Page 66 - Reservation of Rights - Special Edition

right after the insurer learns of the reason to disclaim the coverage. Id. All letters mailed out should indicate that the insurer will continue to reimburse the insured’s expenses as if they were covered under the policy “(b)ut with a full reser- vation of its right to deny coverage if its further investigation showed it is entitled to deny coverage” Id.
It works in a similar way for the denial of a claim. An insurer must issue a timely letter when denying a claim. S.W. Energy Corp.v Cont’l Ins. Co., 974 P.2d 1239, 1240, 1243 (Utah 1999). Such letters should recognize the reasons and relevant provisions or exclusions in the policy as to which the insurer will rely. Green v. State Farm Fire & Cas. Co., 127 P.3d 1279, 1281 (Utah Ct. App. 2005) Cert. Denied. 138 P.3d 589 (Utah 2006).
Waiver/Estoppel
Generally, “(w)aiver is an intentional relinquishment of a known right. It must be distinctly made, although it may be expressed or implied.” Meadow Valley Contrs., Inc. v. State DOT, 266 P.3d 671 2011 UT 35 (Utah 2011). For a waiver to occur a contractual right must be intentionally disregarded, as “waiver of a contractual right occurs when a party to a contract intentionally acts in a manner inconsistent with its contractual rights, and, as a result, prejudice accrues to the opposing party or parties to the contract” Id.
In addition there are three requirements for equitable estop- pel in Utah:
(1) “(A) statement, admission, act, or failure to act by one party inconsistent with a claim later asserted,”
(2) “(R)easonable action or inaction by the other party taken or not taken on the basis of the first party’s statement, admission, act or failure to act,’” and
(3) An “injury to the second party that would result from allowing the first party to contradict or repudiate such statement, admission, act, or failure to act.” Id.
An insurer waives coverage defenses when the insurer has knowledge of facts that gives rise to a coverage defense, and does not act promptly to assert or reserve the right to assert the defense. Continental Ins. Co. v. Kingston, 114 P.3d 1158, 1162 (Utah Ct. App. 2005). In Kingston, prior to issuing a reservation of rights letter, the insurer engaged in acts that were inconsistent with its subsequent rescission of the policy, such as paying for the insured’s living expenses after the insured home was destroyed by fire, authorizing the insured to retain restoration contractors and accepting premium pay- ments. The court ruled that these acts “indicate an unequivo- cal intent on Continental’s part to relinquish any right it had to deny coverage...” Id.at 1163. Also, because the insurer
sent its reservation of rights letter subsequent to these acts, the court rejected the insurer’s argument its reservation
of rights letter reserved its right to rescind the policy. Id. at 1164..
Grounds/Defenses
In general, when an insurer is presented with a tender of defense and said insurer believes they are not liable they must act in one of two ways. Summerhaze Co., L.C. v. FDIC, 332 P.3d 908, 921 (Utah July 8, 2014). Either the insurer will “protect its interests through a declaratory judgment pro- ceeding asking the court to determine coverage under an in- surance policy, or it may defend the suit under a reservation of its right to seek repayment later” Id.
An insurer however “may not refuse the tendered defense of an action unless a comparison of the policy with the underly- ing complaint shows on its face that there is no potential for coverage.” Id.
Essentially an insurer that declines a tender of defense by its insured gains the risk that not only it may soon be forced to compensate the insured’s legal expenses but in addition that they may ultimately have to pay for a loss that it never insured against Id.
An Insurer’s Right to Reimbursement
The provision governing Utah Right to Reimbursement is Utah Code Ann. § 31A-21-106(1)(a), which reads “Except as provided in Subsection (1)(b), an insurance policy may not contain any agreement or incorporate any provision not fully set forth in the policy or in an application or other docu- ment attached to and made a part of the policy at the time of its delivery, unless the policy, application, or agreement accurately reflects the terms of the incorporated agreement, provision, or attached document Utah Code Ann. § 31A-21- 106.”
Essentially, insurers cannot pursue a restitution claim based on something outside the contract language. United States Fid. & Guar. Co. v. United States Sports Specialty Ass’n, 2012 UT 3, 270 P.3d 464, 468 - 469 (Utah 2012).
An insurer could not seek restitution based on the extra- contractual theory of unjust enrichment where there was an express contract governing the subject matter of the dispute. As a result, there could be no extra-contractual right to restitution between the insurer and its insured, and only the express terms of the policy created an enforceable right to reimbursement. Id. at 471
Ultimately the terms of the contract will be the determining factor in what types of restitution can be sought.
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