California Civil Jury Instructions (CACI) (2017)

2351. Insurer’s Claim for Reimbursement of Costs of Defense of Uncovered Claims

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2351.Insurer’s Claim for Reimbursement of Costs of Defense of
Uncovered Claims
[Name of insurer] claims that it is entitled to partial reimbursement from
[name of insured] for the costs that it spent in defending [name of
insured] in the lawsuit brought by [name of plaintiff in underlying suit]
against [name of insured]. [Name of insurer] may obtain reimbursement
only for those defense costs that it proves can be allocated solely to
claims that are not even potentially covered by the insurance policy.
I have determined that the following claims in [name of plaintiff in
underlying suit]’s lawsuit were not even potentially covered by the
policy: [specify]. You must determine the dollar amount of [name of
insurer]’s costs of defense that were attributable only to these claims.
Costs for work that also helped the defense of the other claims that
were potentially covered should not be included.
New December 2015
Directions for Use
This instruction is for use if the insurer has provided a defense under a reservation
of rights to deny indemnity if coverage cannot be established. In such a case, the
insurer can seek reimbursement of the cost of defense that can be allocated solely
to claims for which there was no possible potential coverage. (Buss v. Superior
Court (1997) 16 Cal.4th 35, 57–58 [65 Cal.Rptr.2d 366, 939 P.2d 766].)
If the insurer denies a defense, but the court finds that there is coverage for some
but not all claims in the underlying case, it would appear that the insured can
recover all costs of defense from the insurer. The insurer is not entitled to
apportion the costs of defense (damages) between covered and uncovered claims if
it denies a defense. (See Hogan v. Midland Nat’l Ins. Co. (1970) 3 Cal.3d 553,
563–564 [91 Cal.Rptr. 153, 476 P.2d 825].) Therefore, this instruction may not be
modified for use in a denial-of-coverage case.
Sources and Authority
• “An insurer may obtain reimbursement only for defense costs that can be
allocated solely to the claims that are not even potentially covered. To do that,
it must carry the burden of proof as to these costs by a preponderance of the
evidence. And to do that, . . . it must accomplish a task that, ‘if ever feasible,”
may be “extremely difficult.’ ” (Buss, supra, 16 Cal.4th at pp. 57–58, original
italics.)
• “Whether [insurer] will be able to carry its burden of proof by a preponderance
of the evidence that specific costs can be allocated solely to the causes of action
that were not even potentially covered is far from plain. But there is at least a
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triable issue of material fact that it can. It must be allowed the attempt.” (Buss,
supra, 16 Cal.4th at p. 61.)
• “By law applied in hindsight, courts can determine that no potential for
coverage, and thus no duty to defend, ever existed. If that conclusion is
reached, the insurer, having reserved its right, may recover from its insured the
costs it expended to provide a defense which, under its contract of insurance, it
was never obliged to furnish.” (Scottsdale Ins. Co. v. MV Transportation (2005)
36 Cal.4th 643, 658 [31 Cal.Rptr.3d 147, 115 P.3d 460].)
• “ ‘Under the policy, the insurer does not have a duty to defend the insured as to
the claims that are not even potentially covered. With regard to defense costs
for these claims, the insurer has not been paid premiums by the insured. It did
not bargain to bear these costs. . . . The “enrichment” of the insured by the
insurer through the insurer’s bearing of unbargained-for defense costs is
inconsistent with the insurer’s freedom under the policy and therefore must be
deemed ‘unjust.’ ” If [insurer], after providing an entire defense, can prove that
a claim was ‘not even potentially covered because it did not even possibly
embrace any triggering harm of the specified sort within its policy period or
periods caused by an included occurrence,’ it should have that opportunity. This
task ‘ “if ever feasible,” may be “extremely difficult.” ’ ” (State v. Pac. Indem.
Co. (1998) 63 Cal.App.4th 1535, 1550 [75 Cal.Rptr.2d 69], internal citations
omitted.)
• “The cases which have considered apportionment of attorneys’ fees upon the
wrongful refusal of an insurer to defend an action against its insured generally
have held that the insurer is liable for the total amount of the fees despite the
fact that some of the damages recovered in the action against the insured were
outside the coverage of the policy.” (Hogan, supra, 3 Cal.3d at p. 564.)
Secondary Sources
2 Witkin, Summary of California Law (10th ed. 2010) Insurance, § 269
2California Insurance Law and Practice, Ch. 13, Claims Handling and the Duty of
Good Faith, § 13.08 (Matthew Bender)
26 California Forms of Pleading and Practice, Ch. 308, Insurance, § 308.123
(Matthew Bender)
12 California Points and Authorities, Ch. 120, Insurance, § 120.51 (Matthew
Bender)
2352–2359. Reserved for Future Use
INSURANCE LITIGATION CACI No. 2351
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