Insurer’s Recoupment of Defense Expenses Includes Pre-Judgment Interest

A federal district court, applying Virginia law, has held that an insurer entitled to recoup defense expenses also was entitled to pre-judgment interest on its payments.  Protection Strategies, Inc. v. Starr Indemn. & Liab. Co., No. 1:13-CV-00763 (E.D. Va. Aug. 18, 2014).  Wiley Rein LLP represents the insurer.

 The insurer had advanced defense expenses for a government investigation against the insured company and its officers.  After the officers pleaded guilty, the insurer moved for summary judgment based on dishonesty, profit, prior knowledge, and warranty exclusions.  The court granted summary judgment and held that the insurer was entitled to recoup its defense payments.  The insurer then sought pre-judgment interest on its defense payments accruing from the time it made each payment.  While recognizing that the insured had raised bona fide arguments about coverage, the court concluded that prejudgment interest was necessary to make the insurer whole because the insureds’ misrepresentations in the insurance application caused the insurer to advance defense costs to which the insureds were never entitled.