Auto insurance policies typically provide for insureds to be reimbursed for expenses they incur in assisting in the defense of a lawsuit against the insured that is being defended by the insurer. Some putative class actions have been brought on the theory that insurers fail to proactively determine whether these expenses are incurred and pay them even where insureds have not requested reimbursement. (See my October 11, 2011 post for more on this.) The Pennsylvania Superior Court (that state’s intermediate appellate court) recently held, in a 2-1 decision, that under the language of Erie Insurance Exchange’s policy, the plaintiff could not recover without making a request for reimbursement.
In Albert v. Erie Insurance Exchange, 2013 PA Super 59, 2013 Pa. Super. LEXIS 146 (Pa. Super. Ct. Mar. 20, 2013), the auto policy provided that the insurer would pay for “reasonable expenses [of] anyone we protect may incur at our request to help us investigate or defend a claim or suit. This includes up to $100 a day for actual loss of earnings.” Id. at *2. The trial court dismissed the complaint (on the equivalent of a motion to dismiss) based on the plaintiff’s failure to allege that she made any request for reimbursement under this provision. It appears that the plaintiff did not want to make that allegation because it would be detrimental to pursuit of a class action (perhaps on the assumption that many insureds do not request reimbursement under this coverage, and those who do request it likely receive it). The Pennsylvania Superior Court majority agreed with the trial court’s reasoning that the insurance policy did not require Erie to advise the plaintiff of the terms of the policy, which the plaintiff had read and signed. The court also relied upon a policy provision requiring that the insured notify the insurer or insurance agent “when a loss happens,” concluding that this provision required an insured to make a claim for the reimbursement of litigation expenses. Id. at *8. The court cited with approval the Ohio Supreme Court’s decision in a similar case, Kincaid v. Erie Ins. Co., 944 N.E.2d 207 (Ohio 2010). The court also rejected arguments that an obligation to advise the insured about the availability of this coverage was created when Erie hired counsel to defend the insured. The court found no basis for bad faith liability where there was no duty to inform the insured about the policy provision, and no duty to provide reimbursement without a request. Id. at *17.
Judge Colville dissented with respect to the breach of contract and declaratory judgment claims. The dissent would have held that the policy was silent with respect to whether a request for reimbursement is required. To the extent that the policy required the insured to provide notice to the insurer “[w]hen there is an accident or loss,” Judge Colville concluded that a claim for reimbursement of litigation expenses would not be an “accident” or a “loss,” and thus this policy provision was inapplicable.
Although appellate courts in both Ohio and Pennsylvania have now ruled in favor of insurers on this issue, insurers may wish to continue to monitor this issue and review their own policy language that governs this type of claim. There is of course no assurance that a court in some other jurisdiction would not agree with the dissent in this case. It also might be good business to pay this coverage proactively – it may create goodwill and not cost very much to pay $100 to those insureds who actually testify at a deposition or trial.