The Hawaii Appellate Courts have never decided whether the insurer may seek reimbursement of defense or settlement costs if it is determined there is no duty to defend under the policy. Federal District Court Judge Helen Gillmor, however, believes that Hawaii case law permits an insurer to obtain reimbursement of defense costs in a diversity case. See Scottsdale Ins. Co. v. Sullivan Properties, Inc., 2007 U.S. Dist. Lexis 57021 (D. Haw., Aug. 2, 2007).
Texas joins the majority of states and holds that an insurer that settles a claim against its insured when coverage is later determined not to exist may seek reimbursement if the insured has given its clear and unequivocal consent to the settlement and the insurer’s right to seek reimbursement. See Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool v. Matagorda County, 52 S.W. 3d 128, 135 (Tex. 2000). In a recent case, the Texas Supreme Court considered whether an excess insurer was entitled to reimbursement where there is no duty to defend and the insured demanded the insurer accept a reasonable settlement offer from the claimant, but the policy did not provide for reimbursement. See Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., No. 02-0730 (Tex. Supr. Ct., Feb. 1, 2008).
In Excess Underwriters, the insured was sued when the drilling platform it fabricated collapsed. The insured had a $1 million primary liability policy and excess coverage up to $10 million with Excess Underwriters. The claimant offered to settle for $7.5 million, an amount within the excess policy limits. The insured felt the offer was reasonable and asked Excess Underwriters to accept. The excess carrier agreed to fund the settlement if the insured would agree to reserve coverage issues and the right to reimbursement for resolution at a later date. The insured declined. Nevertheless, the excess carrier accepted the claimant’s offer to settle.
Excess Underwriters then filed a coverage suit. The trial court initially determined Excess Underwriters was entitled to reimbursement, but later reversed itself when the Texas Supreme Court issued the Matagorda County decision. The court of appeals affirmed, and the Supreme Court agreed to decide whether Matagorda County allowed an excess carrier to assert a reimbursement right under the circumstances.
The Supreme Court first refused the excess carrier’s invitation to overrule Matagorda County. Next, the Court disagreed that the insured had impliedly agreed to reimburse the excess insurer by taking an active role in procuring the settlement offer and in demanding the excess carrier settle the claim. Finally, the Court refused to recognize an equitable right to reimbursement that would require re-writing the policy. Accordingly, the excess carrier failed to establish a right to reimbursement.
