Defense Costs For Bad Faith Allegations Excluded From Reinsurance Coverage, N.C. Federal Judge Rules

RALEIGH, N.C. — A cedent’s claim for defense expenses incurred in an underlying coverage action fall within the reinsurance policy’s “errors and omissions” exclusion and are therefore barred from coverage, a North Carolina federal judge has ruled.

On Jan. 27, Chief Judge James C. Dever III of the U.S. District Court for the Eastern District of North Carolina found the underlying complaint alleges a lack of good faith or unfair dealing and therefore any expenses arising from the action are excluded.

Medical Mutual Insurance Co. issued a $1 million medical malpractice insurance policy to Dr. Arleen Thom. In May 2008, …