By Jay M. Levin, Reed Smith LLP
The American Legacy Foundation was insured under a liability policy issued by National Union. The policy required the Foundation to defend itself, and required National Union to advance defense costs upon written request by the Foundation. In the event the claim was later found not to be covered, the Foundation was obligated to reimburse National Union for the advanced defense costs. The policy also contained an exclusion for loss arising out of or resulting from breach of contract.
The Foundation was sued for breach of contract arising out of certain ads that allegedly portrayed Lorillard Tobacco Company in a negative light. Lorillard did not raise any tort claims. The Foundation gave timely notice to its insurers, including National Union, and National Union denied coverage based on, inter alia, the contractual liability exclusion. The Foundation successfully defended the case and, at the conclusion of that successful defense, sued National Union for the almost $17 million it had spent defending itself.
The Foundation argued that the duty to advance costs should be determined on the same basis as a standard duty to defend, i.e. by comparing the allegations of the complaint with the terms and conditions of the policy and, if there was even a potential for coverage, the insurer was required to advance the full cost of defense. The Third Circuit rejected this argument, holding that where the demand for advancement of defense costs was not made until after the underlying action was concluded, the determination of whether defense costs were owed was based on the entire record. As the Third Circuit determined that the contractual liability exclusion precluded coverage in its entirety, the Third Circuit held that National Union had no duty to indemnify the Foundation for any defense costs. This commentary discusses the case.
Lexis.com subscribers can access the complete commentary, Reed Smith on American Legacy Foundation, RP v. National Union. Additional fees may be incurred. (approx. 3 pages)
If you do not have a lexis.com ID, you can purchase Insurance Emerging Issues Analysis content through our lexisONE Research Packages.
Download a free copy of the unenhanced lexis version of the court’s decision in American Legacy Foundation, RP v. National Union Fire Insurance. Lexis.com subscribers can access the enhanced version of Am. Legacy Found., RP v. Nat'l Union Fire Ins. Co., 623 F.3d 135 (3d Cir. Del. 2010).
Jay M. Levin is a member of the Insurance Recovery Group of Reed Smith LLP resident in the Philadelphia office. His practice focuses on representing policyholders in disputes with insurance companies across all lines of coverage with an emphasis on D&O, E&O, property insurance and time element coverages. Mr. Levin is a frequent speaker for the American Bar Association and other organizations and writes frequently on insurance related topics.