Policyholder Entitled to Attorneys' Fees Incurred in Defending Coverage Action by Excess Insurer
In RLI Insurance Company v. Smiedala, 2010 NY Slip Op 06836 (Oct. 1, 2010) a New York appellate court recently applied a familiar rule in holding that a policyholder who prevails in a declaratory judgment action filed against it by its insurer is entitled to recover attorneys’ fees and costs incurred in defending that action. Citing well-established precedent, the court reasoned that “an insurer’s responsibility to defend [or to reimburse defense expenses] reaches the defense of any actions arising out of the occurrence … including those incurred in defending against an insurer seeking to avoid coverage for a particular claim.” In doing so, the court rejected the novel claim that attorneys’ fees incurred in defending the coverage action were not recoverable because the policy afforded excess insurance that had not yet been triggered in the underlying action. Although the insurer’s excess coverage, and, therefore, its duty to defend the underlying action, had not yet been triggered, the court reasoned that attorneys’ fees incurred in defending the coverage action were recoverable because the policyholder was cast in a defensive posture by the insurer’s efforts to free itself from its policy obligations.
