Excess Insurer Not Obligated to Indemnify Insured for Defense Costs to Which It Had Not Consented

February 28, 2014 | Insurance Coverage

A Delaware trial court has ruled that an excess insurance carrier did not have a duty to indemnify its insured for defense costs to which it had not consented. The court also found that there was no requirement that the insurer had to act reasonably when withholding consent.

The Case

Mine Safety Appliances Company (“MSA”) manufactures and sells safety equipment, including heat protection clothing and respirators. Allegedly, at one time, MSA’s respirators were defective and its heat protection clothing contained asbestos. Users of MSA’s safety products filed thousands of actions against MSA, claiming that, as a result of using MSA’s products, they were exposed to asbestos, silica, and coal dust, and suffered injuries.

MSA sought a declaratory judgment that its insurance companies, including American Insurance Company (“AIC”), which had issued excess policies to MSA, were obligated to defend and/or indemnify MSA.

AIC, represented by Rivkin Radler, moved for partial summary judgment, contending that it was not required to provide a defense in connection with the underlying claims against MSA. In response to AIC’s motion, MSA conceded that AIC did not have a duty to defend it.

AIC also asserted that it had no duty to indemnify MSA for defense costs unless the costs were incurred with AIC’s consent, adding that it had not consented to MSA incurring defense costs.  AIC referenced the policy language in 10 out of the 11 policies it had issued to MSA, which provided that AIC agreed to “indemnify the Insured for the Insured’s ultimate net loss,” and which defined “ultimate net loss” without including defense costs. In the remaining policy, AIC agreed to pay “costs covered by its policy which are incidental thereto.” That policy separately defined “costs” as “interests on all judgments, investigation, adjustment and legal expenses excluding all expenses for salaried employees and retained counsel and all office expenses of the insured.” AIC argued that the exclusion for all expenses of retained counsel established that this policy did not cover defense costs.

The Court’s Decision

The court granted AIC’s motion.

In its decision, the court found that because the policies’ terms were “clear and unambiguous” it would not consider extrinsic evidence, such as expert testimony on “custom and usage.”

It then found that the term “ultimate net loss” did not include indemnification of defense costs. According to the court, the policies did not create a duty that AIC indemnify MSA for defense costs but only required AIC to pay the defense costs to which it had consented. Moreover, the court rejected MSA’s argument that AIC was obligated to be reasonable when deciding whether or not to consent.

Accordingly, the court concluded that because AIC had not consented to pay any defense costs, it would not read that duty into the policies.

The case is Mine Safety Appliances Co. v. AIU Ins. Co., No. N10C-07-241 MMJ CCLD (Del. Super. Ct. Jan. 21, 2014).

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