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One Small (Legal) Step for Insurers, One Giant Recovery for Insureds: Southern District of New York Clarifies Scope of the “Legal Step” Exception to Insured’s Recovery of Attorney’s Fees
March 29, 2024
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In Match Group, LLC v. Beazley Underwriting Limited, the Southern District of New York clarified the scope of the “legal step” exception to the rule that an insured may not recover legal fees in an affirmative lawsuit brought against its insurer. No. 22 CIV. 4629 (LGS), 2024 WL 863468 (S.D.N.Y. Feb. 29, 2024).
Match sued its insurer, Beazley, for breach of contract and equitable estoppel based on Beazley’s refusal to defend Match in an underlying lawsuit. Id. at *1. The Court entered judgment for Match on its breach of contract claims. Id. Thereafter, Match moved to recover attorney’s fees incurred from the action. Id. On review, a magistrate judge recommended denial of Match’s motion because Match brought an affirmative action against its insurer. Id.
On review, the Court affirmed the recommendation and the general prohibition on an insured’s recovery of attorney’s fees. Id. The Court’s analysis primarily discussed the rule’s exception—that an insured can recover attorneys’ fees if they prevail on the merits and are placed in a defensive position by “legal steps” taken by the insurer. Id. at *2. Invoking this exception, Match argued that Beazley took four “legal steps”: (1) appealing the judgment; (2) issuing a disclaimer; (3) directing Match to file suit; and (4) filing a motion to dismiss. Id.
First, the Court concluded that Beazley’s appeal did not place Match in a defensive position, as Beazley did not introduce any “new theory” on appeal. Id. Rather, Beazley’s appeal merely continued the legal process initiated by Match. Id. Second, the Court emphasized that a routine disclaimer is not a “legal step”—even when written by a lawyer and including legal analysis. Id. Third, the Court found that Beazley’s communications with Match about jurisdictional matters did not constitute an “instruction to sue” or a “legal step.” Id. Finally, the Court opined that Beazley’s motion to dismiss was a defense to Match’s action, rather than a “legal step” equivalent to filing a new suit. Id.
The Match decision reflects courts’ unwillingness to extend the scope of the “legal step” exception to require an insurer to pay an insured’s legal fees based on routine defense and coverage actions.
