American And Foreign Insurance Company v. Jerry's Sport Center, Inc.

2 A.3d 526 (2009)

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Nature of the Case

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Facts

P and D entered into a commercial liability primary and umbrella insurance contract. D is a firearm wholesaler-distributor and P is its commercial liability insurer. The policy insured against bodily injury and obliged P to pay all expenses it incurred defending D. The National Association for the Advancement of Colored People (NAACP) and the National Spinal Cord Injury Association (NSCIA) filed a civil action against eighteen firearms wholesalers and distributors. The NAACP and NSCIA sought to hold the firearms industry liable for injury, death, and other damages to association members through the negligent creation of a public nuisance by virtue of the industry's failure to distribute firearms reasonably and safely. D was added as a defendant. The NAACP sought injunctive relief and monetary damages to establish a fund for the education, supervision, and regulation of gun dealers. It did not seek damages to compensate individual members injured by Ds' actions. D requested defense and indemnification, claiming that the complaint fell under the 'bodily injury' coverage provided by the liability insurance. P retained the New York City law firm of Leahey & Johnson to represent D in the NAACP action. P believed that D would fare better with independent counsel than in a group defense assembled by other defendants. P further advised that it was providing a defense under a full reservation of rights, including the right 'to seek reimbursement for any and all defense costs ultimately determined not to be covered.' D thought it might be less costly to join a defense group with other defendants rather than proceed with Leahey & Johnson. P responded that D had the right to retain its own counsel to represent its uninsured interests or to continue to permit Leahey & Johnson to represent their mutual interests. D did not obtain independent counsel. P pledged that during its investigation, it would participate in advancing reasonable and necessary defense costs in the NAACP action with the express reservation that P 'may seek reimbursement of some or all of these costs in a future declaratory judgment action….' Eventually, P specifically informed D that it would not seek to recover the defense costs incurred before a final determination of coverage was made, by either P or a court, whichever occurred first. P filed a declaratory judgment action seeking a determination that it had no duty to defend or indemnify D for the claims asserted in the NAACP action because the action did not allege or involve 'bodily injury' as defined in the policy. P moved for summary judgment and requested reimbursement for 'fees and costs. The trial court granted summary judgment in P's favor. The trial court determined that the bodily injury portion was designed to compensate a claimant for damages that result from injury to one's physical condition. It concluded that the remedy sought in the NAACP action was not the award of damages for bodily injury, but, rather, contributions to a fund for the purpose of the education, supervision, and regulation of gun dealers. The trial court found that P was entitled to the remedy of restitution, based on the equitable doctrine of unjust enrichment. the trial court entered a verdict in favor of Royal of $309,216, plus pre-judgment interest. D appealed to the Superior Court, arguing that the trial court erred in finding unjust enrichment where the parties' relationship was governed by a written insurance contract that was silent on the issue of reimbursement of defense fees. A panel of the Superior Court reversed the trial court. The Superior Court observed a split in jurisdictions between the 'majority view,' those courts that have found a right of reimbursement based on a reservation of rights letter, and the 'minority view,' which includes those courts that have found no such right to reimbursement absent an express provision allowing reimbursement in the written insurance contract. P appealed.