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March 2012

Undisclosed Additional Insurance Results in Retrial And Reversal Of Unfavorable Decision

San Francisco Senior Counsel Leslie Crary received a decision in favor of a Gordon & Rees insurer client following a bench trial on December 28, 2011.  The decision sets the stage for recovery of over $7.3 million in defense costs paid by the client under two first-layer umbrella policies, as well as damages.

The dispute arose out of whether there was a duty to defend (and pay defense costs in additional to substantial policy limits) under two umbrella policies.  The umbrella policies had a unique feature that provided for a duty to defend and payment of defense costs in addition to limits when primary insurance was exhausted and "there is no other insurance in any way applicable."   In 2008, the parties had a bifurcated trial on the issue and the trial court found the client had a duty to pay defense costs in addition to policy limits because, among other reasons, all of the insured's other first-layer excess/umbrella policies had settled with the insured and therefore were no longer applicable.  The client paid its limits ($30 million) by June 30, 2010.  In addition to the limits, based on the court's ruling and representations by the insured (and its counsel) that there was no other first-layer excess/umbrella insurance, the client paid $7.3 million towards defense costs.  (Whether these and the rest of the defense costs the insured demanded be paid were reasonable, was an issue the parties were preparing to litigate in 2011.)

Crary discovered in early 2011 that the insured (and its counsel) had located information about additional first-layer excess/umbrella insurance before the trial in 2008, but withheld that information from Gordon & Rees.  The trial court agreed to reopen trial and permit discovery.  At the new trial in 2011, the trial court reversed its 2008 ruling in light of the additional policy information. 

The insured sought a writ of mandate from the Court of Appeal, which was summarily denied.  The insured has petitioned the California Supreme Court for review.