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(Article from Insurance Law Alert, October 2016)

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The Ninth Circuit ruled that the Liability Risk Retention Act preempts an Alaska statute that precludes an insurer from recouping expenses incurred in defending uncovered claims.  Attorneys Liab. Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., 2016 WL 5335036 (9^th Cir. Sept. 23, 2016).

Attorneys Liability Protection Society (“ALPS”), a risk retention group chartered in Montana, issued a professional liability policy to a law firm located in Alaska.  ALPS defended the law firm in an underlying suit but reserved the right to seek reimbursement of defense costs for claims deemed not covered under the policy.  Thereafter, ALPS brought suit, seeking a declaration of no coverage and reimbursement of defense costs.  The dispute made its way to the Alaska Supreme Court, which held that Alaska statutory law prohibits an insurer from seeking reimbursement of defense costs even where a policy provides for such reimbursement and where the insurer explicitly reserves the right to seek reimbursement.  See Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., 370 P.3d 1101 (Alaska 2016) (discussed in our April 2016 Alert). 

ALPS argued that it was nonetheless entitled to reimbursement because the Liability Risk Retention Act (“LRRA”) preempts Alaska statutory law.  The court agreed, stating that Alaska’s “prohibition on reimbursement of fees and costs incurred by an insurer defending a non-covered claim offends the LRRA’s broad preemption language and that no exception applies to save the law.”