Government Law

City of Portland, Ore., Sues Insurer to Recover In-House Defense Costs of $1.5M

Saying that the use of its own in-house city attorneys to fight employment-related claims conferred a benefit to its insurance carrier, the city of Portland, Ore., has filed suit against its former liability insurer.

Filed Friday in Multnomah County Circuit Court, the suit seeks reimbursement of nearly $1.5 million Portland officials say the city spent using in-house counsel to defend cases including a wrongful death claim concerning a schizophrenic man who died in police custody, resulting in a $1.6 million settlement. At issue is the interpretation of the insurance contract, which doesn’t define the term “defense costs,” according to the Oregonian.

The city says it saved the Insurance Company of the State of Pennsylvania and its sister company, Chartis Insurance, as well as other carriers, hundreds of thousands of dollars by using experienced city employment attorneys at a cost of approximately $100 an hour rather than relying solely on private practitioners to defend the cases.

Under applicable insurance contract language, the city argues, the defendant carriers were responsible for paying half of its defense costs in employment cases once the city had paid out a $1 million self-insured retention.

However, the carriers contended the expense of paying city attorneys is part of Portland’s normal overhead, and hence isn’t covered by insurance as part of the defense costs they are contractually obligated to pay, the newspaper reports. None of the carriers commented concerning the lawsuit.

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