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Trinity Universal Insurance Co. v. Employers Mutual Casualty Co.

The district court erred in applying the rule of Mid-Continent Insurance Co. v. Liberty Mutual Insurance to prohibit plaintiffs from recovering defense costs. Mid-Continent addressed the question of whether one co-insurer has a right of contribution or subrogation against a non-paying co-insurer to recover money paid to indemnify a common insured for a loss, but it left open the separate question of whether a co-insurer that pays more than its share of defense costs may recover such costs from a co-insurer who violates its duty to defend a common insured. 5th U.S. Circuit Court of Appeals, No. 08-20532, 01-04-2010

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Published opinion

Before JOLLY, DeMOSS, and PRADO, Circuit Judges.

This appeal presents an issue of first impression. In Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co., 236 S.W.3d 765 (Tex. 2007), the Texas Supreme Court held that if relevant insurance policies to a dispute contain pro rata or “other insurance” clauses, and a co-primary insurer pays more than its pro rata portion of a settlement to indemnify an insured and another co-primary insurer underpays, then the overpaying insurer cannot seek reimbursement from the underpaying insurer under theories of contribution or subrogation. In this appeal, we must decide whether the holding in Mid- Continent extends to an insurer’s duty to defend its insured. If Mid-Continent does not apply, then we must decide whether insurance companies that pay defense costs may recoup a portion of those costs from a co-insurer that fails to defend a common insured.

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