No Recoupment Under New York Law

Shockingly, New York to date had not definitely addressed whether an insurer, which did not reserve its right to recoup fees expended in defending, settling, or indemnifying an insured, could do so where it established no potential coverage.

In General Star Indem. Co. v. Driven Sports, Inc., No 14-CV-3579 (JFB)(ARL), 2015 U.S. Dist. LEXIS 7966 (E.D.N.Y. Jan. 23, 2015), Judge Joseph F. Bianco predicted that the New York court of appeals would follow the emerging trend represented by decisions in diverse state Supreme Court decisions in Illinois, Texas, Pennsylvania, Washington and other earlier decisions in refusing to allow recoupment.  An improper act under New York law, as well as that of the majority of jurisdictions, emphasizing logic of this position, the court stated at id. *53:

[T]he Court holds that defendant was not unjustly enriched by plaintiff's coverage of legal representation. Under these circumstances, the Court finds that the New York Court of Appeals would find recoupment to be an inappropriate remedy.

As earlier decisions have concluded, any contrary rule would re-write the policy for the insurer’s benefit.