Members of the Insurance Coverage group obtain favorable decision

January 31, 2014 | Insurance Coverage

Members of the firm’s Insurance Coverage & Litigation practice group, Michael Kotula, Peter McNamara, Lawrence Levy and Robert Maloney obtained a favorable decision in Mine Safety Appliances Co. v. AIU Ins. Co., C.A. No. N10C-07-241 MMJ (Del. Super. Ct. New Castle Cty. Jan. 21, 2014).  The case involves excess insurance policies with a defense cost provision conditioning the insurer’s obligation to pay defense costs on the consent of the insurer. The Delaware Superior Court held our client was not required to pay defense costs where it did not give its consent to do so.  In reaching this result, the Court rejected a number of the policyholder’s arguments.

Fireman’s Fund moved for summary judgment that its policies do not afford coverage for the reimbursement of defense costs incurred by Mine Safety, where Fireman’s Fund did not consent to pay such costs.  Mine Safety sought reimbursement of its defense costs in connection with thousands of actions against it, brought by claimants alleging that, as a result of using Mine Safety’s products, they were exposed to asbestos, silica and coal dust, and suffered injuries.  The Delaware Superior Court, applying Pennsylvania law, enforced the provision in the excess policies conditioning reimbursement of defense costs on the consent of the insurer, and held that Fireman’s Fund has no obligation to pay defense costs to or on behalf of Mine Safety.  In reaching this conclusion, the Court held that there is no custom and usage concerning “defense costs” provisions that insurers are obligated to reimburse reasonable defense costs and may only withhold consent to reimburse unreasonable defense costs.  In addition, the Court agreed that the cases interpreting defense cost provisions as an obligation conditioned on the consent of the insurer “refute [Mine Safety’s] argument that ?Defense Costs’ provisions have a special meaning in the insurance industry rising to the level of ?custom and usage.'”  For this reason, the Court “finds no reason to permit expert testimony on ?custom and usage.'”  Decision at 10-11.  The Court explained that the test for using custom and usage evidence under Pennsylvania law to establish that a contract term has a specialized meaning different from its plain and unambiguous meaning is an exacting one, concluding “unless a usage is ?certain, continuous, uniform, and notorious,’ it will not be denominated a custom.  Custom and usage ?must be a rule so … certain and uniform as to be, not only valid and enforceable in a court of law, but the parties must be presumed to have known it and acted in reference to it.”  Decision at 10.

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Decision

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