(Article from Insurance Law Alert, January 2016)
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An Ohio appellate court ruled that an insurer was entitled to recoup defense costs following a ruling that it had no duty to defend the underlying suit. Chiquita Brands Int’l, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2015 WL 9594035 (Ohio App. Ct. Dec. 30, 2015).
Numerous tort claims were filed against Chiquita based on its alleged funding of Colombian terrorist groups. National Union refused to defend the claims until it was ordered to do so by an Ohio trial court. With each defense cost payment, National Union reserved its right to seek reimbursement of the payments upon resolution of outstanding coverage issues. Ultimately, an Ohio appellate court found that National Union had no duty to defend because the underlying suits did not allege covered “occurrences” in the territories defined by the policies. Thereafter, National Union sought reimbursement of the defense payments. An Ohio trial court ruled in the insurer’s favor, concluding that it was entitled to recoup payments based on an implied-in-fact contractual right to reimbursement. The appellate court affirmed the judgment of the trial court.
The appellate court ruled that National Union was entitled to recover the defense costs under the principle of restitution. Although the policies were silent as to reimbursement of defense costs upon a judicial determination that there was no duty to defend, the court explained that restitution was appropriate as “a means to enforce adherence to a contract through ordering repayment of a sum to which the recipient was never entitled under the contract’s terms.” Separately, the appellate court rejected reimbursement based on an implied-in-fact theory, explaining that Chiquita’s “acceptance of defense-cost payments was clearly premised on its position that the payments were due under the terms of the policies, and not on an ‘acceptance’ of the terms contained in National Union’s accompanying letters.”
The court emphasized that its holding was “a narrow one,” based on the following particular facts of this case: that Chiquita demanded a defense; that National Union did not provide a defense until after it was required to do so by a court, and that it did so under a reservation of rights including the right to seek reimbursement; and that an appellate court subsequently determined that a duty to defend never existed.