The federal district court for Northern California granted the insurer's motion for reimbursement of funds advanced to the insured under a reservation of rights. Great Am. Ins. Co. v. Chang, 2013 U.S. Dist. LEXIS 159197 (N.D. Cal. Nov. 6, 2013).
The Changs operated a dry cleaner business on their property from 1977 to 1981. Great American covered the Changs under a liability policy from 1977 to 1983.
Several years after the policies expired, the Changs leased the property to Kartal, who opened an Italian restaurant. In 2006, Kartal sued the Changs due to an alleged solvent leak on the property. The Changs filed cross-complaints against various third-parties, who, in turn, filed cross-complaints against the Changs.
Great American agreed to defend the Changs against the cross-complaints, but subject to a reservation of rights to seek reimbursement of defense expenses or other amounts advanced by Great American. Great American eventually paid $692,416 in attorneys' fees and advanced $121,259 for site investigation.
The Changs applied to the State of California for funding from the Underground Tank Storage Fund for pollution clean-up of the property. When this request was denied, the Changs asked Great American to pay certain legal fees and costs incurred in challenging the decision. Great American agreed to do so subject to a complete reservation of rights, including the right to seek reimbursement. Subject to the reservation of rights, Great American paid $70,426 for attorneys' fees and other expenses claimed by the Changs with respect to the Tank Fund litigation.
Great American sued the Changs in 2012 for a declaration it had no duty to defend or indemnify and for reimbursement of amounts it had paid. In June 2013, the court determined there was no duty to defend or indemnify the Changs as to the Tank litigation and the cross-complaints in the Kartal action.
Great American now moved for summary judgment on the reimbursement issue, seeking $884,101 and prejudgment interest.
The Changs argued the policy did not expressly permit reimbursement. The court rejected the argument based upon Buss v. Superior Court, 16 Cal. 4th 35 (Cal. 1997). Buss held that an insurer could seek reimbursement for defense costs that were not potentially covered. The right to reimbursement was implied in law as quasi-contractual. This gave the insurer had a right to reimbursement as to uncovered claims, regardless of whether the insurance contract expressly provided for reimbursement. Therefore, Great American was entitled to reimbursement from the Changs for the $884,101 it had advanced for the underlying litigation and clean-up on the property.
The request for prejudgment interest was denied, with prejudice, because Great American had not specified exactly when the funds were advanced.