Insurer Permitted To Pursue Breach of Contract Claim Against Insured Based On The Insured’s Failure To Accept Appointed Defense Counsel In An Underlying Action
Travelers Indemnity Co. v. Centex Homes, 2014 U.S. Dist. LEXIS 84421 (E.D. Cal. June 18, 2014)
In Travelers, the district court held that an insurer could maintain a cause of action for breach of contract against an insured based on an alleged breach of the cooperation clause.
In Travelers, the insured refused the carrier’s request to allow the carrier’s selected counsel to handle the defense of a claim. As a part of a series of coverage actions, the insurer filed a complaint against the insured claiming the insured’s refusal to allow the insurer’s selected counsel to defend the case was a breach of the cooperation clause in the policy. The insured moved to dismiss the action, and the court denied the motion.
In reaching its holding the court ruled that, although insurance companies typically rely on the cooperation clause as an affirmative defense to coverage, the clause was a valid term of the insurance policy and there was no reason the insurer could not rely on the clause to pursue an action for breach of the policy. The court also rejected the argument that an action for beach of the cooperation clause was premature because the insurer could only show it was damaged if the underlying case resulted in payment by the insurer. In responding to that argument, the court found that the carrier’s claim did not necessarily hinge on the outcome of the underlying case and noted that there was no dispute that the insured refused to accept defense counsel and the insurer alleged that it had been prejudiced by the insured’s actions.
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