Page 50 - Reservation of Rights - Special Edition

NORTH CAROLINA
A reservation of rights letter may be used to prevent an insurer from being estopped from denying coverage under the policy once a defense is conducted with knowledge of facts taking the loss outside the coverage. Nat’l Mortg. Corp v. Am. Title Ins. Co., 255 S.E.2d 622, 630 (N.C. Ct. App. 1979), rev’d on other grounds, 261 S.E.2d 844 (1980).
Notice/Content
The reservation of rights should provide the insured with notice so that it understands that the insurer will not pay the costs of an action based on an incident not covered by the policy and to which the insurer has no duty to defend. N.C. Farm Bureau Mut. Ins. Co. v. Fowler, 589 S.E.2d 911, 914 (N.C. Ct. App. 2004).
In North Carolina Farm Bureau, the court ruled that a non- waiver agreement entered into by the insured that stated “no action heretofore or hereafter taken by [plaintiff] shall be construed as a waiver of the right of [plaintiff], if in fact it has such right, to deny liability and withdraw from the case,” was sufficient to put the insured on notice that the insurer would not indemnify an incident not covered by the policy. N.C. Farm Bureau Mut. Ins. Co., 589 S.E.2d at 914.
Estoppel/Prejudice
Where an insurer denies liability for a loss on one ground, at the time having knowledge of another ground of forfeiture, it cannot thereafter insist on such other ground if the insured has acted on its asserted position and incurred prejudice or expense by bringing suit, or otherwise. That means that the insurer must be specific as to the exact terms to which the insurer is relying on to deny coverage to the insured. Council v. Metro. Life Ins. Co., 256 S.E.2d 303, 306 (N.C. Ct. App. 1979).
Similarly, where an insurer assumes the defense of the insured without a reservation of rights denying liability under any grounds, that insurer is estopped from later denying coverage under the policy. Early v. Farm Bureau Mut. Auto. Ins. Co., 29 S.E.2d 558 (1944).
In Nationwide Mutual Insurance Co., the insurer settled
two of several claims against the insured and defended the insured as to other claims pursuant to a reservation of rights. The court rejected the insured’s contention that by settling two of the claims, the insurer had waived its reservation of rights as to the other remaining claims. The settlements of the claims in no way prejudiced the insured in the defense, in fact, the court noted that these settlements were actually
2018 ReseRvation of Rights - special edition
NORTH CAROLINA
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