A federal appeals court overturned a lower court decision Monday, ruling against an RSUI Group Inc. unit in a policyholder's defense.
Landmark American Insurance, a unit of the Atlanta-based RSUI, appointed a law firm to defend the policyholder Taisei Construction Corp. in disputes over alleged design defects in a development in Los Angeles, according to legal documents in Landmark American insurance Co. v. Taisei Construction Corp. et. al.
Landmark had the right to retain advice of its choice according to its policy. But Taisei already had its own lawyer and demanded that the insurer's lawyer withdraw from the case, which it did according to Landmark's complaint.
The insurer filed a lawsuit against the construction company in the U.S. District Court in Pasadena, California, requesting an explanation. the company had violated its obligation to cooperate in accordance with the policy of choosing its own lawyer and that it was not obliged to pay defense costs.
The district court ruled in favor of the insurer but is set aside by a unanimous three-judge appeals board. panel at the Ninth U.S. Circuit Court of Appeals in San Francisco.
The district court assumed the policyholder's actions caused considerable prejudice against the insurer, but did not conduct an independent analysis of the issue, the decision said.
"The issue of significant prejudice is a fact to be decided by the Court of First Instance," the decision said, adding, "it is far from undisputed based on the existing evidence that Landmark actually suffered significant prejudice."
The case was brought to the district court for further negotiations.
Lawyers in the case did not respond to a request for comment.