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Does an insurer have the right to recover defense costs and fees from an insured? (Photo: Shutterstock) Does an insurer have the right to recover defense costs and fees from an insured? (Photo: Shutterstock)

In American West Home Insurance Co. v. Gjonaj Realty & Management Co., the New York Appellate Division, Second Department addressed an issue of first impression — that is, whether an insurance company may recover the costs of defending its insureds in an underlying personal injury action “where there has been a reservation of rights by the insurance company and a determination by the court that the insurance company has no obligation to defend and provide insurance coverage to the insureds” in such action.

The court found that, under those circumstances, while the insurer at issue no longer owed a continuing obligation to defend its insureds or an obligation to pay any judgment obtained against the insureds in the underlying lawsuit, the insurer was not entitled to recover from its insureds the defense fees and costs it had incurred on their behalf without an express provision in the policy permitting such recovery.

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