A coverage issue yet to be decided by several jurisdictions is whether a commercial general liability (CGL) policy providing an insurer with the duty and right to defend its insured against third-party claims also authorizes that insurer to be reimbursed for defense costs related to claims that are later determined to be beyond the policy’s grant of coverage.
Courts nationwide have split over this issue. In 1997, the California Supreme Court decided Buss v. Superior Court[1] and held that an insurer can properly rely on a reservation of rights letter to secure its right to reimbursement of defense costs for non-covered claims. Since that time, however, a number of courts have uniformly concluded that an insurer has no right to reimbursement of defense costs absent an express provision in the written insurance contract authorizing reimbursement.[2]
For example, the Pennsylvania Supreme Court, in American & Foreign Insurance Co. v. Jerry’s Sports Center, Inc.,[3] recently joined this expanding minority view. The Pennsylvania high court rejected the carrier’s contention that it was entitled to reimbursement of defense costs associated with a claim the lower court had determined was not covered. The court predicated its rationale on Pennsylvania’s broad duty to defend and the plain language of the insured’s CGL policy, which was devoid of any language suggesting the carrier had any such right to reimbursement.[4]
This article explores this divide in the courts by initially explaining the basic and universal principles related to an insurer’s duty to defend, followed by a brief discussion of the Buss holding and the court decisions that have followed its lead. Next, the article examines the courts that have taken a contrary view to the Buss decision. Last, this article will advocate why courts should similarly reject the Buss holding and follow the jurisdictions finding the plain language of the CGL policy simply does not allow for the reimbursement of defense costs.