Beware! D&O Insurance Companies May Improperly Attempt To Recoup Defense Costs Paid To Policyholders

Historically, attempts by insurance companies to recoup defense costs or other amounts already paid to their policyholders have been rare. Much has changed. In the last few years, it has become increasingly common for insurance companies to assert that any payments (usually payments for the policyholder’s legal bills) they make on a policyholder’s behalf are “subject”to the insurance company’s “right” to seek the money back if it is ultimately demonstrated that there is no coverage for the claim. Such assertions are made now in a number of insurance contexts including claims made under: errors & omissions insurance;general liability insurance; and fiduciary liability insurance. Nowhere, however, is this issue more prevalent than in the context of directors’ and officers' (D&O) insurance claims. Many D&O insurance companies now routinely raise arguments about their purported “rights” to reimbursement of amounts paid on an insurance claim as a method of extracting concessions from policyholders on disputed insurance claims or, on occasion, in an effort to avoid payment for a claim altogether.