Recoupment is the term most often used to describe the effort by an insurer to get back, from the insured, defense costs paid out where the claim was ultimately not covered. Some kinds of policies -- principally professional liability and D&O policies -- have policy provisions specifically providing insurers this right. (And, incredibly, some carriers without such provisions in their policies attempt to assert this right in their reservation of rights letters!) Recoupment is controversial because if the right is asserted, it is a sword of Damocles hanging over the head of the insured as the underlying litigation progresses, and has in some cases impacted the resolution of an underlying case.
Alaska, by statute, requires insurers to pay for independent counsel where the defense is being conducted under a reservation of rights. It contains no provision allowing recoupment, but that leaves open the question of whether an insurer may do so if the parties have agreed to recoupment by contract. The Ninth Circuit, in Attorneys Liability Protection Society v. Ingaldson Fitzgerald, P.C.,, has now asked the Alaska Supreme Court to answer that question, which will no doubt involve not just the intent behind the statute, but also Alaska common law, which provided the genesis for the "independent counsel" requirement in the first place. See CHI of Alaska, Inc. v. Emp'rs Reinsurance Corp., 844 P.2d 1113 (Alaska 1993). This is an increasingly important issue for all kinds of policyholders, as the increasing costs of defending almost any sort of claim have increased the incentives for carriers to exercise their recoupment rights.
