Ninth Circuit Weighs in on Excess Insurer’s Duty to Defend

National Union Fire Insurance Company of Pittsburgh, PA v. Seagate Technology, Inc.,  (9th Cir., January 20, 2012, No. 10-17194)

 In today’s insurance litigation environment, United States Courts of Appeals are rarely required to weigh in on such fundamental insurance coverage issues as the duty to defend.  In a rare exception, the Ninth Circuit clarified an excess insurer’s obligations in that regard.

In the underlying case, the insured was sued in connection with its “silent” hard drive.  The complaint alleged misappropriation of trade secrets and patent infringement.  The underlying complaint alleged that the insured “falsely claims that its technology is equivalent to [plaintiff’s] technology.”  Initially, the insured’s primary carriers refused to defend, asserting the complaint did not allege a covered cause of action.  The district court called the case “close” regarding whether the primary insurers had a duty to defend.  At first, it held the insurers did not have a duty to defend, but later reversed that holding based upon the possible disparagement claim.  It then terminated the duty to defend based upon “facts alleged to have happened after the complaint was filed.”  

The insured claimed that because the primary insurer’s duty to defend was terminated, its excess carrier’s duty was triggered.  The district court accepted that argument, but the Ninth Circuit reversed.  Since the primary insurer’s policies were not exhausted, even though the claim exceeded the underlying policy limits and the primary carrier refused to defend, the excess carrier’s defense obligation is not triggered. 

Further, the court held that while the underlying plaintiff’s statements prevented the primary insurers from intervening in the underlying action and defending, the complaint still potentially contained a disparagement claim that had not been resolved.  Thus, the primary insurers had a duty to defend. 

For a copy of this decision click here

Sarah Delaney and Richard Cohen

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