Legal Fee Insurance Coverage: Diving into Post-Settlement Litigation
In 360Heros, Inc. v. Mainstreet America Assurance Co., the court addressed a significant issue in legal fee insurance coverage—whether an insurer is obligated to cover attorneys’ fees incurred after funding a settlement.
The panel reversed what it deemed an “erroneous” ruling and determined that 360Heros, Inc. was entitled to recover legal fees for continued litigation necessary to resolve business issues beyond the initial settlement.
Key Legal Issues in the 360Heros Case
Following the resolution of a trademark infringement dispute, additional months of litigation were required to address business co-existence concerns in the underlying action. Although the insurer, Mainstreet America Assurance Co. (MSA), funded the initial settlement, it did not compensate defense counsel for the legal work necessary to finalize outstanding business matters. The court ruled that these post-settlement legal fees were recoverable.
The decision reinforced that under New York law, when an insured is represented by counsel of its own choosing, the insurer’s duty to defend extends to covering reasonable legal fees and costs (Id. at 558). This interpretation prevents insurers from limiting their financial obligations strictly to the settlement itself while leaving policyholders burdened with additional legal expenses necessary for complete dispute resolution.
Additionally, the court noted that MSA could not mandate the dismissal of a compulsory counterclaim for patent infringement, meaning that litigation continued beyond the settlement.
Implications of the Court’s Decision on Legal Fee Insurance Coverage
The ruling in 360Heros provides critical guidance for policyholders involved in legal fee insurance coverage disputes:
Post-Settlement Costs May Be Covered – Insurers may be responsible for legal fees incurred beyond a funded settlement if further litigation is necessary.
New York Law Supports Insureds’ Legal Rights – When an insured selects independent legal counsel, the duty to defend includes covering reasonable attorneys’ fees.
Ongoing Litigation Considerations – Even after settlement, insurers cannot always compel the dismissal of related legal claims, meaning additional coverage obligations may arise.
Notable Takeaways for Policyholders and Insurers
For policyholders, this case highlights the importance of ensuring their legal costs are fully covered when settlements do not entirely resolve disputes. Working with experienced legal counsel can help businesses secure their rights and ensure fair treatment under their policies.
For insurers, the decision underscores the necessity of clearly defining defense coverage obligations. Limiting financial responsibility to initial settlement payments may not be sufficient if additional litigation is required to resolve the broader business dispute.
Final Thoughts on Legal Fee Insurance Coverage
The 360Heros decision sheds light on the complexities of legal fee insurance coverage in post-settlement disputes. Businesses must carefully navigate their policies to ensure full protection, while insurers must be aware of their extended obligations under applicable law.
If your business is facing an insurance coverage dispute or requires legal support for post-settlement litigation, contact Gauntlett Law to ensure you receive the coverage and defense you deserve.