United National Insurance Company v. Sst Fitness Corporation

309 F.3d 914, 2002 U.S. App. LEXIS 22814, 2002 WL 31443450
CourtCourt of Appeals for the Sixth Circuit
DecidedNovember 4, 2002
Docket00-4239
StatusPublished
Cited by56 cases

This text of 309 F.3d 914 (United National Insurance Company v. Sst Fitness Corporation) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United National Insurance Company v. Sst Fitness Corporation, 309 F.3d 914, 2002 U.S. App. LEXIS 22814, 2002 WL 31443450 (6th Cir. 2002).

Opinions

[916]*916CARR, D.J., delivered the opinion of the court, in which BATCHELDER, J., joined. CLAY, J. (pp. 923-28), delivered a separate dissenting opinion.

OPINION

CARR, District Judge.

Plaintiff-appellant United National Insurance Company (“United National”) appeals the denial of its motion, brought pursuant to 28 U.S.C. § 2202, for defense costs paid to its insured, defendant-appel-lee SST Fitness Corporation (“SST”). For the following reasons, we REVERSE the judgment of the district court and REMAND for further proceedings in. accordance with this decision.

BACKGROUND

SST purchased liability insurance from United National, which agreed to provide defense costs and indemnify SST for any liability. J.A. at 49-79. When SST was sued for patent and trademark infringement, United National paid SST’s defense costs. Prior to providing defense costs, United National provided a letter to SST stating, “United National reserves the right to recoup from SST any defense costs and fees to be paid subject to this reservation letter on the basis that no duty to defend now exists or has existed with regard to the tendered suit.” J.A. at 115.

United National paid $116,706.39 to SST’s counsel in the patent and trademark infringement suit. SST accepted payment of its defense costs, without objecting to United National’s reservation of rights.

United National thereafter sued SST, seeking a declaratory judgment that United National owed no duty to defend or indemnify SST in the underlying infringement action. The district court granted declaratory judgment in favor of United National, and the Sixth Circuit affirmed.

United National moved, under 28 U.S.C. § 2202, for costs paid under reservation, $116,706.39, and prejudgment interest, $29,633.41. The district court denied this motion, finding that United National was a volunteer when it paid SST’s defense costs and, therefore, could not recover those costs. J.A. at 185.

STANDARD OF REVIEW

Because the district court decided questions of law, we review its judgment de novo. United States v. Al-Zubaidy, 283 F.3d 804, 812 (6th Cir.2002) (“We review questions of law and statutory interpretation de novo”) (citing Nixon v. Kent Co., 76 F.3d 1381, 1386 (6th Cir.1996) (en banc); Mumford v. Zieba, 4 F.3d 429, 432 (6th Cir.1993)); see also Pro-Eco, Inc. v. Board of Comm’rs of Jay County, Indiana, 57 F.3d 505, 508 (7th Cir.1995) (In reviewing a district court’s denial of relief in a case brought pursuant to 28 U.S.C. § 2202, the court stated, “[W]ith the district court deciding the case on pure questions of law, and in light of our circuit’s decision to guard jealously the discretion afforded under the Declaratory Judgment Act, we will review the district court’s denial of Pro-Eco’s motion de novo.”).

DISCUSSION

I. Insurer’s Right to Recoupment

United National contends that, because it had no duty to defend SST in the underlying infringement action and it reserved its right to recoup defense costs, it is entitled recover those costs. United National further argues that SST accepted the terms of its reservation of rights letter when it accepted defense costs without objecting to the reservation of rights, thereby giving rise to an implied contract for reimbursement. There being no Ohio decisions on this issue, United National urges us to look at opinions from other jurisdictions allowing insurers to reserve a [917]*917right to recoupment and Ohio cases on implied contracts.

SST contends that, because it never expressly accepted the reservation of rights, the reservation is ineffective. SST argues, “An insurer’s offer to defend is made primarily for its own benefit, and the insured should not be forced to reimburse costs that the insurer expends for its own benefit.” Appellee’s Final Br. at 4.

The district court did not address this argument because it decided United National’s § 2202 motion solely on the basis that United National was a “volunteer” when it defended the underlying patent suit.

Because the Ohio Supreme Court has not determined the issue before us, we

must ascertain from all available data, including the decisional law of the state’s lower courts, restatements of law, law review commentaries, and decisions from other jurisdictions on the “majority” rule, what the state’s highest court would decide if faced with the issue.

Grantham & Mann, Inc. v. American Safety Prods., Inc., 831 F.2d 596, 608 (6th Cir.1987) (citations omitted).

In accordance with this directive, we examine decisions and rationales from other jurisdictions that have decided this specific issue, general Ohio law, and policy considerations for guidance in determining how the Ohio Supreme Court would likely decide this issue.

A. Decisions from Other Jurisdictions

United National contends this court should, and the Ohio Supreme Court would, follow decisions from other jurisdictions that allow an insurer to recover defense costs when the insurer had no duty to defend.

In Colony Insurance Co. v. G & E Tires & Service, Inc., 777 So.2d 1034 (Fla.Ct.App.2000), the court decided whether an insurer could be reimbursed for defense costs when the insurer did not have a duty to defend. After reviewing cases from other jurisdictions, the court determined that the insurer was entitled to reimbursement of those costs. Id. at 1039. The court stated, “Having accepted Colony’s offer of a defense with a reservation of the right to seek reimbursement, G & E ought in fairness make Colony whole, now that it has been judicially determined that no duty to defend ever existed.” Id. The court also looked to basic contract law and stated, “A party cannot accept tendered performance while unilaterally altering the material terms on which it is offered.” Id. (citing RESTATEMENT (SECOND) Of CONTRACTS § 69 (1981)). The court found that, when the insured accepted its defense, it also accepted the terms of the offer, including a potential for reimbursement. Id.

In Grinnell Mutual Reinsurance Co. v. Shierk, 996 F.Supp. 836 (S.D.Ill.1998), the court looked to other jurisdictions for guidance in deciding whether an insurer was entitled to reimbursement for defense costs. The court stated that to be entitled to reimbursement, an insurer must: 1) specifically reserve the right to seek reimbursement from its insured; and 2) provide the insured with adequate notice of this potential reimbursement. Id. at 839. The court held:

Shierk accepted the benefit of Grinnell’s defense.

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309 F.3d 914, 2002 U.S. App. LEXIS 22814, 2002 WL 31443450, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-national-insurance-company-v-sst-fitness-corporation-ca6-2002.