A federal court in North Carolina held that a primary insurer that wrongfully fails to defend its insured cannot complain of the reasonableness of defense costs incurred when that insurer is forced to participate in the insured’s defense. Westfield Ins. Co. v. Weaver Cooke Constr., LLC, 2019 U.S. Dist. LEXIS 62208 (E.D. N.C. Apr. 11, 2019).
Two insurers who issued policies to subcontractors refused to defend a general contractor that qualified as an additional insured. The general contractor’s excess insurers then sued the subcontractors’ insurers for reimbursement of the excess insurers’ portion of incurred defense costs. The subcontractors’ insurers argued that they should not be liable for any portion of incurred defense costs because the general contractor’s selected attorney charged a higher rate than the subcontractors’ insurers wanted to pay. The court rejected this argument, noting that if an insurer that refuses to defend an insured could avoid reimbursement of incurred defense costs by disagreeing with the rate of the selected counsel, an insurer would be encouraged to ignore its duty to defend. The court held that an insurer cannot complain of the amount of defense costs when that insurer fails to defend its insured.
