Morrison Mahoney partner Michael Aylward was recently quoted in Massachusetts Lawyers Weekly. Michael in connection with a case in which federal judge Richard Stearns ruled that our insurer client was entitled to be reimbursed for money that it had paid under a reservation of rights to defend an insured in a personal injury case involving exposure to sewage that the District Court found was subject to a virus exclusion in the policy.

Although it is only a federal district court’s decision, this is an important development because it is the first time that a Massachusetts court has explicitly acknowledged an insurer’s right to recover the cost of settling a suit that was later held not to be covered. It is also the first time that an insurer has been allowed to also recoup defense costs, which has been a source of controversy in prior cases up to this point.  

As a practical matter, the court’s decision attempts to balance the equities in cases where an insured is anxious to settle and pressures its insurer to fund a settlement that the insurer believes in good faith that it does not owe coverage for.  Under this resolution, the insurer can act to protect its insured from a potentially devastating verdict at trial without forfeiting its rights to contest where, in fact, it owes coverage for the claim at issue.

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