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Duty to Defend is Less than Duty to Indemnify\\n\\nMassachusetts Bay Insurance Company (MBIC) seeks reimbursement of $2 \\nmillion that it paid under a reservation of rights to settle litigation \\nbrought against its insured, Neuropathy Solutions, Inc. (Neuropathy).\\n\\nIn Massachusetts Bay Insurance Company v. Neuropathy Solutions, Inc., \\ndba Superior Health Centers, and Rigoberto Bernal, an individual; et \\nal., No. 22-55272, United States Court of Appeals, Ninth Circuit (April \\n3, 2023) the Ninth Circuit determined who owed the settlement payment.\\n\\nThe District Court Decision\\n\\nOn cross-motions for judgment on the pleadings, the district court held \\nthat MBIC had a duty to defend and indemnify Neuropathy in the \\nunderlying case (the Bernal action), and that MBIC was thus not entitled\\n to any reimbursement.\\n\\nMBIC satisfied the prerequisites for seeking reimbursement of the amount\\n it paid to settle the Bernal action on Neuropathy\'s behalf. To seek \\nreimbursement under California law, an insurer must provide (1) a timely\\n and express reservation of rights; (2) an express notification to the \\ninsured of the insurer\'s intent to accept a proposed settlement offer; \\nand (3) an express offer to the insured that it may assume its own \\ndefense in the event that the insured does not wish to accept the \\nproposed settlement.\\n\\nThe Reservation of Rights\\n\\nMBIC provided a timely and express reservation of rights and informed \\nNeuropathy of its intention to settle the claims for the $2 million \\npolicy limit, subject to Neuropathy\'s approval and MBIC\'s reservation of\\n rights. This letter also informed Neuropathy of its "right to assume \\nthe further handling of this matter going forward" if Neuropathy did not\\n wish to settle the claims for $2 million. Neuropathy signed the \\nsettlement agreement on May 28, 2021. Contrary to Neuropathy\'s argument,\\n MBIC gave Neuropathy sufficient time to consider the proposed \\nsettlement.\\n\\n\\n\\nThe District Court Erred\\n\\nThe Ninth Circuit concluded that the district court erred by invoking \\nthe broader duty-to-defend standard (potentiality of coverage) to \\nrequire MBIC to cover not just the cost of defending the underlying \\nBernal suit but also the $2 million paid to settle it.\\n\\nTo the extent that the underlying Bernal action falls within the \\ncoverage provisions of the insurance policy coverage is excluded under \\nthe policy\'s "Professional Services" exclusion. That provision excludes:\\n \\u201c\\u2019Bodily injury\\u2019, \\u2018property damage\\u2019, [and] \\u2018personal and advertising \\ninjury\\u2019 caused by the rendering of or failure to render any professional\\n service, advice or instruction: (1) By [the insured]; or (2) On [the \\ninsured\'s] behalf; or (3) From whom [the insured] assumed liability by \\nreason of a contract or agreement, regardless of whether any such \\nservice, advice or instruction is ordinary to any insured\'s profession.\\u201d\\n\\nThen Ninth Circuit concluded that based on California case law, the \\ninsurance policy\'s text, and the operative complaint in the Bernal \\naction, Neuropathy\'s liability in Bernal fell within the "Professional \\nServices" exclusion.\\n\\nNeuropathy\'s liability in the Bernal action was thus excluded from \\ncoverage, and MBIC is entitled to reimbursement of the $2 million it \\npaid to settle that lawsuit.\\n\\nZALMA OPINION\\n\\nLiability insurance provides a very broad duty to defend an insured that\\n is more than the duty to indemnify. In this case MBIC paid to defend \\nits insured and properly gave the insured to take over the defense if it\\n did not want to settle. It refused and the Ninth Circuit required the \\ninsured to reimburse the insurer for the $2 million paid to settle.\\n\\n(c) 2023 Barry Zalma & ClaimSchool, Inc.