Page 27 - Reservation of Rights - Special Edition

tion sued the insured contractor and its insurer for alleged construction defects. The insured settled its claims with the association and entered into a stipulated judgment. Both parties filed cross-motions for summary judgment on cover- age issues; the trial court held that the insurer waived its position of no coverage by failing to reserve rights for over two years after it received notice of the claim. The appellate court affirmed, holding that a failure to reserve rights can broaden the scope of coverage under a commercial general liability policy. Waiver or estoppel applies, which limits an insurer’s ability to challenge coverage upon a breach of the duty to defend, if and only if the insured is prejudiced by the insurer’s breach. Id.
Content
The reservation-of-rights letter should set forth the reasons why the insurance company believes the insured might not ultimately be entitled to coverage. Failure on the part of the insurance company to specify the known reasons upon which the insurance company reserves its rights may preclude the insurance company from later asserting policy defenses that have not been identified.
The reservation-of-rights notice must, in a straightforward manner, inform a reader of average intelligence that while the insurance company is providing a defense, it is doing so without waiving any rights to contest liability under the policy. Ambiguities in the reservation notice will be con-
strued against the insurance company. The Claim Adjuster’s Automobile Liability Handbook § 2:9.
Reimbursement for Defense Costs
Under Kentucky law, as predicted by the district court, a commercial general liability (CGL) insurer that paid a settle- ment in underlying antitrust suit against its insured could recover the costs of the settlement from insured pursuant
to the reservation of rights letter, even though the underly- ing complaint asserted disparagement claim that fell within policy’s scope, policy did not provide for reservation, and insured objected to reservation of rights, where policy did not provide coverage for antitrust liability generally, plaintiff in underlying action did not provide sufficient evidence to support disparagement claim, and settlement did not involve payment for any other covered claim. Travelers Prop. Cas. Co. of Am. v. Hillerich & Bradsby Co., 596 F. Supp. 2d 1020 (W.D. Ky. 2008), aff’d, 598 F.3d 257 (6th Cir. 2010)
In United Nat. Ins. Co. v. SST Fitness Corp., a commercial general liability (CGL) insurer that provided defense to the insured under a reservation of rights was not considered by the court to be a volunteer; thus, the volunteer defense did not apply when the insurer, after subsequently obtaining declaratory judgment that it had had no duty to defend ac- tion, sought to recoup its defense costs. United Nat. Ins. Co. v. SST Fitness Corp., 309 F.3d 914 (6th Cir. 2002).
2018 ReseRvation of Rights - special edition
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