Page 41 - Reservation of Rights - Special Edition

ing the insurer from later denying coverage under the policy.
See id.
Estoppel
The insurance company is not automatically estopped to deny coverage by defending without a reservation of rights where it does not have knowledge of the non-coverage facts under the policy. It is only undertaking a defense without reservation while having knowledge of non-coverage or the applicability of a policy defense which can potentially create a waiver or estoppel. Kinnaman-Carson v. Westport Ins. Corp., 283 S.W.3d 761, 765 (Mo. banc 2009) (quoting Mistele v. Ogle, 293 S.W.2d 330 (Mo. 1956)).
Insured’s Refusal of a Reservation of Rights
In Missouri, if an insured accepts the defense under a reservation of rights, an insurer may rely on all of its avail- able coverage defenses and may even file a declaratory judgment without that declaratory judgment being con- sidered a denial of coverage. Safeco Ins. Co. of America v. Rogers, 968 S.W.2d 256 (Mo. App. W.D. 1998). However, the insured may refuse an insurer’s offer of a defense under a reservation of rights. Butters v. City of Independence, 513 S.W.2d 418 (Mo. 1974). If the insured refuses the defense under a reservation of rights, “the insurer has three options: (1) [it] may represent the insured without a reservation of rights defense; (2) [it] may withdraw from representing the insured altogether; or (3) [it] may file a declaratory judgment action to determine the scope of [the] policy’s coverage. If the insurer chooses (1), i.e. to defend without reservation,
it has the opportunity to control the litigation. If the insurer chooses (3), i.e. files a declaratory judgment action, the decision...is a risky one...[because it] is treated as a refusal to defend an insured, and, if unjustified, the insurer is treated as if it waived any control of the defense [and rights to par- ticipate in] the underlying tort action. If its decision concern- ing coverage is wrong [the insurer] should be bound by the decision it has made.” Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 88 (Mo. Ct. App. 2005) (quoting State ex rel. Rimco, Inc. v. Dowd, 858 S.W.2d 307, 309 (Mo. App. E.D. 1993)) (internal quotation marks and citations omitted).
An insured may waive its prior refusal of the defense
through inaction. For example, in Brooner & Associates, the insurer offered to defend under a reservation of rights, but the insured indicated it would not accept such a tender and demanded that the defense be undertaken without a reser- vation of rights. Nonetheless, the insurer continued to de- fend, and at no time did the insured indicate that it intended to assume exclusive control of the defense. Distinguishing prior cases, the court ruled that the insurance company’s reservation of rights was sufficiently specific to advise the insured of the basis for the disclaimer of coverage. Since the insured never rejected the actual defense of the action by the insurance company, it waived the right to claim that the insurance company had improperly conducted the defense, and the reservation of rights defense was proper. Brooner
& Assocs. Constr. Co. v. W. Cas. & Sur. Co., 760 S.W.2d 445 (Mo. App. 1988).
Conflicts of Interest and Independent Counsel
When the interests of an insurer come into conflict with those of its insured, the insurer is duty-bound to “sacrifice its interests in favor of those of the insured.” Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 95 (Mo. Ct. App. 2005) (internal quotation marks and citations omitted).
When an insurer tenders a defense with a reservation of rights, a potential conflict of interest arises. There is no inher- ent conflict of interest where an insurer is defending under a reservation of rights, see Allen v. Bryers, 512 S.W.3d 17, 33- 34 (Mo. banc 2016), but if the facts are such that an insurer in control of the defense will be as concerned with develop- ing facts supporting non-coverage as it will be developing facts supporting non-liability, then a conflict arises. James
v. Paul, 49 S.W.3d 678 (Mo. banc 2001) (insurer would have had conflict of interest defending insured accused of intentional conduct, therefore insurer was not collaterally estopped from litigating coverage questions); see also Cox v. Steck, 992 S.W.2d 221 (Mo. App. S.D. 1999) (plaintiff sued insured for assault and negligence; since insurer’s policy ex- cluded expected or intended injury, insurer could not argue insured’s acts were not intentional without creating a conflict of interest).
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