Transportation Insurance Company, Continental Insurance Company, Casualty Company granted partial summary judgment by US District Court

Transp. Ins. Co. v. Motorists Mut. Ins. Co., No. 3:14-CV-01438, 2017 U.S. Dist. LEXIS 2486 (M.D. Pa. Jan. 9, 2017)
31 May 2017

Transportation Insurance Company, Continental Insurance Company, and Continental Casualty Company (collectively ‘Transportation’), represented by Chris Carroll, Kristin Gallagher, Brad Mortensen and Elizabeth Sutton of CMK, was recently granted partial summary judgment by the United States District Court for the Middle District of Pennsylvania in a ruling that Transportation was entitled to full reimbursement of defense fees expended due to the failure of a primary insurer to properly defend its insured.

In connection with an underlying action for personal injury, Transportation, provided a defense for AAA Mid-Atlantic, Inc. as its excess insurer after the company’s primary insurer, Motorists Mutual Insurance Company (‘Motorists’), refused to defend AAA Mid-Atlantic. Subsequently, Transportation filed an action for declaratory judgment against Motorists. In an earlier motion for partial summary judgment, the Middle District Court affirmed that Motorists was the primary insurer and found it had breached its duty to defend the insured. Transportation made a second motion for partial summary judgment seeking the full reimbursement of defense fees and costs it expended in providing a defense after Motorists failed to defend the mutual insured. Motorists challenged the reasonableness and necessity of defense costs incurred by Transportation, arguing that it had the right to conduct discovery concerning the reasonableness of costs expended.

In its decision, the Middle District Court, applying Pennsylvania law, initially found that excess insurers have a cause of action against primary insurers for wrongful failure to defend and that the measure of recovery for such action is the attorneys’ fees and costs incurred by the excess insurer in defending the underlying suit. In noting that based on principles of subrogation, a defending excess insurer essentially steps into the shoes of the wronged insured, the Court found that because Transportation would not have incurred defense costs if Motorists had performed their contractual duty to defend, Motorists had no right to conduct discovery on the reasonableness of costs and fees incurred by Transportation and was liable to Transportation for such costs. Additionally, the Court rejected Motorists’ argument that Transportation had a duty to mitigate damages, finding Transportation had no duty as the injured party and that Motorists effectively waived its opportunity to reduce its damages by failing to defend.