The Insurer's Right To Recoupment of Defense Costs

The question of defense cost recoupment may warrant clarification by the Court of Appeals. In the meantime, the Second Department has spoken as clearly as possible against such attempts at recoupment when it is not specifically provided for in the policy, but, rather, only in a reservation of rights. In this edition of his Insurance Law column, Jonathan A. Dachs discusses the Second Department decision, 'American Western Home Ins. Co. v. Gjonaj Realty & Management Co.'

March 16, 2021 at 12:45 PM

17 minute read

By Jonathan A. Dachs

As noted by well-respected commentators, Hon. Barry Ostrager and Thomas R. Newman, in their excellent Handbook on Insurance Coverage Disputes (Aspen Publishers), at §5.07, "Authority is divided as to whether an insurer may reserve its right to recover defense costs in the event it is subsequently determined that there is no coverage." Indeed, independent research on this issue has revealed a significant number of decisions—mostly from the federal courts acting in their role of interpreters of New York state law and predictors of how the New York state courts would rule—with apparently conflicting and fact-based results. My wish, therefore, for a thorough and detailed analysis of the issue by a New York state court recently has been granted with the Appellate Division, Second Department's Dec. 30, 2020 decision in American Western Home Ins. Co. v. Gjonaj Realty & Management Co., 192 A.D.3d 28 (2d Dep't 2020).