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Chemical Equipment Labs, Inc. (“CEL”) sued Travelers Property Casualty Company of America (“Travelers”) seeking insurance coverage pursuant to two policies. Travelers’ crossclaimed for declaratory judgment, contending there was no coverage under either policy, and seeking reimbursement for costs incurred while defending Plaintiff in a prior arbitration proceeding regarding the cargo at issue. In Chemical Equipment Labs, Inc. v. Travelers Property Casualty Company Of America, Civil Action No. 19-3441, United States District Court, E.D. Pennsylvania (April 1, 2022) the USDC dealt with the claims of breach of contract and bad faith.
Statement of Undisputed Facts
The SMA panel held Plaintiff breached its contractual obligations and awarded Pioneer a total of $855,918.88: $598,721 for lost profit, $127,000 for attorney’s fees, $96,197 for interest, and $34,000 for arbitral fees.
After the award Travelers notified Plaintiff it was declining coverage under the Liability Policy for all damages set forth in the final award.
Discussion
Travelers asserted there is no coverage because: Plaintiff failed to pay the premiums; Plaintiff did not have an insurable interest; there was no “physical loss or damage,” as required under the policy; and,
coverage was excluded under the F. C. & S. Clause. The Court found Plaintiff failed to pay the premium on the cargo, Defendant’s remaining three arguments are rendered moot.
Because the Court determined Plaintiff is not entitled to insurance coverage as a matter of law, Plaintiff’s claim for bad faith necessarily fails.
The USDC concluded that an insurer may not obtain reimbursement of defense costs for a claim for which a court later determines there was no duty to defend, even where the insurer attempted to claim a right to reimbursement in a series of reservation of rights letters.
While the Court subsequently found that Defendant had no duty to defend under the Liability Policy, the absence of an express reimbursement provision precludes Defendant from recovering those costs.
ZALMA OPINION
The case should have ended with the decision that premium was not paid. The lack of a condition in the policy that if there is no coverage defense costs advanced must be reimbursed the claim for return of defense costs failed. Travelers should amend its contract wordings in the future to include the right to return of defense costs advanced and found, later, to not be owed.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, is available at http://www.zalma.com and [email protected].
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