Page 59 - Reservation of Rights - Special Edition

puted to the principal, but notice received by the principal
is not imputed to the agent. Knox-Tenn Rental Co. v. Home Ins. Co., 2 F.3d 678 (6th Cir. 1993). In Knox-Tenn Rental Co. v. Home Ins. Co., the fact that the attorney who represented both the insured employer and the employee received a copy of the reservation of rights letter from the insurer did not inform the employee of reservation of rights where the letter only notified the attorney that the insurer was reserving its rights with respect to its defense of company. Id. The let- ter made no reference to the employee and did not reserve the insurer’s rights with respect to employee’s defense. Id.
Waiver/Estoppel
Under Tennessee law, an insured is presumed to have suf- fered actual prejudice from an insurer’s failure to notify the insured directly of reservation of rights where an insurer takes charge of a defense, insured is cast in judgment, and the insured never received adequate notice that the insurer was preserving defenses on policy until the judgment was entered. Knox-Tenn Rental Co., 2 F.3d at 678.
In Knox-Tenn Rental Co, a professional liability insurer was estopped from denying coverage for a judgment against the insured’s employee in light of the insurer’s failure to advise him adequately of its reservation of rights in connection with providing defense counsel to him. Id. Notice of reservation of rights that was sent to insured’s employer was not suf- ficiently clear to provide notice to the employee. Id.
Reimbursement for Defense Costs
The court in Terra Nova Ins. Co. v. 900 Bar, Inc. found that the insurer was not entitled to reimbursement for defense costs because of the general nature of the reservation of rights; the insurer appointed counsel for its insured subject to a general reservation of rights letter. United Nat. Ins. Co. v. SST Fitness Corp., 309 F.3d 914, 919 (6th Cir. 2002) (citing Terra Nova Ins. Co. v. 900 Bar, Inc., 887 F.2d 1213 (3d Cir. 1989)).
Courts in other jurisdictions thus consistently have held that an insurer is entitled to reimbursement for defense costs when the insurer did not have a duty to defend any of the asserted claims where the insurer: 1) timely and explicitly reserves its right to recoup the costs; and 2) provides specific and adequate notice of the possibility of reimbursement.
The general rule thus appears to be that, if these conditions are met, a reservation of rights is enforceable even absent an express agreement by the insured. United Nat. Ins. Co. v. SST Fitness Corp., 309 F.3d 914, 919 (6th Cir. 2002).
The court therefore found National Union could seek reim- bursement for the non-covered claims provided it was able to produce evidence allocating the costs of the defense be- tween the covered and non-covered claims. Id. With regard to National Union’s right to reimbursement for the non- covered claims pursuant to its reservation of rights, the court held that “under an insurance contract, the insured only bargains for payment for defense costs for claims which, viewing the facts of the complaint, are potentially covered under the policy.” Id. Because the insured does not bargain for a defense for claims which are not potentially covered, there is no duty under the policy to pay those defense costs, and the insured cannot expect the payment of a defense in such circumstances. Logically, then the insured must reim- burse the insurer for costs expended defending claims which are not potentially covered. To hold otherwise would provide a windfall to the insured. Id.
Conflicts of Interest and Independent Counsel
Under Tennessee law, an insurer possesses no right to con- trol the methods or means chosen by an attorney to defend the insured. An insurer cannot control the details of an attorney’s performance, dictate strategy or tactics employed, or limit attorney’s professional discretion regarding his or her representation of insured. Cincinnati Ins. Co. v. Grand Pointe, LLC, 501 F. Supp. 2d 1145 (E.D. Tenn. 2007).
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