A physician was sued for defamation and interference with business relations. The physician had liability insurance policies with two different insurers: Physicians Liability and American National. The doctor reported the lawsuit to both insurers.
Physicians Liability agreed to defend the lawsuit, but American National refused to provide a defense or participate in the cost of defense. Physicians Liability sued in federal court asking the court to rule that American National was responsible for one-half of the expenses.
The trial court ruled in favor of Physicians Liability and ordered American National to pay one-half. The trial court also ruled that Physicians Liability was not entitled to recover prejudgment interest from American National on the amount awarded. Both parties appealed.
The Tenth Circuit Federal Court of Appeals agreed with the trial court’s ruling and held: 1) the policy language of the American National policy required the insurer to defend the physician; 2) Physicians Liability had a contractual right of subrogation against American National because the Physicians Liability policy stated "in the event of any payment under this policy, the company shall be subrogated to all the insured’s rights of recovery therefor against any person or organization…"; and 3) Physicians Liability could not recover prejudgment interest on the defense costs that it was entitled to collect against American National because prejudgment interest applies only to liquidated claims. The amount of defense costs was unliquidated therefore no interest could be collected.