Insurer Entitled to Reimbursement of Defense Costs for Non-Covered Claims

In Chiquita Brands Int’l, Inc. v. Nat’l Union Fire Ins. Co., 2015-Ohio-5477 (Oh. Ct. App. Dec. 30, 2015), the Court of Appeals of Ohio held that an insurer was entitled to recover defense costs and prejudgment interest pursuant to restitution theory. Ultimately, however, the net effect of Chiquita Brands Int’l, Inc. is somewhat diminished by the Court of Appeals’ statement that its holding was narrow and limited to the particular posture and facts of the case, which while not exceeding rare, may be difficult to replicate in practice.

Numerous claims were filed against the policyholder alleging that the plaintiffs had been injured by the policyholder’s financing of terrorist groups. The insurer did not defend. A trial court held that the insurer had a duty to defend, so it subsequently began paying for the defense. Each payment, except for one, was accompanied by a letter stating that the insurer was reserving the right to seek reimbursement of the payments. Upon appeal, the Court of Appeals of Ohio held that the insurer did not have a duty to defend.

Following that decision, the insurer sought to recover all of the defense costs it had paid. Ultimately, the Court of Appeals of Ohio held that restitution theory allowed the insurer to recover its payments, with interest. First, the Court of Appeals noted its previous decision that performance was never due under the insurance policies, but after the trial court found that insurer had a duty to defend it was reasonable for the insurer to begin paying defense costs. Also, the Court of Appeals noted that insurer’s payments to the policyholder for defense costs explicitly reserved its rights to seek reimbursement.

The appeals court did not conclude its decision at this point, however, and went on explicitly to limit its holding to the precise procedural posture and factual background of this case. This limit effectively leaves this decision as potential precedent in only a small number of insurance coverage cases that begin with a denial of coverage, finding of a duty to defend, payment of defense costs where an insurer has made sure to include a cover letter with each defense payment reserving its right to reimbursement and a subsequent appeal in the insurer’s favor.