The Sixth Circuit has held under Michigan law that a reservation of rights letter including a right to reimbursement was sufficient to entitle an insurer to recoup defense costs paid when the insurer had no duty to defend even though the subject policy did not include language expressly providing for such right.  See Great American Fidelity Insurance Co. v. Stout Risius Ross, Inc., Nos. 23-1167/1195, 2024 U.S. App. LEXIS 8576 (6th Cir. Apr. 8, 2024).

The insureds were named as defendants in an underlying lawsuit that initially included statutory and common law causes of action. The insurer agreed to defend the insureds subject to a reservation of rights, including the right to seek reimbursement of defense costs if it had no duty to defend. The subject policy did not expressly provide for such reimbursement. The insurer commenced a declaratory judgment action, and the trial court initially ruled on summary judgment that the insurer had a duty to defend because the policy excluded coverage only for the statutory causes of action and not the common law causes of action. After the underlying complaint was amended to eliminate the common law causes of action, however, the trial court ruled that the insurer had no duty to defend following the amendment and was entitled to reimbursement of any defense costs it paid after the amendment.

On appeal, the Sixth Circuit affirmed. It found that the insurer’s explicit reservation of its right to reimbursement and the insured’s acceptance of the defense after receiving notice that the insurer might seek reimbursement gave rise to an implied-in-fact contract for reimbursement when there was no duty to defend. Although the Sixth Circuit stated that the Michigan Supreme Court has not recognized implied-in-fact contracts in the insurance context, it has recognized them in other contexts, and at least one Michigan appellate court has permitted an insurer to recover defense costs on an unjust enrichment theory while recognizing other jurisdictions that permit reimbursement based on implied-in-fact contract theory. See NCMIC Ins. Co. v. Dailey, No. 267801, 2006 Mich App. LEXIS 2260 (Mich. Ct. App. July 20, 2006). The Sixth Circuit also previously permitted reimbursement based on a timely reservation of rights letter expressly reserving the right to seek reimbursement. See Continental Cas. Co. v. Indian Head Indus., Inc., 666 F. App’x 456 (6th Cir. 2016).