May 21, 2013 Articles

A Breach Is a Breach—Or Is It? Perspectives on National Union v. Seagate Technology

If an insurance policy requires the insurer to provide a defense, but a lower court rules—in error—that the insurer is not required to defend, does the insurer’s withdrawal of the defense in reliance on the lower court’s ruling breach the policy?

by Amy Elizabeth Stewart

Armchair philosophers and serious theorists alike have long debated the question: If a tree falls in a forest and no one is around to hear it, does the falling tree make a sound? In other words, does reality require perception or does it exist whether correctly perceived or not?

Presented with an insurance coverage adaptation of the query, a federal district court in California considered this issue of first impression in January 2013: If an insurance policy requires the insurer to provide a defense, but a lower court rules—in error—that the insurer is not required to defend, does the insurer’s withdrawal of the defense in reliance on the lower court’s ruling breach the policy? In National Union Fire Insurance Co. v. Seagate Technology, Inc.,[1] the district court held that the insurer did not breach the policy when it relied on a judicial determination that the duty to defend had terminated. Although the ruling is on appeal to the Ninth Circuit, it has been touted by carrier counsel as a significant victory for insurers. This article analyzes the ruling, the arguments advanced by the litigants, and the significance of the decision, at least on an interim basis pending appeal.

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