Nat'l Sur. Corp. v. Immunex Corp.

Nat'l Sur. Corp. v. Immunex Corp.

Opinion

EN BANC

 [*875]  [**689] 

¶1 Stephens, J. — This court has long recognized that a liability insurer uncertain of its obligation to defend its insured may undertake a “reservation of rights” defense while seeking a declaration regarding coverage. The question in this case is whether the insurer may unilaterally condition its reservation of rights defense on making the insured absorb the defense costs if a court ultimately determines there is no coverage. We answer no. We recognize, however, that an insurer may avoid or minimize its responsibility for defense costs when an insured belatedly tenders a claim and the insurer demonstrates actual and substantial prejudice as a result. We affirm the Court of Appeals.

FACTS AND PROCEDURAL HISTORY

¶2 National Surety Corporation insured Immunex Corporation ¹ under excess and umbrella liability policies between 1998 and 2002. In August 2001, Immunex notified  [***2] National Surety that it was the subject of state and federal government investigations into its wholesale drug pricing. Immunex represented that it could not release information because of a confidentiality agreement. National Surety acknowledged receiving this notice and requested copies of any complaints that might emerge.

¶3 Beginning no later than 2001, a string of complaints was filed against Immunex. These complaints alleged that  [*876]  Immunex reported inflated average wholesale prices of its drugs, which enabled providers of drugs—such as physicians, hospitals, and pharmacies—to receive reimbursements from Medicare and other third-party payors in amounts greater than what they actually paid. In all, at least 23 lawsuits related to pricing manipulation were filed against Immunex and other drug manufacturers under theories including breach of contract, civil conspiracy, fraud, and violations of state unfair trade and protection statutes and the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968.

¶4 It was not until October 3, 2006 that Immunex first tendered defense of the litigation to National  [***3] Surety. In its tender letter, Immunex informed National Surety that it was on the eve of settling a California lawsuit, identified other pending lawsuits, and requested payment for reasonable defense expenditures and settlement costs. Specifically, Immunex asserted that coverage fell under the umbrella insurance “Coverage B,” which applied to cover “injury … arising out of … [d]iscrimination,” Clerk's Papers (CP) at 654. National Surety requested suit papers  [**690]  and documentation, which Immunex sent in December 2006.

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