Stewart Smith recently secured a ruling from the North Carolina Superior Court that millions of dollars in defense costs are paid within- and not in addition to- policy limits. Everest Reinsurance Company (“Everest”), f/k/a Prudential Reinsurance Company, issued an excess policy in 1978 obligating it to pay the Ultimate Net Loss which is defined to include defense costs. The policy, however, includes a separate defense provision establishing when a duty to defend exists. The provision also notes that the insurer can elect to voluntarily provide a defense even when it has no duty, but must do so at its “own expense.”
Stewart Smith, on behalf of Everest, moved for summary judgment and argued that under the plain language of the policy defense costs incurred when fulfilling a duty to defend are paid as part of Ultimate Net Loss, i.e., within the policy’s limits. The insured claimed that the Ultimate Net Loss definition did not apply to the duty to defend provision which was therefore silent on the issue and must be construed in its favor. Everest pressed the court to enforce the policy as written, which plainly addressed the treatment of defense costs as being paid within limits, including an express exception only when the insurer elected its right to voluntarily provide a defense. Everest stressed that the insured was seeking to inject terms into the policy that did not exist and that were logically incompatible with those that did, running afoul of clear-cut rules of policy interpretation.
The court agreed with Everest that defense costs are paid within limits, finding that the plain language of the policy “and an interpretation of the terms in conjunction with one another require such a conclusion.” The case is SPX Corporation v. Arrowood Indem. Co., et al. Everest is represented by Michael J. Smith and Bryan W. Petrilla.