Section 9.30 Defense Costs

• Library: Insurance Practice 2015

At least four federal courts of appeal have held that insurers have an obligation to make contemporaneous payments of expenses for the defense of covered claims. McCuen v. Am. Cas. Co. of Reading, Pa., 946 F.2d 1401, 1406–07 (8 ^th Cir. 1991); Gon v. First State Ins. Co., 871 F.2d 863, 868 (9 ^th Cir. 1989); Little v. MGIC Indem. Corp., 836 F.2d 789, 794–96 (3 ^rd Cir. 1987); Okada v. MGIC Indem. Corp., 823 F.2d 276, 281–82 (9 ^th Cir. 1986). The district court decision affirmed by the Third Circuit in Little held that a policy not requiring advancement would be unconscionable. Little v. MGIC Indem. Corp., 649 F. Supp. 1460, 1469 (W.D. Pa. 1986).

Other courts have disagreed, reasoning that the determination of whether a claim is covered cannot be determined until liability in the underlying action is resolved. E.g., Bank of Commerce & Trust Co. v. Nat’l Union Fire Ins. Co. of...