## Facts

- Pacific Employers Insurance Company issued a commercial general liability policy to Shoshone First Bank and its parent, providing “personal injury” coverage and a duty to defend suits potentially seeking covered damages.
- A former bank director sued Shoshone during the policy period, alleging several claims including invasion of privacy, along with other non-covered theories.
- Shoshone tendered the suit and requested a defense; Pacific did not respond before an answer was due, so Shoshone retained counsel to answer and to assert a counterclaim.
- Pacific later assumed the defense under a reservation of rights, concluding the invasion-of-privacy allegation potentially triggered “personal injury” coverage.
- Pacific funded the defense and also paid for litigation of Shoshone’s counterclaim; the underlying case settled.
- Pacific then sued to allocate and recover from Shoshone (1) defense costs attributable to non-covered claims and (2) costs attributable to prosecuting the counterclaim.
- A federal district court certified to the Wyoming Supreme Court whether Wyoming recognizes a legal or equitable right to such allocation and reimbursement after the insurer has paid those costs.

## Issues

1. When a complaint asserts at least one potentially covered claim, may an insurer allocate to the insured and recoup defense costs attributable to non-covered claims within the same action?
2. May an insurer allocate to the insured and recoup costs paid to prosecute the insured’s counterclaim in the same litigation?

## Decision

- The court answered the certified question in two parts.
- No: Wyoming law does not permit an insurer to allocate and recover defense costs attributable to non-covered claims when at least one claim triggers the duty to defend and the insurer has provided a defense.
- Yes: Wyoming law permits an insurer to allocate and recover costs attributable to prosecution of the insured’s counterclaim, without regard to whether the counterclaim was tactically or strategically related to the defense.
- The case was returned to the certifying federal court for application of these answers.

## Legal Principles

- The duty to defend is broader than the duty to indemnify and is triggered when allegations potentially fall within coverage.
- When any claim potentially triggers coverage, the insurer’s duty is to defend the entire suit; absent an express policy term, the insurer has no right to reimbursement for portions of defense expenses attributable to non-covered claims.
- Courts will not create an implied equitable reimbursement right that would alter the insured’s contractual expectation of a complete defense or require speculative parsing of integrated defense work.
- A liability policy’s defense obligation applies to claims against the insured and does not require funding affirmative litigation by the insured.
- An insurer that pays to prosecute the insured’s counterclaim may obtain restitutionary reimbursement of those prosecution costs, even if the counterclaim may have benefited the defense.

## Conclusion

Wyoming law requires an insurer that owes a defense due to at least one potentially covered claim to bear all defense costs for the action, but allows the insurer to recover amounts it paid to prosecute the insured’s counterclaim because such offensive litigation is outside the duty to defend.


Shoshone First Bank & United Bancorporation of Wyo., Inc. v. Pac. Emp'rs Ins. Co., 2 P.3d 510 (Wyo. 2000)