Page 31 - Reservation of Rights - Special Edition

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Content
A reservation of rights letter should state the policy language and the facts on which a disclaimer would be based. Pa- trons Oxford Ins. Co. v. Harris, 905 A.2d 819, 822-823 (Me. 2006). A disclaimer of coverage should be expressed and should cite the language in the policy that supports the dis- claimer. Marston v. Merchs. Mut. Ins. Co., 319 A.2d 111, 113 (Me. 1974).
Insured’s Right to Enter into Settlement
settlement, including the amount of damages, is shown to be fair and reasonable, and free from fraud and collusion. The issues of the fairness and reasonableness of the settlement, as well as whether it is the product of fraud and collusion, may be brought by the insurer in the same action in which it asserts its coverage defense. If the claimant cannot show that the settlement and the damages or the settlement amount are reasonable, the claimant may recover only that portion which he proves to be reasonable. If the claimant cannot prove reasonableness, the insurer is not bound. Likewise, if the settlement is found to be the product of fraud or collu- sion, the insurer is not bound. Patrons Oxford,905 A.2d at 822-823.
Control
When an insurer reserves its rights to contest coverage of
a claim in litigation, it surrenders its right to control that litigation. Patrons Oxford,905 A.2d at 825-826. Beyond this, the issues surrounding conflict of interest and role of inde- pendent counsel have not yet been decided by the Maine judiciary or legislature.
An insured being defended under a reservation of rights
is entitled to enter into a reasonable, non-collusive, non- fraudulent settlement with a claimant, after notice to, but without the consent of, the insurer. The insurer is not bound by any factual stipulations entered as part of the underlying settlement, and is free to litigate the facts of coverage in a declaratory judgment action brought after the settlement is entered. If the insurer prevails on the coverage issue, it is not liable on the settlement. If the insurer does not prevail as to coverage, it may be bound by the settlement, provided the
2018 ReseRvation of Rights - special edition
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