In the case of RLI Insurance Company v. Leslie Smiedala, et al., RLI, an excess insurance carrier, commenced a declaratory judgment action in New York which it sought a declaration that, in the event that the primary insurer’s policy limits were exhausted (an event that had not yet come to pass), it would not be obligated to defend or indemnify various parties. This endeavor proved unsuccessful. As a result, the defendants sought to recover the fees they had accrued in the declaratory judgment action against the “losing” carrier. The trial court agreed and granted fees.

An appeal to the 4th Department resulted. In the appeal, RLI argued that, since it had not yet paid any defense or indemnity monies in the underlying action, it could not be said to have “lost” the declaratory judgment action and thus was not obligated to reimburse the defendants. The 4th Department disagreed – http://www.loislaw.com/advsrny/flwhitview.htp?lwhitid=9886142. It held that “although plaintiff’s duty to defend Regional may not have been triggered in the underlying action because the primary coverage has not been exhausted, Regional may nevertheless recover its attorneys’ fees from plaintiff incurred in the declaratory judgment action inasmuch as Regional was “cast in a defensive posture by the legal steps [plaintiff took] in an effort to free itself from its policy obligations.”

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