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Insurance Coverage: Massachusetts Insurers Cannot Recoup Defense Costs Provided Under Reservation of Rights

A Massachusetts Superior Court last month issued a significant victory for policyholders. In the case Holyoke Mutual Insurance v. Vibram, the court ruled that an insurer that provides a defense under a reservation of rights may not later recoup attorney fees from the policyholder if a court ultimately determines there to have been no coverage.

Someone sues you or your company. You submit a claim to your insurance carrier. Your insurer hires a lawyer to represent you. But then your own insurance company turns and brings a new suit against you for a declaratory judgment that it no longer needs to pay your lawyer in the underlying case. In many states, if the court ultimately determines there to be no coverage, the insurer can then go so far as to recoup from you the money the insurer paid your lawyer. At least for now, that is not the law in Massachusetts.