The Ninth Circuit recently affirmed the district court's decision granting reimbursement and prejudgment interest on amounts paid to the insured for defense and settlement pursuant to a reservation of rights. See Evanston Ins. Co. v. OEA, Inc., No. 07-15316 (9th Cir. May 21, 2009)[here].
OEA acquired a claims-made policy from Evanston Insurance Company in 1998. The policy period ran from May 1, 1998, to May 1, 1999.
OEA and its wholly owned subsidiary, OEA Aerospace, Inc., were sued by two employees in late 1996 and early 1997 for injuries suffered in Aerospace's plant. Although Aerospace was served with the complaints in 1997, OEA was not served until over a year later in October 1998. OEA notified Aerospace's worker's compensation carrier of the claims, but did not provide notice to Evanston because it did not think the employees intended to hold OEA liable.
Aerospace was ultimately dismissed from the actions because the claims were barred under the worker's compensation laws. OEA eventually settled both suits. Under a reservation of rights, Evanston paid over $1.5 million to defend and settle the two cases. Evanston then filed suit, alleging there was no coverage under the claims-made policy and seeking reimbursement of amounts paid with prejudgment interest. The district court granted summary judgment to Evanston.
The Ninth Circuit affirmed. Although OEA contended it was not aware of the employees' intention to hold OEA liable for their injuries until October 1998 (during the policy period), the complaints clearly established such an intent. Therefore, the district court correctly held that the claims were first made in 1997 and prior to the policy period. OEA did not pay premiums to cover these claims. Evanston's payments for the defense and settlement gave OEA more than its bargained-for coverage. Therefore, Evanston was entitled to reimbursement of $1.5 million in defense and settlement costs.
The Ninth Circuit also affirmed the district court's award of prejudgment interest. California law permitted prejudgment interest in the insurer-insured situation where the amounts of damages were certain instead of restricting plaintiffs to postjudgment interest.
