December 05, 2008 : Insurer Wins Coverage Action Over Defense Costs
An insurer issuing defense costs coverage to a policyholder is only obligated to reimburse such costs up to the stated coverage limit regardless of the number of insureds named in a single lawsuit, according to an Atlantic County, New Jersey trial judge. In the case, three related auto dealerships, collectively known as Kerbeck, were among dozens named in a class-action lawsuit by customers seeking damages as a result of allegedly improper fees charged at the time of lease or sale. The three dealers were named as insureds under a single insurance policy issued by Federated Insurance Company during the relevant time period. The insurer acknowledged that the garage policy’s “extended defense protection” was triggered and entitled the dealerships to up to $25,000 in reimbursement for costs incurred in defense of the class-action lawsuit. Kerbeck took issue with the carrier’s position, contending that the relevant policy language was ambiguous as to whether coverage was limited to a maximum of $25,000 per lawsuit or per insured. As such, Kerbeck sought reimbursement for $75,000 from Federated. After reviewing the parties’ motions for summary judgment and hearing oral argument, Judge Nelson C. Johnson ruled in Federated’s favor on October 24, 2008. Judge Johnson agreed with the insurer that the policy was not ambiguous. Because three Kerbeck dealerships were all named in a single lawsuit, the judge held that Federated’s obligation to reimburse defense costs was limited to up to $25,000. Judge Johnson also rejected the policyholder’s equitable estoppel argument, whereby the insureds claimed that they detrimentally relied upon an understanding that $75,000 was available when they settled the class-action lawsuit. Federated was represented in the case by Firm partner Michael S. Savett.
File Under: Results, Insurance, Michael S. Savett