Santa’s Best sued its insurer, Zurich American, claiming that Zurich breached its insurance policies by failing to defend Santa’s Best in a different lawsuit and failing to reimburse Santa’s Best for the cost of settling that suit. Zurich had agreed to reimburse Santa’s Best, but determined that most of the legal fees Santa’s Best incurred were unreasonable or not pertinent to the claims covered by the policy. The lower court granted summary judgment to Zurich.
On appeal, the court held that defense expenses submitted on behalf of an insured’s legal counsel are not per se reasonable. Zurich had no obligation to reimburse Santa’s Best for charges for which there was insufficient documentation and charges that went beyond the scope of Zurich’s coverage for the underlying lawsuit (which the lower court ultimately found to be the case).
Second, the court held that Zurich did not have a duty to reimburse Santa’s Best for the amount of the settlement it paid in the underlying case. An insured is only entitled to indemnity for losses that actually fall within the terms of its insurance policy, and the court held that the allegations in the underlying lawsuit did not fall under the policy’s coverage. The policy required Zurich to pay damages on Santa’s Best’s behalf resulting from “advertising injury.” Here, Santa’s Best could not show that their displays were directed at a relatively large or disparate audience. Santa’s Best’s conduct was more like personal solicitation, which is not advertising. (Nor, for the same reason, did Zurich have a duty to indemnify Monogram Licensing, which was Santa’s Best’s co-defendant in the underlying lawsuit.)