On July 25, 2016, the United States District Court for the Central District
of California granted O&N’s motion for partial summary judgement
holding that American Casualty, “having breached its duty to defend,
[] is required, as a matter of law, to pay as damages all reasonable and
necessary fees and costs that [its insureds] incurred to defend against
the underlying [] Actions.”
The court rejected American Casualty’s argument that a breaching
insurer could allocate between the cost of defending covered and non-covered
claims. Quoting a leading insurance treatise, the Court wrote that while
an insurer “‘defending on a reservation of rights basis is
normally entitled to reimbursement from the insured for costs incurred
in defending claims not even potentially covered under its policy[,] .
. . [n]o such allocation is allowed, however, where the insurer wrongly
refuses to defend the entire action. This is one of the risks insurers
run in breaching their duty to defend.’"
Click here to read the Court's ruling.