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Wash. SC: Insurers can't recoup defense costs paid while defending under reservation of rights

By Jessica M. Karmasek | Apr 12, 2013

OLYMPIA, Wash. (Legal Newsline) -- Last month, the Washington Supreme Court held that an insurance company cannot recoup defense costs paid or incurred under a reservation of rights defense, even when a court rules that the carrier does not have a duty to defend.

"When an insurer undertakes to defend its insured under a reservation of rights, it must pay defense costs until it obtains a judicial declaration that it owes no duty to defend," Justice Debra Stephens wrote for the 5-4 majority. "It cannot unilaterally disavow its financial responsibility in a reservation of rights letter."

Stephens continued in the 21-page opinion, "An insurer who owes a duty to defend may nonetheless be excused from its obligation to the extent it demonstrates actual and substantial prejudice flowing from its insured's untimely tender of the claim."

The court's March 7 decision affirms a trial court's order requiring National Surety Corporation to reimburse Immunex Corporation for reasonable defense fees incurred before the determination of no coverage and denying summary judgment on a late tender question.

National Surety insured Immunex under excess and umbrella liability policies between 1998 and 2002.

In August 2001, Immunex notified National Surety that it was the subject of state and federal government investigations into its wholesale drug pricing.

Immunex represented that it could not release information because of a confidentiality agreement. National Surety acknowledged receiving this notice and requested copies of any complaints that might emerge.

Beginning no later than 2001, a string of complaints was filed against Immunex.

These complaints alleged that Immunex reported inflated average wholesale prices of its drugs that enabled providers of drugs -- such as physicians, hospitals and pharmacies -- to receive reimbursements from Medicare and other third-party payors in amounts greater than what they actually paid.

In all, at least 23 lawsuits related to pricing manipulation were filed against Immunex and other drug manufacturers under theories including breach of contract, civil conspiracy, fraud and violations of state unfair trade and protection statutes and the federal Racketeer Influenced and Corrupt Organizations, or RICO, Act.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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