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A federal appeals court largely upheld a lower court ruling in favor of Allied World Assurance Co. Holdings Ltd. Wednesday in litigation with a claims-handling unit of Brown & Brown Inc. in a case involving QBE Insurance Group.
Allied World’s unit, Allied World Surplus Lines Insurance Co., then known as Darwin Select Insurance Co., issued a claims professional liability policy to Brown & Brown’s unit, American Claims Management Inc., based in Carlsbad, California, in October 2010. , according to the complaint in American Claims Management, Inc. v. Allied World Surplus Lines Insurance Co. (F/K/A Darwin Select Insurance Co.)which was filed in the US District Court in San Diego in 2018.
ACM functioned as a third-party administrator for QBE, handling auto policies, among other lines. A QBE policyholder was sued after a car accident that injured family members, and ACM handled the claim.
The policyholder was jailed for his part in causing the accident, and in June 2015, the family won a $22 million jury verdict in that case. QBE eventually settled with the family for $15 million, then filed an arbitration claim against ACM regarding its handling of the case, seeking reimbursement of the amount it had paid.
In July 2017, the arbitration panel awarded QBE its entire request for damages: a total of $18.5 million. In January 2018, Allied World partially funded the arbitration award, but about $4.9 million went unfunded, and $1.1 million in fees and expenses went unreimbursed, according to the lawsuit.
The district court ruled in Allied World’s favor and was largely affirmed by a three-judge appeals court panel. The district court correctly concluded that the policy’s exclusion of claims services precluded coverage, according to the appeals court’s ruling.
This exclusion provided coverage was not available on issues related to lack of good faith or fair dealing if there was an “admission, final adjudication, or determination” of a bad faith allegation against ACM, it states.
The ruling says that a discovery order issued by a state court in the case “constitutes a ‘finding’ of a bad faith charge against ACM,” and that Allied World is entitled to reimbursement of the $4.4 million it paid to ACM under a reservation of rights. in relation to the arbitration award.
The appeals court also said that Allied World did not breach its duty to defend ACM and that the lower court “correctly concluded that Allied World had complied with its duty to retain competent counsel.”
The panel reversed the district court’s decision that the dishonest law exclusion barred coverage, stating that there was no admission that ACM had engaged “in any dishonest or fraudulent act or omission.”
Because of this, Allied is not entitled to reimbursement of $605,569 in defense costs, the decision says.
Lawyers in the case did not comment or did not respond to a request for comment.