New York No Recoupment: Understanding Insurer Obligations and Policy Terms
The issue of New York no recoupment in insurance law has remained largely unsettled—until now. In General Star Indemnity Co. v. Driven Sports, Inc., No. 14-CV-3579 (JFB)(ARL), 2015 U.S. Dist. LEXIS 7966 (E.D.N.Y. Jan. 23, 2015), the court examined whether an insurer could recoup fees expended in defending, settling, or indemnifying an insured when no potential coverage existed, despite failing to reserve its right to seek recoupment.
The decision reinforced the trend in several state Supreme Court rulings, including those in Illinois, Texas, Pennsylvania, and Washington, rejecting an insurer’s attempt to recoup such costs.
Key Issues in the General Star Indemnity Co Case
Judge Joseph F. Bianco, predicting how the New York Court of Appeals would rule, aligned with the majority approach by holding that recoupment was not permissible. The court emphasized that insurers cannot retroactively claim defense costs when they have not explicitly reserved this right.
The ruling stated (Id. at 53):
“The 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.”
Further, the court reasoned that allowing insurers to seek recoupment in such cases would effectively rewrite policy terms to benefit insurers at the expense of insured parties. This rationale aligns with prior rulings rejecting retroactive reimbursement where policies do not explicitly provide for it.
Implications of the Court’s Decision on No Recoupment in New York
This decision has significant consequences for policyholders and insurers alike, particularly in disputes over defense costs and indemnification:
No Recoupment Without Explicit Policy Terms – Insurers must explicitly state in their policies or reservation of rights letters that they intend to seek recoupment; otherwise, they forfeit that right.
Protecting Policyholders' Rights – Courts continue to prioritize policyholder protections against post-litigation attempts by insurers to recover costs.
Consistency With Majority Rule – The ruling aligns New York with other jurisdictions that prevent insurers from shifting defense expenses back onto insured parties.
Key Takeaways for Policyholders and Insurers
For policyholders, this ruling strengthens defense cost protections by ensuring that insurers cannot seek reimbursement unless explicitly permitted by policy language. Businesses should review their liability insurance policies to confirm whether recoupment clauses exist and ensure they are adequately protected.
For insurers, the case highlights the necessity of clearly defining policy terms and reserving rights at the outset of litigation. Failure to include explicit recoupment language may result in courts barring recovery efforts.
Final Thoughts on No Recoupment in New York
The General Star Indemnity Co. v. Driven Sports, Inc. case clarifies the New York no recoupment standard, reinforcing that insurers cannot recover defense costs unless their policies explicitly allow it. This ruling aligns with national trends favoring policyholder protections and ensures that insurers cannot introduce post-settlement financial burdens.
If your business is involved in an insurance coverage dispute or requires guidance on defense cost obligations, contact Gauntlett Law for experienced legal support in navigating New York insurance law.