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COMMERCIAL UNION INS. CO. v. INTERNATIONAL FLAVORS

July 22, 1986

COMMERCIAL UNION INSURANCE COMPANY, Plaintiff,
v.
INTERNATIONAL FLAVORS & FRAGRANCES, INC., Defendant



The opinion of the court was delivered by: POLLACK

MILTON POLLACK, Senior United States District Judge

MEMORANDUM ON ALLOWANCES

 This is an application by International Flavors and Fragrances ("IFF") seeking reimbursement of its reasonable costs and attorney fees incurred in defending a declaratory judgment suit instituted by its insurer Commercial Union ("CU").

 Background

 On March 14, 1979, IFF was sued by Plough Inc. in a products liability action. IFF notified its insurer CU of the action and requested that CU defend it. CU initially agreed to offer a defense on IFF's behalf; however, after defending IFF for approximately two months, CU withdrew from the Plough action. It subsequently disclaimed coverage.

 On November 26, 1980, a year and a half after it withdrew its defense, CU brought this declaratory judgment suit seeking a determination that it was not liable to defend or indemnify IFF in the Plough action. Since the Plough action had been pending for almost two years and IFF was in the midst of defending itself in that litigation, IFF moved to stay the declaratory judgment suit as untimely. On March 25, 1981, after extensive briefing and oral argument, the Court stayed the suit pending a resolution of the Plough action. *fn1"

 On February 13, 1984, after the Plough action was settled, IFF served an amended answer and counterclaim. IFF requested a declaration that CU was liable under the insurance policy and sought damages for CU's failure to defend.

 The case proceeded to trial before the Court and a jury in March 1986; the jury returned a verdict that IFF was not entitled to damages.

 IFF subsequently moved for a directed verdict on its motion therefor at the close of the case, on which decision had been reserved, and for a judgment notwithstanding the verdict. On April 28, 1986, the Court granted IFF's motion in part; it held that, as a matter of law, CU had breached its duty to defend IFF in the Plough action and was liable to IFF for the reasonable costs of defense. A jury trial was held in June 1986 to determine the reasonable costs of defense and IFF was awarded $834,913.

 IFF now seeks to recover its legal costs in connection with defending the declaratory judgment action brought by CU.

 Discussion

 It is well settled, under New York law, that an insured may recover the reasonable legal expenses which it incurred in defense of a declaratory judgment action brought hy the insurer to free itself from its obligation to defend; however, the expenses incurred in prosecuting claims against the insurer are not recoverable. See Mighty Midgets, Inc. v. Centennial Insurance Co., 47 N.Y.2d 12, 389 N.E.2d 1080, 416 N.Y.S.2d 559 (1979); Johnson v. General Mutual Insurance Co., 24 N.Y.2d 42, 298 N.Y.S.2d 937, 939, 246 N.E.2d 713 (1969) (holding that insured could recover the costs of defending a declaratory judgment action brought by the injured party to compel the insurer to defend, but could not recover the costs associated with prosecuting cross-claims against the insurer); Hurney v. Mattson, 59 A.D.2d 934, 399 N.Y.S.2d 449 (2d Dept. 1977) (holding that insured, who brought third party action against insurer, could recover costs incurred in defending insurer's counterclaim for declaratory relief since the insured's posture in the counterclaim was that of a defendant); Brown v. United States Fidelity & Guaranty Co., 46 A.D.2d 97, 361 N.Y.S.2d 232, 234 (3d Dept. 1974); Padavan v. Clemente, 43 A.D.2d 729, 350 N.Y.S.2d 694 (2d Dept. 1973) Allstate Insurance Co. v. Aetna Casualty & Surety Co., 123 Misc.2d 932, 475 N.Y.S.2d 219, 221-22 (1984) (holding that insured may recover legal fees incurred in defending itself in a declaratory judgment action brought by insurer, but not for those incurred in prosecuting cross claims and counterclaims against insurers).

 By bringing this declaratory judgment action in an effort to free itself from its policy obligations, CU cast IFF in a defensive posture. To this extent, CU is liable for the reasonable value of the legal costs incurred by IFF in defending itself. However, IFF cannot recover its legal expenses .=or prosecuting its counterclaim against CU.

 IFF contends that the amount to which it is entitled should not be reduced because of its counterclaim. IFF relies on two cases in which the issue of the effect of the insured's assertion of a counterclaim, cross claim or third party claim on the availability of fees is ...


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