DEFENSE COSTS INCURRED BY INSURED BEFORE REPORTING CLAIM HELD NOT COVERED

270_C095

DEFENSE COSTS INCURRED BY INSURED BEFORE REPORTING CLAIM HELD NOT COVERED

A manufacturing company brought a lawsuit against another company, alleging that the latter attempted to trade on the goodwill it had developed. The two company names were similar. The plaintiff had sent a letter to the defendant two weeks earlier insisting that the use of its corporate name and stock market symbol end immediately.

The defendant corporation referred the matter to its attorneys promptly, who handled the initial legal procedures and provided counsel. It gave notice to its liability insurer of the lawsuit more than two months after it was commenced. The insurer acknowledged coverage and agreed to pay defense costs developed from the date it received the notice. But it declined to reimburse the insured for legal expense incurred before that date.

The insured's attorneys refused to provide the product of their research and work to the insurer's counsel until the insurer agreed to pay for their services. The lawsuit was settled less than a month later, and the insurer funded the costs of the settlement. The insured sued the insurer for reimbursement of all attorney fees. Arguing that it was not obligated to pay legal fees incurred prior to notice of the underlying lawsuit, the insurer moved for summary judgment. Judgment in its favor was appealed by the insured.

The appeal court noted that the policy provided coverage for "all expenses we incur" and "all reasonable expenses that any protected person incurs at our request." Subject to these pertinent conditions, the contract required the insurer to defend "any claim or suit for covered injury or damage made against any protected person," but stated that it had "no duty to perform other acts or services."

The court concluded that "pre-tender" costs, accordingly, were not within the scope of coverage. The judgment of the trial court was affirmed in favor of the insurer and against the insured.

(CELLEX BIOSCIENCES, INCORPORATED, Appellant v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Respondent. Minnesota Court of Appeals. No. C3-95-739. September 26, 1995. CCH 1996 Fire and Casualty Cases, Paragraph 5514.)