Early Payout and Failure to Preserve Rights Will Leave Carrier Solely Responsible
February 26, 2018
The United States District Court for the Southern District of Florida has decided that when an insurer fails to assert rights against another insurer prior to agreeing to provide coverage for a defamation settlement, that insurer waived their claim for equitable subrogation against an "other insurer". The case is Privilege Underwriters Reciprocal Exch. v. Hanover Ins. Grp., No. 16-cv-61742, 2018 U.S. Dist. LEXIS 8789 (S.D. Fla. Jan. 19, 2018).
In the underlying lawsuit, two attorneys alleged that the insured Dershowitz, defamed them in his home during an international interview broadcast. Dershowitz was insured by two different insurers, Privilege Underwriters Reciprocal Exchange (PURE) issued a homeowners policy, The Hanover Insurance Group (Hanover) issued a business owner's insurance policy, CNA, a non-party, issued a lawyers professional policy. Eventually the parties in the underlying suit entered into a confidential settlement to which both PURE and Hanover contributed. This lawsuit addresses PURE's claim, filed in order to recover the amount it contributed toward the settlement from Hanover.
PURE's reservation of rights letter invoked the Expected or Intended Injury exclusion, but failed to reference "other insurance" issues of priority of coverage between the insurers. When the parties began to pursue settlement in the suit, PURE questioned the priority between its applicable policy and Hanover's. Despite awareness of the priority issue, PURE paid out the settlement without raising the issue or preserving its right to subrogation against the other insureds.
PURE then sued Hanover for equitable subrogation. The District Court held that because PURE failed to take any steps to obtain a subrogation agreement, indemnity agreement, or disclaim or limit its liability in any way based on "other insurance" available to the defendant, PURE effectively waived its right to subrogate.
Editor's Note: Questions revolving around "other insurance" generally arise when there are two or more insurers that could provide coverage for a claim against a common insured. When one insurer must settle a claim and other insurers who may also owe coverage do not contribute, that initial insurer should reserve and pursue their rights against the other insurers. As this court determined, if an insurer fails to assert rights against another insurer prior to agreeing to provide coverage, that insurer effectively waives its claim for equitable subrogation against the other insurer.