California Supreme Court Grants Review to Decide Whether Insurer Waives its Rights to Seek Reimbursement of Defense Costs by Defending an Insured When No Coverage Was Owed

On May 19, 2004, the California Supreme Court granted review in Scottsdale Ins. Co. v. MV Transportation (Feb. 23, 2004, B150991) [nonpub. opn.], 2004 WL 726816, review granted 5/19/04 (S123766). This case presents the issue whether an insurer waives its rights to seek reimbursement of defense costs by defending an insured when no coverage is owed.

This litigation concerns the meaning of the phrase "advertising injury," as used in the CGL policies issued by Scottsdale to MV Transportation, Inc. (MV). In an earlier opinion, the Court of Appeal held the phrase "advertising injury" was not limited to injury from widespread promotional activities directed to the public at large, but included MV's one-on-one business solicitations that used a ommon style and promotional information disseminated to more than one customer. The Supreme Court granted review and transferred the matter back to the Court of Appeal "for reconsideration in light of Hameid v. National Fire Ins. of Hartford (2003) 31 Cal.4th 16 [Hameid]."

On remand, the Court of Appeal concluded that, contrary to its prior opinion, MV should not have tendered to Scottsdale its defense in the underlying action filed by MV's competitor. However, the Court of Appeal also held that Scottsdale's election to defend MV barred it from terminating its defense duty retroactively and claiming reimbursement of defense fees. Accordingly, the Court of Appeal affirmed the trial court's decision granting summary judgment for MV on Scottsdale's action for a declaration that it owed no defense obligations and was entitled to reimbursement of its defense fees.

For more information, call David Axelrad or H. Thomas Watson at (818) 995-0800 or send an e-mail to them at daxelrad@horvitzlevy.com or htwatson@horvitzlevy.com.

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