This Article examines the theoretical justification for the insurer's asserted right to reimbursement of defense costs incurred in defending noncovered claims. Part I sketches some details about the duty to defend which are necessary prerequisites to exploring any claim to a right of reimbursement. Part II discusses the rationale offered by most courts and commentators for recognizing the right to reimbursement: under the law of restitution, the insurer who defends a noncovered claim bestows a benefit on the policyholder which, in justice, ought to be returned. This Part concludes that a reasoned argument can be made in support of the foregoing rationale, but that a reasoned argument can also be made to the contrary. Because the doctrinal principles of restitution are malleable and the implications of these principles are uncertain in application, restitution does not, by itself, provide a predictable basis for deciding whether the insurer has a reimbursement right for costs incurred in defending noncovered claims. Part III offers an alternative justification; it explains that the insurer's right should be analyzed in terms of contract law rules pertaining to interim settlements of unliquidated, disputed claims. These principles lead to the conclusion that the insurer does have a reimbursement right, assuming the insurer has taken proper steps to reserve it. The upshot of this conclusion is that courts that have grounded the reimbursement right in restitution principles have reached the correct result, but for tenuous reasons. In Part IV, this Article concludes by briefly addressing a different, but pivotal, question: whether, apart from the issue of the right being grounded in sound legal principles, the existence of such a right is desirable. This Part concludes that whenever insurers can reduce claims costs by pursuing the reimbursement right, their efforts should be encouraged, as this produces a liability insurance product most insureds desire ex ante.
Robert H. Jerry II,
The Insurer's Right to Reimbursement of Defense Costs, 42 Arizona Law Review 13
Available at: https://scholarship.law.missouri.edu/facpubs/934