On and Off the Buss: Insurer Recoupment of Defense Costs Today

• Pages: 361-391
• Date: 01 January 2025
• Published date: 01 January 2025
• Author: Douglas R. Richmond
• Subject Matter: Derecho Público y Administrativo

361

Senior Vice President, Lockton Companies, LLC. JD, University of Kansas. He may be

reached at doug.richmond@lockton.com. Opinions expressed here are solely those of the

author.

ON AND OFF THE BUSS: INSURER RECOUPMENT

OFDEFENSE COSTS TODAY

Douglas R. Richmond

I. Introduction .................................................................................362

II. Recent Cases Permitting Insurers to Recoup Defense Costs .....365

A. The Nevada Supreme Court Upholds an Insurer’s Right

to Reimbursement in Nautilus ..............................................365

1. Background .......................................................................366

2. The Nevada Supreme Court’s Analysis ...........................367

B. The Sixth Circuit Reaffirms an Insurer’s Right to Recoup

Its Defense Costs ..................................................................370

C. Summary ...............................................................................374

III. Recent Cases Rejecting Insurers’ Right to Recoup

Defense Costs ..............................................................................374

A. The Eleventh Circuit Predicts Georgia Law ....................... 375

B. The Hawai‘i Supreme Court Rejects Recoupment ............. 379

C. The First Circuit Rejects Recoupment Under

Massachusetts Law ................................................................381

IV. Observations and Analysis ...........................................................384

A. A Policy Provision Creating a Right to Reimbursement

Should Be Enforced ..............................................................384

B. Cases with No Duty to Defend in the First Place .............. 387

C. Reimbursement in Mixed Actions ........................................ 388

D. Reserving the Insurer’s Right to Recoup Defense Costs .....390

V. Conclusion ................................................................................... 391

Tort Trial & Insurance Practice Law Journal, Winter 2025 (59:3)362

I. INT RODUCTIO N

In 1997, the California Supreme Court decided Buss v. Superior Court.1 In

Buss, the court concluded that a liability insurer that defended a mixed

action—that is, a case in which some of the claims are potentially covered

and others are not—could seek reimbursement from the insured for the

defense costs associated with the claims that were not even potentially cov-

ered.2 As the court explained its reasoning:

Under the policy, the insurer does not have a duty to defend the insured as to

the claims that are not even potentially covered. With regard to defense costs

for these claims, the insurer has not been paid premiums by the insured. It did

not bargain to bear these costs. To attempt to shift them would not upset the

arrangement. . . . The insurer therefore has a right of reimbursement that is

implied in law as quasi-contractual, whether or not it has one that is implied

in fact in the policy as contractual.3

Buss was not the first case to hold that an insurance company was entitled

to recoup its defense costs associated with the defense of uncovered claims

or causes of action.4 The case did, however, draw significant attention and

interest in the insurance industry and among the lawyers representing

insurers and policyholders alike.

In 2005, the California Supreme Court returned to an insurer’s right

to reimbursement in Scottsdale Insurance Co. v. MV Transportation.5 Unlike

Buss, which involved a mixed action, no claims in the underlying action in

Scottsdale were covered.6 In again recognizing the insurer’s right to reim-

bursement, the Scottsdale court explained that “the duty to defend, and the

extent of that duty, are rooted in basic contract principles. The insured

pays for, and can reasonably expect, a defense against third-party claims

that are potentially covered by its policy, but no more.”7 In contrast, the

insurer “does not bargain to assume the cost of defense of claims that are

not even potentially covered.”8 Shifting the cost of defending uncovered

claims to the insured in that instance “does not upset the contractual

arrangement” between the insurer and the insured.9 Thus, an insurer is

1. 939 P.2d 766 (Cal. 1997).

2. Id.at 776.

3. Id. (citations and footnote omitted).

4. Jeffrey W. Stempel, A Deeper Dive into Nautilus: Differentiating Insurer Efforts to Recover

Defense Costs and Assessing Recoupment in the Wake of the ALI Restatement, 57 T T & I.

P. L.J. 57, 61 (2022).

5. 115 P.3d 460 (Cal. 2005).

6. See id.at 465 (discussing the Court of Appeal’s decision in the case).

7. Id.at 469.

8. Id.

9. Id.