States continue to disagree about whether an insurer that defends its insured in a lawsuit can reserve a right to recoup its defense costs from the policyholder if the carrier wins a declaratory judgment that it owed no duty to defend.  Courts in New York and Nevada recently took opposite positions on the issue, but both cited an article that described a simple policy language-based approach policyholders can urge to resolve the issue in their favor. 

The California Buss case permitted recoupment

The California Supreme Court issued a famous opinion favoring recoupment in Buss v. Superior Court, 939 P.2d 766 (Cal. 1997).  It held an insurer has an implied in law right to seek recoupment to avoid unjustly enriching its policyholder if the insurer establishes that a suit’s claims were not even potentially covered. The court said recoupment would not disturb the parties’ arrangement because standard insurance policies do not obligate the insurer to bear those costs.Continue Reading Don’t forget the supplementary payments solution to the defense cost recoupment problem