Claim. Post, 2010 WL 2490750 at *1 & n.1.
Two other things are especially important to an understanding of that case: Mercy was the Insured Law Firm's client in an underlying case, and under Pennsylvania Law as applied by the Federal Court in the Post case, ordinarily a Breach of the Duty to Defend will be subject to the Contract Rule of Consequential Damages, specifically, that in the case of a Wrongful Refusal to Defend (at least in a case in which the Insured goes ahead and thereafter defends itself) "'the recovery for breach of the covenant to defend will ordinarily be the cost of hiring substitute counsel and other costs of the defense. This recovery may be in addition to any other obtained against the insurer.'" Post, 2010 WL 2490750 at *12.
In that case, an Insurance Company which had issued a 'lawyer malpractice' or Professional Liability Policy providing professional errors and omission Coverage to attorneys, denied all Coverage under the Policy including a Duty to Defend before suit was filed against the attorneys for alleged legal malpractice. In addition, the Insurance Company denied its Duty to Defend the Insured lawyers against a sanctions petition, under the Policy. The Federal Court in that case previously determined that Insurance Coverage existed and so the issues now presented involved what amounts of consequential damages could be recovered, and when they began to accrue such that the Insurance Company should pay them as a consequence of its Breach of its Insurance Contract Duty to Defend.
The Federal Court in Post held that in that case, "Post's receipt of Mercy's written notice of its intention to sue him for malpractice triggered St. Paul's duty to defend. Therefore, St. Paul had a duty to cover Post for Mercy's malpractice claim on October 12, 2005." Post, 2010 WL 2490750 at *11. [Emphasis by the Court.] The Court found as a fact: "On October 12, 2005, Williams sent a follow-up letter to Post. The letter made clear that Ms. Zimmerman's testimony and the allegations of misconduct by Post were what drove Mercy to settle the [underlying] case." Id. at *3. Thus, held the Federal Court, "Post is entitled to reimbursement for work done directly relating to Mercy's potential malpractice claim as of October 12, 2005". Id. at *17.
The Federal Court in that case also held that "[i]t is apparent from the facts established at trial that Mercy was involved in the Sanctions Petition from the beginning. Therefore, coverage for work related to the Sanctions Petition began when the Petition was filed, on November 21, 2005." Id. at *11.
See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 13.09, "Consequential Damages" and § 13.13, "Attorney's Fees--Settlement or Defense of Third Party's Claim" (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).
Please Read The Disclaimer. Next Week: "Damages for Wrongful Denial of Defense: Want Interest With That?"
Comments