A recent Law 360 story by Eli Flesch, “Property Cos. Says Insurer Blew Notice to Recoup Suit Costs” reports that a Markel unit can't recoup costs it spent defending a property owner and manager in a discrimination suit because the insurer failed to properly reserve their right for reimbursement, the real estate companies told a California federal court. In a trial brief, Winstar Properties LLC and Manhattan Manor LLC said Evanston Insurance Co. sent its first explicit reservation of rights letter on the eve of a trial over coverage for the discrimination suit, which alleged the companies increased rents only for immigrant-headed households in Southern California. That lack of timeliness should bar Evanston from being able to recoup its defense costs, Winstar and Manhattan said.
"Had Winstar and Manhattan knew that Evanston was going to deny coverage, they would have had the opportunity to seek independent counsel, or made other settlement decisions," the real estate companies wrote in their four-page brief to the court. Evanston sued the companies in September 2018, stating it had no duty to defend them in the underlying suit because the discrimination occurred before the policy's effective date. The discrimination suit was filed two days before the start of the policy, which ran from June 30, 2016, to June 30, 2017, according to court records. The insurer said it received notice of the suit from the companies on July 17, 2017, and sent a letter three days later acknowledging receipt and reserving its rights to recoup defense costs.
The insurer won a summary judgment in October 2019, which the Ninth Circuit upheld in May 2021, ruling Evanston was not required to defend the companies. However, the appellate court noted there was insufficient evidence that the July 2017 letter had been sent, which would affect the insurer's ability to recoup costs it paid before Feb. 16, 2018 — the date on which the companies claim they received the first letter from Evanston.
In their brief, Winstar and Manhattan said there was an abundance of evidence showing Evanston never sent a letter on July 20, 2017. It was months later, on February 16, 2018, that the insurer first attempted to reserve its rights for a reimbursement of costs, the real estate companies argued, noting Winstar didn't even receive that letter until two days after it was signed, on February 18, 2018.
In December, U.S. District Court Judge R. Gary Klausner sanctioned the law firm representing the two property companies, the Wilshire Law Firm, when he decided that the firm's own motion for sanctions against the insurer was unfounded. To deter the firm from future frivolous sanctions requests and to compensate Evanston for time spent combating the unwarranted motion, the judge ordered the defendants to pay the insurer's attorney fees associated with their cross-motion for sanctions.