The Ohio Casualty Insurance Company v. Biotech Pharmacy, Inc. et al. adv.
U.S.D.C., District of Nevada, Case No. 2:05-CV-1214, RLH-PAL (D. NEV. 4-2-2008)
In the first decision nationally to expressly address an issue of Texas law, the Court predicted that the Texas Supreme Court would, consistent with its prior precedent, find that “a unilateral reservation of rights letter cannot create rights not contained in the insurance policy which include the right to seek reimbursement of defense fees where there was no potential for coverage”. In previous cases, the Texas Supreme Court, following Shoshone First Bank v. Pacific Employers Ins. Co., 2 P.3d 510, 515-16 (Wyo. 2000) found that a unilateral reservation of rights letter cannot create a right for an right for an insurer to seek reimbursement of settlement costs based on the logic of the Shoshone case which had expressly found that right extended to seek reimbursement of defense costs.
The Texas Supreme Court reaffirmed its earlier ruling in Matagorda finding in Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., No. 02-0730, ___S.W.3d___ ,2008 WL 274878, (Tex., Feb., 2008) that in Texas the same rule applied in a excess policy context.
The court denied a concurrent motion for reconsideration under FRCP rule 69 as moot in light of its finding vis-à-vis reimbursement. It had previously concluded that a 56(f) right to conduct discovery arose in determining whether a copyright infringement claim was based sufficiently on advertising to fall within the pertinent “advertising injury” coverage.
Gauntlett & Associates attorneys, David A. Gauntlett and Joseph S. McMillen represented Biotech Pharmacy, Inc.
The Texas Supreme Court’s decision appears to represent the modern trend on this issue. General Agents Ins. Co. of America v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1102-1103.(2005) (“As a matter of public policy, we cannot 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 owes no duty to defend. . . . [I]f an insurer wishes to retain its right to seek reimbursement of defense costs . . . the insurer is free to include such a term in its insurance contract. Absent such a provision in the policy, however, an insurer cannot later attempt to amend the policy by including the right to reimbursement in its reservation of rights letter.”)
See Westchester Fire Ins. Co. v. Wallerich, 527 F. Supp. 2d 896 (D. Minn. 2007) (“[T]his Court is of the view that the Minnesota Supreme Court would refuse to allow reimbursement unless an agreement to the contrary is found in the insurance policy.”); Perdue Farms, Inc. v. Travelers Cas. And Surety Co. Of America, 448 F.3d 252 (4th Cir. (Md.) 2006) (Accord.)
Each of these cases embraces a fundamental doctrine which has often been ignored by insurers and courts fail to recognize that an insurer, as a drafter of the policy, has within its power to carefully craft rights which it seeks to assert. When you attempt to add a reimbursement right, it is simply a redrafting of the policy for the insurer’s benefit.
By the same token, where a particular policy construction requires the addition of words not set forth in the policy, it is not for the court to add those after the fact. Thus, in the context of analyzing whether a blast facts claim asserting violations of the TCPA, which forbids the improper sending of facsimiles to a recipient who is not expecting to receive same, the courts have found “personal injury” coverage for invasion of privacy implicated, rejecting insurer arguments against such a construction. The insurers interpretation requires the addition of words or limitation not set forth in the policy.
Terra Nova Ins. Co. v. Fray-Witzer, 869 N.E.2d 565, 574 (Mass. 2007) (applying New Jersey law)
In effect, the insurers argue that the policy's definition of injury should be read to say “[o]ral or written publication of material, the content of which violates a person's right of privacy.” But New Jersey law is clear that when construing an ambiguous phrase in an insurance policy, courts should “consider whether clearer draftsmanship by the insurer ‘would have put the matter beyond reasonable question.’ ”
This approach is preferable to a vague “contextual reading” of the policy or one that relies on latin maxims which often reflect the results rather than the analytic process for determining proper coverage interpretation. See Black’s Law Dictionary, 8th Edition, Copyright 2004 Bryan A. Garner, pg. 620 “expressio unius est exclusio altrius [the negative implication] ‘[The recent disparagement by unanimous court] of this doctrine’s application [in Herman & MacLean v. Huddleston, 459 U.S. 375, 386, n.23, 103 S.Ct.683, 690 n.23 (1983)] puts its future in some doubt, but more likely confirms that judicial use of candidate for construction is opportunistic.’ Richard A. Posner, the Federal Courts; Crisis & Reform 282 (1985).” Id. at 621.
