Scottsdale Insurance v. MV Transportation

*649 Opinion

May a commercial general liability (CGL) insurer obtain reimbursement of its expenses of defending its insured against a third party lawsuit, when it is ultimately determined, as a matter of law, that the policy never afforded any potential for coverage, and that a duty to defend thus never arose? Where, as here, the insurer properly reserved its right to such reimbursement, we conclude that the answer is “yes.”

Defendant MV Transportation (MV) was sued by a third party (third party action). Plaintiff Scottsdale Insurance Company (Scottsdale) advanced the costs of defending MV, its insured, in the third party action, but did so under a reservation of its right, if any, to recoup such costs. While the third party action was pending, Scottsdale sued MV (the insurance action), seeking a declaration, inter alia, that because its policies afforded no potential coverage of the third party action, it owed no defense, and was therefore entitled to reimbursement of its defense costs.

The third party action ended in settlement. Thereafter, in the insurance action, the superior court found a potential for coverage, but the Court of Appeal ultimately disagreed. For reasons of…