I’ve been saying it for years: reimbursement of defense costs, like my mother-in-law's matzah balls, is overrated. First, many states – especially lately -- have rejected an insurer’s right to seek reimbursement of defense costs. Second, even in a state where the right exists, it usually has to be a situation where there was a finding of no duty to defend at all, from the get-go – not one where there was only no duty to defend certain counts or where there was a duty to defend but then a later finding of no duty to indemnify. [This is why the right has more bite in California, where Buss gives insurers more options on this issue.] And even if all of this is satisfied, to make it worthwhile the insured has to be financially able to repay the defense costs. Many are unlikely to be. So while reimbursement of defense costs is not without some applicability, the stars need to be aligned just right for it to have a practical impact for insurers. But despite all this, the subject gets a lot of attention from coverage commentators. Guilty as charged.

Very recently there have been at least three courts that have addressed an insurer’s right to seek reimbursement of defense costs. A quick look at the decisions – without any background discussion -- follows.

Century Surety Co. v. Franchise Contractors, LLC, No. No. 14-277 (S.D.N.Y. Mar. 10, 2016). Held: “Century asks for a declaration that it is entitled to recoup from Franchise the costs it has incurred in defending Franchise in the state court action. Century advised Franchise in its March 1, 2012 letter that it was providing a defense ‘under a full reservation of rights’ and explicitly reserved the right ‘to commence an action to recoup any legal fees incurred in the defense.’ Franchise’s failure to object at any earlier time precludes their doing so now. Therefore, we conclude Century is entitled to recoup from Franchise the costs Century has incurred in defending the state court action. See Maxum Indem., 2015 WL 8492756, at *6.”

[Of note, in January 2015, the Eastern District of New York, in General Star Indemnity Co. v. Driven Sports, Inc., No. 14-3579 (E.D.N.Y. Jan. 23, 2015), in the most detailed discussion of the issue under New York law, rejected the insurer’s claim for reimbursement of defense costs, which departed from some other New York cases on the issue. ]

Borden-Perlman Insurance Agency v. Utica Mut. Ins. Co. (N.J. Super. Ct. App. Div. Apr. 7, 2016). Held: “In New Jersey, we permit reimbursement of costs incurred in defending claims that are later determined not to be covered, if they can be apportioned. In cases involving covered and uncovered claims, the general rule is when the insurer has wrongfully refused to defend an action and is then required to reimburse the insured for its defense costs, its duty to reimburse is limited to allegations covered under the policy, provided that the defense costs can be apportioned between covered and non-covered claims. When the defense costs cannot be apportioned, the insurer must assume the cost of the defense for both covered and non-covered claims.”

Attorneys Liability Protection Society, Inc. v. Angaldson Fitzgerald, P.C., No. S-15683 (Alaska Mar. 25, 2016). Held: “Alaska law prohibits enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) the claims are later determined to be excluded from coverage under the policy; and, Alaska law also prohibits enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) it is later determined that the duty to defend never arose under the policy because there was no possibility of coverage.”