Page 17 - Reservation of Rights - Special Edition

Timeliness of Reservation of Rights Letter
Delaware, unlike other states, does not have any controlling law with respect to the timeliness of a reservation of rights letter. Absent either a statute or case law setting forth precise guidelines, the timeliness of a reservation of rights letter is a question of fact, decided on a case by case basis. Law and Practice of Insurance Coverage Litigation § 8:11.
For example, a commercial trucker’s insurer’s reservation
of rights letter was considered timely so that the insurer could not be estopped from denying coverage where the letter was sent less than three months after the insurer was informed that the insured was served in the action. Ameri- sure Mut. Ins. Co. v. Carey Transp., Inc., 578 F. Supp. 2d 888 (W.D. Mich. 2008).
By contrast, however, in cases where the insured is preju- diced by receiving a late reservation of rights letter, the in- surer can be estopped from denying coverage. For example, in Meirthew v. Last, 135 N.W.2d 353, 354 (Mich. 1965), the insurance company was estopped from denying coverage to their insured because the reservation of rights letter was sent several years after the action was commenced and came too late to avoid presumptive prejudice of both the insured’s and, consequently, the plaintiff’s rights especially considering the lack of loyalty suggested by such delay.
Waiver
Waiver is the voluntary and intentional relinquishment of a known right. The standard for demonstrating that an insurer waived its rights in Delaware is “quite exacting.” Amirsaleh
v. Bd. of Trade of City of New York, Inc., 27 A.3d 522 (Del. 2011). “[The doctrine] implies knowledge of all material
facts and an intent to waive, together with a willingness to refrain from enforcing those [ ] rights.” Id. See also Jam Transp. Inc. v. Harleysville Mut. Ins. Co., 937 F. Supp. 2d 532, 536 (D. Del. 2013) (applying Delaware law); AeroGlobal Capital Management, LLC v. Cirrus Indus., 871 A.2d 428, 444 (Del. 2005). Furthermore, the facts relied upon to demonstrate waiver must be unequivocal. Jam Transp. Inc, 937 F. Supp. 2d at 536.
Applying those principles, Delaware has held that three ele- ments must be demonstrated to invoke the waiver doctrine: (1) that there is a requirement or condition capable of being waived, (2) that the waiving party knows of that requirement or condition, and (3) that the waiving party intends to waive that requirement or condition. Amirsaleh, 27 A.3d at 522.
In G. M. S. Realty Corp., 89 A.2d at 858-860, the court held an insurer to have waived their right to disclaim liability even though they sent a reservation of rights letter that stated: “Any action taken by the said party of the second part inves- tigating the cause of the fire or investigating and ascertaining the amount of loss and damage to the property shall not waive or invalidate any of the conditions of the policy.” Id.
However, the adjuster offered to pay the insured the amount claimed for the loss, which the court held went far beyond ‘investigating the cause of the fire or investigating and ascertaining the amount of loss and damage”. Id. The court further noted that arguments concerning waiver of defenses are always construed strictly against the insurer and will not be extended so as to prevent a waiver by acts not within the policy’s terms. Id.
Estoppel
Estoppel is an equitable doctrine intended to prevent a party from taking unconscionable advantage of his own wrong
by asserting his strict legal rights. The Delaware Superior Court defined the doctrine of estoppel, as it applies to
the actions of an insurer, as misleading conduct by or on behalf of the insurer which is relied upon by the insured
to his detriment. Ottendorfer v. Aetna Insurance Company, 231 A.2d 263 (Del. Supr. Ct. 1967). To establish estoppel, plaintiff must show that defendant misled the plaintiff, and that plaintiff relied on the misrepresentation to its detriment. In effect, the principal of estoppel prevents the assertion of a contractual condition by a party who, through words or conduct, has fostered the impression that the condition will not be asserted as a legal defense. Id.
Additionally, in Employers’ Liability Assurance Corp. v. Mad- ric, 183 A.2d 182 (Del. Supr. Ct., 1962), the court noted
that “estoppel is a rule that in the interest of justice sup- presses the truth. One who asserts an estoppel must show that he was ignorant of the truth; and he must have been permissibly ignorant thereof.” Id.
Delaware follows the minority review with respect to estop- pel. This minority rule states that “where an insurer or its agent misrepresents to an insured the coverage of an insur- ance contract, or the exclusions therefrom, innocently or otherwise, and the insured reasonably relies on the misrep- resentation to his ultimate detriment, the insurer is estopped to deny coverage after a loss on a risk or from a peril that
is actually not covered by the terms of the policy, but that would have been covered if the misrepresentation had been true.” 26 Am. Jur. Proof of Facts 2d 137. The majority rule, however, holds that estopped is not available to broaden the scope of insurance coverage to that which is not protected against in the policy or expressly excluded therefrom.
In First Fed. Sav. & Loan Ass’n. v. Nationwide Mut. Fire Ins. Co., 460 A.2d 543, 546 (Del. 1983), the insured tried to argue that his insurer should be estopped from asserting its policy’s limitation defense due to its failure to respond to a reservation of rights letter. The court, relying on Murray v. Lititz Mut. Ins. Co., 61 A.2d 409 (Del. Super. Ct. 1948), stated that the insured was not estopped from asserting defenses due to not receiving a response to his letter, because plaintiff cannot be heard to say that he was misled into refraining from filing his action.
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