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.