Lead Opinion
OPINION
The issue in this case is whether, following a court’s declaration that an insurer had no duty to defend its insured, the insurer is entitled to reimbursement of the amounts paid for the defense of its insured in the underlying lawsuit. The trial court held that the insurer was entitled to reimbursement, while the Superior Court held that it was not. For the following reasons, we affirm, holding that an insurer is not entitled to be reimbursed for defense costs absent an express provision in the written insurance contract.
Appellant Insurance Companies are American and Foreign Insurance Company, Royal Insurance Company of America, Safeguard Insurance Company, and Royal Indemnity Company (collectively, Royal). Appellees are Jerry’s Sport Center, Inc. and its subsidiaries, Jerry’s Sport Center Northeast, Inc., Bonitz Brothers, Inc., Outdoor Sports Headquarters, Inc., Simmons Gun Specialties, Inc. (collectively, Insured). Insured is a firearm wholesaler-distributor and Royal is its commercial liability insurer.
Royal and Insured entered into a commercial liability primary and umbrella insurance contract on or about October 18, 1981, which Insured maintained until about October 18, 2000. This policy insured against bodily injury
In June, 2000, the National Association for the Advancement of Colored People (NAACP) and the National Spinal Cord Injury Association (NSCIA) filed a civil action against eighteen firearms wholesalers and distributors in the United States District Court for the Eastern District of New York (NAACP action). The NAACP and NSCIA sought to hold the firearms industry liable for injury, death, and other damages to association members through the negligent creation of a public nuisance by virtue of the industry’s failure to distribute firearms reasonably and safely. In May of 2001, the NAACP added Insured as a defendant. In its complaint, the NAACP and NSCIA explicitly alleged that the defendants had caused bodily injury to their members. In its prayer for relief, the NAACP sought injunctive relief and monetary damages to establish a fund for the education, supervision and regulation of gun dealers. It did not seek damages to compensate individual members injured by the defendants’ actions.
Insured notified Royal of the NAACP action and requested defense and indemnification, claiming that the complaint fell under the “bodily injury” coverage provided by the liability insurance. Royal retained the New York City law firm of Leahey & Johnson to represent Insured in the NAACP action; choosing this firm because of its expertise and past representation of gun industry defendants in a similar action brought by the NAACP. Royal believed that Insured would fair
In a letter dated June 15, 2001, Royal informed Insured that it had assigned Leahey & Johnson to provide a defense in the NAACP action, and that it was examining available coverage under the insurance policy. Royal further advised that it was providing Insured with a defense under a full reservation of rights, including the right “to seek reimbursement for any and all defense costs ultimately determined not to be covered.” R.R. 2703a. Insured expressed concern that if Royal ultimately determined there was no coverage available to Insured, then it might be less costly for Insured to join a defense group with other defendants rather than proceed with Leahey & Johnson. Royal responded that Insured had the right to retain its own counsel to represent its uninsured interests or to continue to permit Leahey & Johnson to represent their mutual interests. Insured did not obtain independent counsel.
By telephone and letter dated July 12, 2001, Royal indicated that its preliminary assessment revealed that it may be under no duty to defend or indemnify Insured, and that, again, Royal specifically reserved the right to disclaim defense and indemnity based upon the terms of the insurance contract. Royal pledged that during its investigation, it would participate in advancing reasonable and necessary defense costs in the NAACP action with the express reservation that Royal “may seek reimbursement of some or all of these costs in a future declaratory judgment action____” R.R. 2706a. On July 18, 2001, Royal yet again informed Insured that it would continue to pay for Insured’s defense until it made its final coverage determination, but that it reserved the right to seek reimbursement for “any and all of the defense costs it incurs in the defense of this matter.” R.R. 2718a.
On September 7, 2001, Royal issued a final coverage determination letter informing Insured that pursuant to their insurance contract, Royal “may be under no duty to defend or indemnify [Insured].” R.R. 2724a. Royal further advised that it was contemplating filing a declaratory judgment action to seek a declaration that it was under no duty to defend, and that it may seek reimbursement for some or all of the defense costs incurred after the filing of the declaratory judgment action. Shortly thereafter, on September 12, 2001, Royal followed through and filed a declaratory judgment action seeking a determination that it had no duty to defend or indemnify Insured for the claims asserted in the NAACP action because the action did not allege or involve “bodily injury” as defined in the policy. In due course, on July 16, 2002, Royal moved for summary judgment and requested reimbursement for “fees and costs paid to or on behalf of [Insured] in connection with the defense of the NAACP action incurred and/or paid after the date of the filling of this declaratory judgment action, i.e., September 12, 2001.” R.R. 164-65a.
On February 25, 2003, the trial court granted summary judgment in Royal’s favor. To determine whether Royal had an obligation to defend the NAACP claim against Insured, the trial court first ascertained the scope of the insurance coverage granted by the policy. See Wagner v. Erie Ins. Co.,
Insured appealed the trial court’s grant of summary judgment to the Superior Court, which affirmed on April 23, 2004.
Thereafter, before the trial court, Royal sought reimbursement of defense fees expended on Insured’s behalf in the NAACP “action from the date Royal filed the declaratory judgment action on September 12, 2001.
Insured appealed to the Superior Court, arguing that the trial court erred in finding unjust enrichment that entitled Royal to recoup the defense costs where the parties’ relationship was governed by a written insurance contract that was silent on the issue of reimbursement of defense fees. A panel of the Superior Court agreed with Insured and reversed the trial court. American and Foreign Ins. et al. v. Jerry’s Sport Center et al.,
According to the Superior Court, an insurer’s duty to defend arises when a potentially covered claim becomes apparent to the insurer, and not later when a court determines actual coverage in a subsequent declaratory judgment action. Amer
Accordingly, the Superior Court concluded that the trial court erred as a matter of law by concluding that Royal’s undertaking of the defense pursuant to its reservation of rights letter unjustly enriched Insured, and that Royal was entitled to reimbursement of attorneys fees in quantum meruit. Rather, according to the Superior Court, the written insurance contract, which did not contemplate a right to reimbursement, controlled the rights of the parties, and was not affected by Royal’s attempted unilateral modification.
We granted allocatur to decide whether an insurer is entitled to reimbursement of defense costs when a court has determined that the insurer had no duty to defend the insured and the insurer has claimed a right to reimbursement only in a series of reservation of rights letters. The propriety of the trial court’s order reimbursing Royal for defense costs under Royal’s purported reservation of rights presents a question of law, over which our scope of review is plenary and our standard of review is de novo. See Gillette v. Wurst,
Royal’s first argument is that the NAACP claim was not potentially covered, and therefore never triggered its duty
Royal asserts that the question of whether a claim is potentially covered, and, therefore, whether there is a duty to defend, is a question that can only be answered by the courts, not the insurance company. In this regard, according to Royal, whether an insurer initially provided a defense under the belief that a claim was potentially covered is not relevant. Essentially, Royal believes that it is inconsequential that its representatives may have thought the claims alleged against Insured were potentially covered when Insured initially requested defense and indemnification. All that matters now, according to Royal, is that the trial court held in the declaratory judgment action that the claims were not covered and Royal had no duty to defend; a holding affirmed by the Superior Court on appeal. According to this argument, the trial court’s declaratory judgment determination retroactively nullified any consequence of Royal’s initial determination that
Building on its argument that the NAACP claim was not potentially covered, Royal urges us to hold that when an insurer defends a suit against the insured that is not “potentially covered,” and has reserved its right to reimbursement of defense costs, then the insurer is entitled to reimbursement from the insured. According to Royal, the majority of jurisdictions that have addressed an insurer’s request for reimbursement of defense costs for claims that were not potentially covered have ordered reimbursement. See, e.g., Buss,
Royal maintains that where there is no duty to defend, the law of contracts and the equitable theory of unjust enrichment direct that the insurer must be reimbursed. Specifically, Royal claims that although the insurance policy did not create
Royal also invokes the remedy of restitution based on the equitable theory of unjust enrichment to claim a right to be reimbursed. See Buss,
According to Royal, the theory of unjust enrichment applies here independent of the written insurance policy between the parties. Royal argues that where a party performs services outside the scope of an express contract, that party may assert a claim for unjust enrichment under Pennsylvania law. See Drysdale v. Woerth,
Finally, Royal argues that permitting it to be reimbursed in these circumstances will properly induce insurers to provide a defense under a reservation of rights where there is a dispute between the insurer and the insured about whether a claim is covered. Otherwise, Royal speculates that an insurer will be tempted to refuse to defend an action where there is a coverage dispute. It further asserts that denying reimbursement will lead to higher premiums for all policyholders.
Insured first disagrees with Royal’s argument about whether the claim was potentially covered and when the duty to defend arose. Specifically, Insured argues that the claims in the NAACP action were potentially covered under the insurance contract, thus triggering Royal’s duty .to defend, notwithstanding the courts’ subsequent declaratory judgment that the claims were not within the policy’s protections. Insured argues that Royal’s duty to defend was triggered when it was faced with what it characterized (in its own communications with Insured) as a potentially covered claim. Recognizing that the claim was potentially covered, Royal provided a defense at least partially to protect itself from liability. Although a court later held that the claim was not covered, Insured argues that there was a real question about coverage prior to the court’s determination. Insured argues that if an insurer needed a court determination before it knew whether to provide a defense for claims that may or may not be covered, then every questionable claim tendered to an insurer would require a declaratory judgment action prior to the provision of a defense.
Next, Insured argues that Royal has no contractual right to reimbursement arising from either the insurance contract or the reservation of rights letters. Rather, according to Insured, the parties’ rights and obligations are defined by the insurance contract, and given the silence in the insurance contract on the matter of reimbursement, allowing reimbursement pursuant to Royal’s reservation of rights letters amounts to an impermissible, unilateral modification of the written insurance contract.
Insured next argues that because the parties’ relationship was governed by a written insurance contract, which did not provide for reimbursement of defense costs for claims ultimately determined not to be covered, Royal is not entitled to reimbursement under the equitable theory of unjust enrichment. See Mitchell v. Moore,
Insured further asserts that Royal defended Insured for its own benefit at least as much as for Insured’s, see Terra Nova,
Insured notes that in recent years, a growing number of jurisdictions have rejected Buss and adopted the so-called minority view espoused in Terra Nova, suggesting that this trend may, in fact, soon make Terra Nova the majority view. Pursuant to this line of cases, insurers are not entitled to reimbursement of defense costs for non-covered claims. See Terra Nova,
United Policyholders (UP) filed an amicus curiae brief in support of Insured. UP argues that a claim is potentially covered, thus triggering the duty to defend, when there is uncertainty as to coverage. Once this uncertainty is eliminated through a declaratory judgment action, UP argues that it does not retroactively eliminate the ambiguity that triggered the insurer’s duty to defend during the period of uncertainty. Air Products and Chemicals, Inc., has also filed an amicus curiae brief on behalf of Insured. It argues that reimbursement is a matter for insurance policy language, not litigation. Recognizing a right to reimbursement outside of the written
Because the parties rely extensively on jurisprudence from other jurisdictions, our analysis begins with an overview of the cases relied upon by Royal and Insured, respectively. Our analysis will continue with a review, generally, of the duty to defend in Pennsylvania and an examination of the issue presented in light of the competing views across the country and within the law of Pennsylvania.
As noted, Royal urges us to follow the California case of Buss and those cases relying on it, which generally hold that an insurer may recover defense costs from its insured where the insurer agrees to provide the insured a defense pursuant to an express reservation of the right to recover defense costs, claimed in correspondence with the insured, the insured accepts the defense, and a court subsequently finds that the insurer did not owe the insured a defense. In Buss, the California Supreme Court held that an insurer had a right of reimbursement of defense costs under the theory of unjust enrichment for claims later held to be outside of policy coverage. Buss,
Buss arose following a lawsuit in which only one of 27 claims was potentially covered (a “mixed action”). The insurer provided Buss, its insured, with a defense as to the entire suit pursuant to a reservation of rights, including the alleged right to be reimbursed for all defense costs if it was later determined that there was no coverage for the one potentially covered claim, or, indeed, for any of the 27 claims. Buss ultimately settled the underlying action. In a subsequent
On appeal, the California Supreme Court affirmed and held that because the insurer’s duty to defend extended to any claims at least potentially covered, the insurer was not entitled to seek reimbursement of defense costs for a potentially covered claim. Buss,
After Buss, insurers repeatedly acted to reserve a right to reimbursement of defense costs, and many courts ruled in the insurer’s favor, usually based on contractual and/or equitable principles.
Additionally, courts following Buss and its rationale apply the equitable theory of unjust enrichment and the remedy of
There is another view, however, endorsed by a growing number of courts that have refused to follow the reasoning of Buss, and have not permitted an insurer to obtain reimbursement of defense costs for non-covered claims.
Additionally, several courts have rejected Buss by finding that a unilateral reservation of rights letter cannot create rights not contained in the insurance policy itself. See Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc.,
In a case from Illinois with strikingly similar facts to the case before us, the insured, Midwest, was sued by the City of Chicago for creating a public nuisance by selling guns to inappropriate purchasers. General Agents,
The Supreme Court of Illinois denied the insurer’s request for reimbursement. The court acknowledged the broad duty to defend in Illinois, which requires an insurer to defend potentially covered claims. Id., at 1098. The court held that as a matter of public policy, it could not condone an arrangement where an insurer can unilaterally modify its contract, through a reservation of rights, to allow for reimbursement of defense costs in the event a court later finds that the insurer owed no duty to defend. The court explained:
We recognize that courts have found an implied agreement where the insured accepts the insurer’s payment of defense costs despite the insurer’s reservation of a right to reimbursement of defense costs. However ... recognizing such an implied agreement effectively places the insured in the position of making a Hobson’s choice between accepting the insurer’s additional conditions on its defense or losing its right to a defense from the insurer.
Id. at 1102.
The court in General Agents relied on Terra Nova, which expressly prohibited the insurer’s claimed right to reimbursement to recover defense costs if it deemed a claim potentially covered and provided coverage until it was later determined in a declaratory judgment action that there was no coverage. In Terra Nova, the court explained that permitting recovery would be inconsistent with an insurer’s duty to defend:
*607 Faced with uncertainty as to its duty to indemnify, an insurer offers a defense under reservation of rights to avoid the risks that an inept or lackadaisical defense of the underlying action may expose it to if it turns out there is a duty to indemnify. At the same time, the insurer wishes to preserve its right to contest the duty to indemnify if the defense is unsuccessful. Thus, such an offer is made at least as much for the insurer’s own benefit as for the insured’s. If the insurer could recover defense costs, the insured would be required to pay for the insurer’s action in
Carefully considering the competing views espoused in these two lines of cases, we conclude that the reasoning of General Agents and Terra Nova are more consistent with the broad duty to defend under Pennsylvania law, discussed below, when viewed in light of the policy language of the parties’ insurance contract. Insurance policies are contracts, and the rules of contract interpretation provide that the mutual intention of the parties at the time they formed the contract governs its interpretation. See Standard Venetian Blind Co. v. Am. Empire Ins. Co.,
An insurer’s duty to defend is broader than its duty to indemnify. Kvaemer Metals Div. of Kvaemer U.S., Inc. v. Commercial Union Ins. Co.,
The question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint. See Donegal Mut. Ins. Co. v. Baumhammers,
We agree with Insured that whether a complaint raises a claim against an insured that is potentially covered is a question to be answered by the insurer in the first instance, upon receiving notice of the complaint by the insured. Although the question of whether the claim is covered (and therefore triggers the insurer’s duty to defend) may be difficult, it is the insurer’s duty to make that decision. See Shoshone First Bank,
In some circumstances, an insurance company may face a difficult decision as to whether a claim falls, or potentially falls, within the scope of the insurance policy. However, it is a decision the insurer must make. If it believes there is no possibility of coverage, then it should deny its insured a defense because the insurer will never be liable for any settlement or judgment. See Shoshone, 2 P.3d at 510 (stating that where an insurer believes there is no coverage, it should deny a defense at the beginning). This would allow the insured to control its own defense without breaching its contractual obligation to be defended by the insurer. If, on the other hand, the insurer is uncertain about coverage, then it should provide a defense and seek declaratory judgment about coverage. Id.
In a declaratory judgment action to determine whether a claim is covered, the court resolves the question of coverage. See Claypoole,
Here, Insured was obliged to notify Royal as soon as practicable of any “occurrence ... which may result in a claim.” R.R. 995a (emphasis added). The insurance contract also provided that Royal would pay, with respect to “any suit against an Insured we defend ... [a]ll expenses we incur.” R.R. 993a.
It was not immediately apparent whether the claim against Insured for bodily injury was or was not covered. It was immediately apparent, however, that the claim might potentially be covered. That Royal was uncertain about coverage, or, more precisely, believed the claim against Insured in the NAACP action was potentially covered, is apparent from its action in furnishing a defense, and, indeed, insisting on peculiar counsel.
The trial court’s subsequent declaratory judgment determination that the claim was not covered relieved Royal of having to defend the case going forward, but did not somehow nullify its initial determination that the claim was potentially covered. See General Agents,
We therefore reject Royal’s attempt to define its duty to defend based on the outcome of the declaratory judgment action. The broad duty to defend that exists in Pennsylvania encourages insurance companies to construe their insurance contract broadly and to defend all actions where there is any potential coverage. Gedeon,
Because uncertainty existed about coverage when Royal initially provided a defense, it properly defended a potentially covered claim. Royal, therefore, would not be entitled to reimbursement even if we adopted the reasoning of Buss. There, one claim was potentially covered, and 26 were not, and there was no dispute about the potentiality for coverage. The court held that as to the claim that was potentially covered, the insurer had a duty to defend and was not, therefore, entitled to be reimbursed for the cost of defending that claim. Thus, because we find that the claim against Insured was potentially covered before the court definitively ruled it was not covered, Royal would not be entitled to reimbursement pursuant to Buss.
Moreover, Royal’s contractual obligation to pay for the defense arose as a consequence of the rules of contract interpretation. It is undisputed that the policy did not contain a provision providing for reimbursement of defense costs under any circumstances. Thus, the right Royal attempts to assert 1.1 this case, the right to reimbursement, is not a right to which it is entitled based on the policy. We will therefore determine whether Royal, as it asserts, created a new contract through its reservation of rights letters.
We hold that it did not. Royal cannot employ a reservation of rights letter to reserve a right it does not have pursuant to the contract. As noted above, the policy here did not provide for a right of reimbursement of defense costs for non-covered claims. A reservation of rights letter asserts defenses and exclusions that are already set forth in the policy. See Black’s Law Dictionary (8th ed. 2004) (defining a reservation-of-rights letter as “notice of an insurer’s intention not to waive its contractual rights to contest coverage or to
Nor are we persuaded that there are any equitable bases upon which to grant a right to reimbursement. The doctrine of unjust enrichment contemplates that “[a] person who has been unjustly enriched at the expense of another must make restitution to the other.” Wilson Area School Dist. v. Skepton,
Insured was not unjustly enriched by Royal’s payment of defense costs. Royal had not only the duty to defend, but the right to defend under the insurance contract. This arrangement benefited both parties. The duty to defend benefited Insured to protect it from the cost of defense, while the right to defend allowed Royal to control the defense to protect itself against potential indemnity exposure. Although Royal argues that it did not control the defense, it is apparent that Royal selected the firm to represent Insured, and pragmatically made it very difficult for Insured to retain independent counsel. Specifically, in the letter of June 15, 2001, Royal conveyed that Insured could retain its own counsel to represent its uninsured interests, or to join with Leahey & Johnson to represent their mutual interests. At this point, where the claim was potentially covered, Insured would have been at risk of breaching the insurance contract if it had rejected Royal’s defense and it was later determined that the claim was covered. Moreover, upon Royal’s activation of its right to defend, Insured was obliged to cooperate with Royal in defending the action. R.R. 993a. Insured had no reasonable alternative except to proceed with Royal’s chosen counsel. As the Superior Court noted, Royal’s selection of counsel allowed it to monitor and review defense fees, compare them to Royal’s preferred billing guidelines, and refer the invoices to a third-party auditor for scrutiny.
As the Third Circuit explained in Terra Nova, an insurer faced with uncertainty about its duty to indemnify offers a defense under a reservation of rights “to avoid the risks that an inept or lackadaisical defense of the underlying action” may expose it to if it ultimately turns out there was a duty to indemnify.
Additionally, we agree with Insured’s amicus that recognizing a right of reimbursement outside of the policy would empower each insurer to design its own right to reimbursement subject only to the insurer’s designs. For example, an insurer could demand the right to reimbursement of all costs expended from the time it received notice of the underlying complaint until the court’s declaratory judgment action, or it could claim the right for the period extending from its final determination until the court’s declaratory judgment decision. This is, in fact, what occurred here. Royal initially claimed a right of reimbursement of all defense costs ultimately determined not to be covered, R.R. 2703a (letter of June 15, 2001), then modified this claimed right to reimbursement by stating that it would not seek reimbursement of costs incurred before it made its final coverage determination or a court concludes it was under no duty to defend, whichever occurred first, R.R. 2720a, and, finally, informing Insured that it may seek reimbursement for defense costs incurred after the filing of the declaratory judgment action, R.R. 2724a. A right of reimbursement outside of the four corners of the insurance con
We therefore hold that an insurer may not obtain reimbursement of defense costs for a claim for which a court later determines there was no duty to defend, even where the insurer attempted to claim a right to reimbursement in a series of reservation of rights letters. Accordingly, we affirm the order of the Superior Court.
Notes
. Insured was also insured by American International South Insurance Company (AIG), which is not a party to this action.
. Specifically, the insurance contract specified as follows with regard to bodily injury and property damage liability:
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any "suit” seeking those damages. However, we will have no duty to defend the insured against any "suit”*590 seeking damages for "bodily injury” or "property damage” to which this insurance does not apply....
* * *
b. This insurance applies to "bodily injury” and "property damage” only if:
(1) The “bodily injury” or "property damage” is caused by an occurrence that takes place in the "coverage territory”; and
(2) The "bodily injury” or "property damage” occurs during the policy period.
Reproduced Record (R.R.) 2706a-07a.
. In August, 2001, Royal entered into an agreement with AIG where AIG agreed to pay half of Insured's defense costs in the NAACP action.
. Although we find this holding suspect, it is not before us for review.
. Several days later, Leahey & Johnson obtained summary judgment for Insured in the NAACP action, resulting in Insured’s dismissal from the underlying litigation before trial.
. In its motion for reimbursement, Royal requested to be reimbursed for defense costs from the date it filed its declaratory judgment action on September 12, 2001. The trial court relied on September 7, 2001 as the relevant date, as that was the day Royal issued its final coverage determination letter.
. Unjust enrichment is the retention of a benefit conferred by another, without offering compensation, in circumstances where compensation is reasonably expected, for which the beneficiary must make restitution. Black’s Law Dictionary (8th ed. 2004). An action based on unjust enrichment is an action which sounds in quasi-contract or contract implied in law. Schott v. Westinghouse Electric Corp.,
. Quantum meruit is an equitable remedy to provide restitution for unjust enrichment in the amount of the reasonable value of services. Black's Law Dictionary (8th ed. 2004). See also Commonwealth Dept. of Public Welfare v. UEC, Inc.,
. According to Royal, other jurisdictions follow Buss or its rationale and permit reimbursement where a court has determined that the claim is not covered and an insurer has explicitly reserved its right to seek reimbursement. See Scottsdale Ins. Co. v. MV Transp.,
. An implied-in-fact contract is a contract that the parties "presumably intended as their tacit understanding, as inferred from their conduct and other circumstances.” Black’s Law Dictionary (8th ed. 2004).
. The American Insurance Association (AIA) and the National Association of Mutual Insurance Companies (NAMIC) filed an amicus curiae brief on behalf of Royal. The AIA and NAMIC argue that affirming the Superior Court's decision would greatly complicate Pennsylvania law governing the duty to defend. The Complex Insurance Claims Litigation Association (CICLA) also filed an amicus curiae brief on behalf of Royal, echoing the sentiments expressed by AIA and NAMIC.
. See, e.g., United Nat'l Ins. Co. v. SST Fitness Corp.,
. See, e.g., Millipore Corp. v. Travelers Indem. Co.,
. Royal’s obligation to pay, with respect to "any suit against an Insured we defend ... [a]ll expenses we incur” arguably answers the
. Royal’s uncertainty in this regard is understandable. The NAACP action sought monetary damages for bodily injury; Royal insured against damages for bodily injury. Moreover, shortly after the complaint was filed the insurer of another defendant sought a declaratory judgment regarding its duty to defend its insured. See Scottsdale Ins. Co. v. RSR Management Co.,
. Insurance companies are well aware of this, and presumably have built the costs of defense into their premium base. Thus, they are providing a service for which they have been compensated.
. Royal inexplicably claims that failing to find a right to reimbursement would create obligations outside of the four corners of the insurance contract. On the contrary, recognizing a right not contained in the insurance contract based solely on a unilateral reservation of rights letter would create obligations beyond the parties' agreement.
Concurrence Opinion
concurring.
I join the majority opinion, subject only to a few modest differences in reasoning. In particular, I am not fully in accord with the majority’s depiction of litigation risk assessments by insurers. See Majority Opinion, at 608-12,
Ultimately, however, I support the majority’s policy judgment that an insurer should be required to ground a reserva
. See Robert H. Jerry, II, The Insurer's Right to Reimbursement of Defense Costs, 42 Ariz. L. Rev. 13, 55-56 (2000) ("[I]n any contractual relationship, a party performs its contractual duty not only to further its own interests, which is why the party entered into the contract in the first instance, but also to protect its own interests, given that nonperformance of contractual duties exposes the party to remedies for breach. Denying restitution whenever a purpose of a party’s actions is to benefit the party’s own interests emasculates restitution in all contractual contexts, given that some element of self-benefit always exists whenever a party undertakes to perform contract duties.”).
. See Black’s Law Dictionary 144 (3d pocket ed. 2006) (defining an "implied-in-fact contract” as "[a] contract that the parties presumably intended as their tacit understanding, as inferred from their conduct and other circumstances.”).
. See Restatement (Second) of Contracts § 281(1) (1981) ("An accord is a contract under which an obligee promises to accept a stated performance in satisfaction of the obligor’s existing duty. Performance of the accord discharges the original duty.”).
. See generally Tex. Ass'n of Counties County Gov’t Risk Mgmt. Pool v. Matagorda County, 52 S.W.3d 128, 135-36 (Tex.2000) ("Requiring the insurer, rather than the insured, to choose a course of action is appropriate because the insurer is in the business of analyzing and allocating risk and is in the best position to assess the viability of its coverage dispute. On balance, insurers are better positioned to handle this risk, either by drafting policies to specifically provide for reimbursement or by accounting for the possibility that they may occasionally pay uncovered claims in their rate structure.”) (citations omitted).
. For instance, the insured could presumably: reject the insurer’s reservation-of-rights letter, thereby forcing the insurer to either refuse to defend the claim or continue to defend the insured under the terms of the policy until resolution of the declaratory judgment action, see, e.g., 44 Am.Jur.2d Insurance § 1416 (2010); treat the insurer’s reservation-of-rights notice as a repudiation of the policy, thus entitling the insured to, inter alia, immediately seek remedies for breach of contract, see 13 Pa.C.S. § 2610; and/or institute a bad faith action against the insurer, particularly where the insurer is attempting to discharge a claim that is not the subject of a good faith dispute through less than full performance. See 42 Pa.C.S. § 8371.