CACI 2351 Insurer’s Claim for Reimbursement of Costs of Defense of Uncovered Claims

California Civil Jury Instructions CACI

2351 Insurer’s Claim for Reimbursement of Costs of Defense of Uncovered Claims

[Name of insurer] claims that it is entitled to partial reimbursement from [name of insured] for the costs that it spent in defending [name of insured] in the lawsuit brought by [name of plaintiff in underlying suit] against [name of insured]. [Name of insurer] may obtain reimbursement only for those defense costs that it proves can be allocated solely to claims that are not even potentially covered by the insurance policy.

I have determined that the following claims in [name of plaintiff in underlying suit]’s lawsuit were not even potentially covered by the policy: [specify]. You must determine the dollar amount of [name of insurer]’s costs of defense that were attributable only to these claims. Costs for work that also helped the defense of the other claims that were potentially covered should not be included.

Directions for Use

This instruction is for use if the insurer has provided a defense under a reservation of rights to deny indemnity if coverage cannot be established. In such a case, the insurer can seek reimbursement of the cost of defense that can be allocated solely to claims for which there was no possible potential coverage. (Buss v. Superior Court (1997) 16 Cal.4th 35, 57–58 [65 Cal.Rptr.2d 366, 939 P.2d 766].)

If the insurer denies a defense, but the court finds that there is coverage for some but not all claims in the underlying case, it would appear that the insured can recover all costs of defense from the insurer. The insurer is not entitled to apportion the costs of defense (damages) between covered and uncovered claims if it denies a defense. (See Hogan v. Midland Nat’l Ins. Co. (1970) 3 Cal.3d 553, 563–564 [91 Cal.Rptr. 153, 476 P.2d 825].) Therefore, this instruction may not be modified for use in a denial-of-coverage case.

Sources and Authority

“An insurer may obtain reimbursement only for defense costs that can be allocated solely to the claims that are not even potentially covered. To do that, it must carry the burden of proof as to these costs by a preponderance of the evidence. And to do that, … it must accomplish a task that, ‘if ever feasible,” may be “extremely difficult.’ ” (Buss, supra, 16 Cal.4th at pp. 57–58, original italics.)

“Whether [insurer] will be able to carry its burden of proof by a preponderance of the evidence that specific costs can be allocated solely to the causes of action that were not even potentially covered is far from plain. But there is at least a triable issue of material fact that it can. It must be allowed the attempt.” (Buss, supra, 16 Cal.4th at p. 61.)

“By law applied in hindsight, courts can determine that no potential for coverage, and thus no duty to defend, ever existed. If that conclusion is reached, the insurer, having reserved its right, may recover from its insured the costs it expended to provide a defense which, under its contract of insurance, it was never obliged to furnish.” (Scottsdale Ins. Co. v. MV Transportation (2005) 36 Cal.4th 643, 658 [31 Cal.Rptr.3d 147, 115 P.3d 460].)

“The ultimate determination that the loss was caused by a noncovered occurrence does not mean that [third party]’s lawsuit (and [developer]’s cross-complaint) never presented any potential for policy coverage. If that were so, a determination an insurer has no duty to indemnify would automatically extinguish the duty to defend retrospectively and give the insurer the right to seek reimbursement from the insured. That result is inconsistent with the firmly established principle that the duty to defend is broader than the duty to indemnify.” (Navigators Specialty Ins. Co. v. Moorefield Construction, Inc. (2016) 6 Cal.App.5th 1258, 1285 [212 Cal.Rptr.3d 231], original italics.)

“ ‘Under the policy, the insurer does not have a duty to defend the insured as to the claims that are not even potentially covered. With regard to defense costs for these claims, the insurer has not been paid premiums by the insured. It did not bargain to bear these costs. … The “enrichment” of the insured by the insurer through the insurer’s bearing of unbargained-for defense costs is inconsistent with the insurer’s freedom under the policy and therefore must be deemed ‘unjust.’ ” If [insurer], after providing an entire defense, can prove that a claim was ‘not even potentially covered because it did not even possibly embrace any triggering harm of the specified sort within its policy period or periods caused by an included occurrence,’ it should have that opportunity. This task ‘ “if ever feasible,” may be “extremely difficult.” ’ ” (State v. Pac. Indem. Co. (1998) 63 Cal.App.4th 1535, 1550 [75 Cal.Rptr.2d 69], internal citations omitted.)

“The cases which have considered apportionment of attorneys’ fees upon the wrongful refusal of an insurer to defend an action against its insured generally have held that the insurer is liable for the total amount of the fees despite the fact that some of the damages recovered in the action against the insured were outside the coverage of the policy.” (Hogan, supra, 3 Cal.3d at p. 564.)

“The insurer, not the insured, has the burden of proving by a preponderance of the evidence that ‘the settlement payments were allocable to claims not actually covered, and the defense costs were allocable to claims not even potentially covered.’ ” (Navigators Specialty Ins. Co, supra, 6 Cal.App.5th at p. 1287.)

Secondary Sources

2 Witkin, Summary of California Law (11th ed. 2017) Insurance, § 381
2 California Insurance Law and Practice, Ch. 13, Claims Handling and the Duty of Good Faith, § 13.08 (Matthew Bender)
26 California Forms of Pleading and Practice, Ch. 308, Insurance, § 308.123 (Matthew Bender)
12 California Points and Authorities, Ch. 120, Insurance, § 120.51 (Matthew Bender)