This series deals with provisions of the commercial general liability (CGL) policy that are not well known by practitioners and sometimes overlooked. The last article dealt with the declaration warranty provisions that are contained in Condition 6. This piece deals with a section in the "Supplementary Payments" provision of the CGL policy.
The section of the "Supplementary Payments" provision we will discuss applies to Coverage A and Coverage B and allows insureds to be compensated for assisting in the investigation and defense of the claim or case.
Clause 1.d. in the "Supplementary Payments" provision of the current Insurance Services Office, Inc., CGL form sets forth the following.
We will pay, with respect to any claim we investigate or settle, or any "suit" against an insured we defend:
All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or "suit," including actual loss of earnings up to $250 a day because of time off from work.
The first, and most obvious, point to make about this clause is that it is an accessory to the duty to defend. Thus, the "reasonable expenses" that the insurer is willing to pay to the insured are in addition to the limits of a given policy. The loss of earnings provision allows up to $250 per day for loss of earnings because of time off from work to assist in the defense or investigation of a claim or lawsuit. The loss of earnings provision in the 1973 form limited recovery to $25 per day. The 1986, 1990, and 1993 edition CGL forms increased the amount to $100 per day. All forms after 1993 have used the $250 per day figure.
Second, the clause in the supplementary payments provision is fairly broad. It is not just limited to time off from work but reasonable expenses "at our request" to assist in the investigation or defense. Typically, the request will not come from the insurer but will come from defense counsel who has been appointed by the insurer to defend the case. In many cases today, there will be the need for forensic examination of computer files and servers. Many times these are done by the insured, and there is no request for reimbursement from the insurer. Under the terms of provision d., if the request is from defense counsel, and the amount is reasonable, the insured should be entitled to recover these amounts.
Third, the phrase "reasonable expenses" is subject to a range of interpretations, depending on the vantage point of a trier of fact. As such, the term "reasonable," generally speaking, makes liability insurers skittish about this clause. In the end, the determination of what is reasonable would be a question of fact and generally be governed by what a similar insured in the same or similar situation would charge.
A fourth and critical point about the clause 1.d. is the phrase "at our request." By specifically stating "at our request," insurers commit themselves to compensating insureds for only those expenses they are willing to incur or have incurred in connection with insureds' assistance in defense or investigation of a suit or claim. To an extent, this phrase tempers the "reasonable expense" phrase at least by allowing insurers to control the expenses and define the insureds' expectations for compensation in connection with a defense or an investigation. For example, insureds are not at liberty to choose defense counsel, as the clause 1.d. fails to contemplate such a choice. Thus, insureds should be wary of claiming a right to reimbursement of expenses that they incurred in the course of defending an underlying action by citing clause 1.d., as such claims will fail to prevail absent insurers' express consent.
Litigation Involving the Supplementary Payments Provision
A case in point is Interface Flooring Sys., Inc. v. Aetna Cas. & Sur. Co., 2001 WL 238148, 2001 Conn. Super. LEXIS 525 (Conn. Super. Ct. Feb. 16, 2001). In that case, the insured was a large carpet-tile corporation ("Interface") who owned three related insurance policies (together, "Aetna"), effective from July 1, 1986, through July 1, 1991. During those years, Interface was a defendant in a copyright infringement and unfair and anticompetitive trade practices in the design, manufacture, and sale of certain carpeting products (the "Underlying Action"). Interface undertook the defense of the underlying action by employing a seasoned counsel, filing its counterclaims against the plaintiff, and eventually settling the action, all without furnishing notice of the action to Aetna.
In the course of its defense, Interface incurred defense costs exceeding $330,000. When Interface appealed to Aetna for reimbursement of these pre-tender expenses by citing, among others, the supplementary payments provisions, Aetna filed a motion for summary judgment, disclaiming any liability on the ground, among others, that Interface incurred these costs voluntarily. The Superior Court of Connecticut considered Interface's claim in light of the "Supplementary Payments" provisions of the five relevant policies and concluded that no clause in the provisions afforded Interface a right to reimbursement of its pre-tender defense costs. Specifically, the court cited clause 1.d of the two relevant CGL policies and stated the following.
Interface obviously did not incur the expenses here at issue "at [Aetna's] request." Such costs were therefore not incurred "in assisting the Company in the investigation or defense" of such a case…. [Moreover], since Aetna had no involvement in the defense of the [underlying action], Interface obviously did not incur such expenses "to assist" Aetna in the investigation or defense of that suit. For these reasons, Interface's pre-tender legal expenses are simply not covered by either of the first two Policies at issue in this case.
The court came to the same conclusions upon considering the "Supplementary Payments" provisions in the other three relevant policies and granted Aetna's motion for summary judgment.
As stated earlier, it is important to note that the request for reimbursement of defense costs does not necessarily have to come from the insurer. In cases where the insured has appointed defense counsel, and the defense counsel has requested certain assistance, the insured should be entitled to reimbursement from the insurer.
The next article will focus on a little-known, little-utilized provision of the policy of which insurers fail to avail themselves. Like the provision above, it is not known by most insurance professionals and certainly not utilized for the benefit of the insurers as widely as it can. This provision will focus on the right of the insured to recover post-judgment interest on the amount of any judgment.
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