Page 39 - Reservation of Rights - Special Edition

insured is estopped to deny liability if the insurer’s conduct results in prejudice to the insured. However, the insurer will not be estopped if no prejudice results to the insured. S. Farm Bureau Cas. Ins. Co. v. Logan, 119 So. 2d 268 (1960).
Reimbursement for Defense Costs
There is no Mississippi case or statutory authority specifi- cally addressing this issue, although the Federal Fifth Circuit Court of Appeals has looked at the question in a case from the adjacent State of Louisiana, in the somewhat unique posture of consideration of the MCS-90 Endorsement to a Trucking policy. In T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667 (5th Cir. 2001), the Court noted that the reservation of rights letter may provide the insurer with the right to seek reimbursement for defense costs it pays if it later establishes that those costs were incurred in defending non-covered claims. The reason for allowing an insurer to seek reimbursement of the cost associated with defending non-covered claims is that the insurer is required to defend both covered and non-covered claims but does not receive
a premium for defense of the non-covered claims. Reserva- tion of that right to recover those costs must be clear, and the insured must come forward to object or risk waiving the ability to do so subsequently. The court in that case held, however, that because the insurer had a legal duty to defend the insured, it had no right to recover defense costs incurred
Conflicts of Interest and Independent Counsel
The Supreme Court of Mississippi has held that an insurer, defending an insured under a reservation of rights, pres- ents a “clear conflict of interest.” Moeller, 707 So. 2d at 1071. Thus, if the insurer elects to defend while reserving
its rights, it must allow the insured to select its own counsel to defend the claims that fall outside the policy’s coverage. Additionally, the insurer becomes liable for payment of the reasonable legal expenses of such counsel. Id.; see also Am. Guarantee & Liab. Ins. Co. v. 1906 Co., 273 F.3d 605, 621 (5th Cir. 2001) (applying Mississippi law) (where insurer agreed to defend insured only under a reservation of rights, and insured was potentially exposed to liability in excess
of coverage, the insurer was obligated to indemnify the insured for insured-selected independent counsel); Liberty Mut. Ins. Co. v. Tedford, 644 F. Supp. 2d 753, 759 (N.D. Miss. 2009) (“Moeller stands for the proposition that when a conflict of interest arises between an insured and the insurer,
particularly through a reservation of rights or the situation in which some claims are clearly not covered by the insurance policy, the insurer is under an obligation to permit the insured to select his or her own individual counsel with the fees and costs to be paid by the insurer.»).
If a conflict of interest arises during the attorney’s repre- sentation of the insurer and the insured, “defense counsel should withdraw from representation of either if there is any possibility that representing one and not the other may be injurious to the client that the attorney ceases to repre- sent.” Moeller, 707 So.2d at 1071. If the liability insurance policy covers only a portion of the claim against the insured or covers only one theory of liability, “[the attorney] should undertake to represent only the interest of the insurer for the part covered, and the insurer should afford the insured ample opportunity to select independent counsel to look after his/her interest.” Id. at 1062.
In a more recent case, Federal Ins. Co. v. Singing River Hospital System, 850 F.3d 187 (5th Cir. 2017), the Court held essentially that the Insured’s right to independent counsel paid for by the Insurer, as recognized in the Moeller case, did not excuse the Insured from complying with other provisions of the specific policy at issue in the case. In this case, that involved an ‘eroding limits’ provision – whereby defense costs eroded the $1 million policy limits, and those costs included those incurred for the Insured’s independent counsel (following the rationale first explained in Southern Healthcare Services, Inc. v. Lloyd’s of London, 110 So.3d 735 (Miss. 2013)).
Time for Providing Insured with Coverage Position/ Reservation of Rights
• No case law, regulation or statute governs the time required to provide an insured with a coverage position or reservation of rights.
• The insurer clearly should enforce whatever obligations it has undertaken in the applicable insurance policy, however, in regard to «timely and thorough» investigation and response to a claim.
Particularly when suit has been filed, it is clearly required that the insurer provide the insured with a coverage expla- nation within the time frame to respond to the Complaint.
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