## Facts

- Jerry’s Sport Center, Inc. and related entities were firearms wholesalers insured under Royal’s commercial general liability and umbrella policies issued from roughly 1981 to 2000.
- In 2000, the NAACP and the National Spinal Cord Injury Association sued multiple firearms manufacturers and distributors, including Jerry’s, in federal court, alleging unsafe distribution practices causing bodily injury in affected communities.
- The plaintiffs primarily sought injunctive relief and an abatement fund for regulatory and educational programs, not damages payable to individual bodily-injury claimants.
- Jerry’s tendered the defense to Royal.
- Royal undertook and controlled the defense under reservation of rights, disputing whether the complaint sought covered “damages because of bodily injury” and stating it reserved a right to seek reimbursement of defense costs if a court later found no duty to defend.
- Royal filed a Pennsylvania declaratory judgment action seeking (1) a declaration of no duty to defend or indemnify and (2) reimbursement of defense costs already paid, relying on its reservation letters and, alternatively, unjust enrichment/quantum meruit.
- The policies contained no express clause granting Royal a right to reimbursement of defense costs if no duty to defend was later declared.

## Issues

1. Whether, after a judicial determination that no duty to defend existed, an insurer that provided a defense under a reservation of rights may obtain reimbursement of defense costs when the policy contains no express reimbursement provision.

## Decision

- The Pennsylvania Supreme Court affirmed the Superior Court’s denial of reimbursement.
- The Court held that an insurer is not entitled to reimbursement of defense costs absent an express provision in the written insurance contract.
- The Court rejected the insurer’s argument that its reservation-of-rights letters created a reimbursement right.
- The Court also rejected recovery under unjust enrichment/quantum meruit because an express contract governed the parties’ relationship.

## Legal Principles

- The duty to defend is a contractual obligation; its scope and related rights are determined by the policy’s language.
- A unilateral reservation-of-rights letter cannot alter the insurance contract or create new, extra-contractual rights, including a right to recoup defense costs.
- Quasi-contract remedies such as unjust enrichment and quantum meruit are unavailable where an express contract governs the subject matter.
- An insurer that elects to defend while litigating coverage assumes the risk of paying defense costs unless it negotiated an express recoupment clause.
- Allowing reimbursement without an express term would undermine contract certainty and the insured’s reasonable expectations regarding defense coverage once potentially triggered.

## Conclusion

The court held that, under Pennsylvania law, an insurer that defends under a reservation of rights cannot recover defense costs after a no-duty-to-defend determination unless the policy expressly authorizes reimbursement; neither reservation letters nor unjust enrichment supply that missing contractual right.


Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 606 Pa. 584, 2 A.3d 526 (Pa. 2010)