Reimbursement of Defense Costs at Panel Rate Does Not Constitute Irreparable Harm for Preliminary Injunctive Relief

The United States District Court for the Southern District of New York has held that an insurer’s reimbursement of only a portion of the full amount of defense costs sought by an insured under a duty to advance policy does not constitute irreparable harm for purposes of preliminary injunctive relief. Stuckey v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2015 WL 5547441 (S.D.N.Y. Sept. 17, 2015). The court also found that the insured was not entitled to injunctive relief allowing him unlimited settlement authority because the insurance policy provided that the insurer had the right to associate with the insured in settlement discussions and to consent to settlements.

In the underlying case, an employee of a university brought causes of action for sexual harassment and assault and battery against her supervisor, a former dean, as well as against the university. The university tendered a notice of claim to its insurer under a Manuscript NFP Individual and Organization Insurance Policy. The insurer reserved its rights to deny coverage. The individual insured, unaware of the policy and the possibility of coverage, retained his own defense counsel and paid the cost of defense for over three years until the insurer contacted the individual insured’s defense counsel seeking copies of invoices. The insurer, after an invoice review, concluded that several categories of fees were not covered, that the individual insured was being indemnified by the university, and that he was therefore not entitled to immediate reimbursement of defense costs.

The individual insured sought a preliminary injunction against the insurer to have all of his prior and future defense costs reimbursed and either to force the insurer to start settlement negotiations with the claimant in the underlying sexual harassment case or to allow the individual insured to engage in settlement discussions on his own. After the individual insured brought the coverage litigation, the insurer agreed to reimburse a portion of past defense costs and to advance defense costs going forward, but only up to the hourly billing rate for panel defense counsel. The insurer also took the position that other amounts incurred by the insured’s defense counsel were not reimbursable.

The court denied the plaintiff’s motion for a preliminary injunction. The court acknowledged that courts applying New York law have held that irreparable harm could result from a complete failure to advance defense costs. The court held, however, that there was no irreparable harm under the circumstances because the plaintiff was already receiving partial payment. The court also found that the individual insured was not entitled to injunctive relief giving him unlimited settlement authority under the terms of the university’s insurance policy, which expressly allowed the insurer to associate with the insured in settlement discussions and to consent to any ultimate settlement.

Wiley Executive Summary

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