Insurer Not Liable for $1.3 Million in Pre-Tender Defense Costs

November 1, 2012

Applying Michigan law, a federal district court has held that an insurer was not obligated to reimburse $1.3 million in defense expenses incurred by its insured during the 15 months between the commencement of the underlying action and tender of that action to the insurer.  AMI Entm’t Network, Inc. v. Zurich Am. Ins. Co., 2012 WL 5199668 (E.D. Mich. Oct. 22, 2012). 

The policy included a “voluntary payments” provision and also required the insured to promptly notify the insurer of “an occurrence or offense which may result in a claim under the policy … and to notify [the insurer] promptly of any … suit.”  The policy further provided that, “in the event of noncompliance [with the reporting provisions], [the insurer] shall not be required to establish prejudice resulting from the noncompliance, but shall be automatically relieved of liability with respect to the claim.”  On receiving notice of a 15-month-old suit, the insurer disclaimed any obligation to reimburse the defense costs that predated the tender.  In the coverage litigation that followed, the court ruled in favor of the insurer, finding that the insured “incurred over $1.3 million in defense fees and costs before it provided notice … to [the insurer]” and concluding that this delay violated both the policy’s notice terms and voluntary payment provision.  The court, in turn, summarily rejected the insured’s counterargument that “the duty to defend arises at the commencement of the Underlying Lawsuit irrespective of whether notice was given or the request to defend was sought.”

The opinion is available here.

Read Time: 1 min
Jump to top of page

Necessary Cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytical Cookies

Analytical cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.