An Insurer That Breaches Its Obligation to Reimburse Its Insured for Defense Fees and Costs May Be Precluded from Relitigating the Issues of Liability and Damages in the Underlying Action

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Executive Risk Indemnity, Inc. (“Executive Risk”) issued a professional liability policy to Stars Holding Company, Inc. (“Stars”). In the policy, Executive Risk expressly disclaimed a duty to defend. Instead, Executive Risk was required to reimburse its insured for defense fees and costs subject to a $250,000 retention and a $10 million limit of liability. The matter of apparent first impression was whether Executive Risk’s breach of its duty to reimburse its insured for attorney’s fees and costs bound the carrier on the issues of (1) the insured’s liability and (2) damages. The California Court of Appeal, First Appellate District, has answered the question affirmatively.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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