Upload
others
View
4
Download
0
Embed Size (px)
Citation preview
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Presenting a live 90-minute webinar with interactive Q&A
Notice, Tender and Reservation of
Rights: Crafting Coverage Correspondence,
Evaluating Issues Raised by Defense Under ROR
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, JULY 12, 2017
Christian A. Cavallo, Partner, Goldberg Segalla, Newark, N.J.
Renee C. Callantine, Principal, Cornerstone Law Group, San Francisco
Eliot M. Harris, Member, Williams Kastner, Seattle
Christopher R. Weiss, Esq., Goldberg Segalla, Newark, N.J.
Tips for Optimal Quality
Sound Quality
If you are listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory, you may listen via the phone: dial
1-866-927-5568 and enter your PIN when prompted. Otherwise, please
send us a chat or e-mail [email protected] immediately so we can
address the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
FOR LIVE EVENT ONLY
Continuing Education Credits
In order for us to process your continuing education credit, you must confirm your
participation in this webinar by completing and submitting the Attendance
Affirmation/Evaluation after the webinar.
A link to the Attendance Affirmation/Evaluation will be in the thank you email
that you will receive immediately following the program.
For additional information about continuing education, call us at 1-800-926-7926
ext. 35.
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the ^ symbol next to “Conference Materials” in the middle of the left-
hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
FOR LIVE EVENT ONLY
Part One Notice and Tender
Renee C. Callantine San Francisco, CA
5
Policyholder’s Obligations: Comply with Policy Conditions
•Provide notice
•Cooperate with investigation
•Make “no voluntary payments”
6
Notice
•Notice of Occurrence
•Notice of Claim
•Tender of Defense
7
Considerations re Notice and Tender
• Identify relevant policies • Coverage period • Excess coverage • Additional insured coverage • Targeted tender
• Identify applicable law
• Notice to broker sufficient?
• Notice/Prejudice rule
8
© 2017 Goldberg Segalla LLP
www.GoldbergSegalla.com
NEW YORK | ILLINOIS | FLORIDA | MARYLAND | MISSOURI | NORTH CAROLINA
PENNSYLVANIA | NEW JERSEY | CONNECTICUT | UNITED KINGDOM
July 12, 2017
Insurer’s Response and
Reservation of Rights
Letter
Christopher R. Weiss (973) 681-7003| [email protected]
Christian A. Cavallo (973) 681-7004| [email protected]
© 2017 Goldberg Segalla LLP
Responding to the Tender An insurer typically has 3 ways to respond to the
tender of a liability claim:
1. Unconditional acceptance • Agree to defend and indemnify insured up to policy limit
• Waive any coverage issues
• Participate in defense and potential settlement
2. Disclaimer of coverage • Refuse to defend or indemnify insured for claims against it
• State requirements for timing and substance of such letters (e.g.,
N.Y. Ins. Law 3420(d))
• Typically cannot control defense or contest reasonableness of
settlement
• “Fairly debatable” basis – Pickett v. Lloyds, 131 N.J. 457 (1992)
3. Conditional acceptance under reservation of rights 10
© 2017 Goldberg Segalla LLP
Purpose of Reservation of Rights
Permits insurer to provide an initial defense while
reserving its right to later dispute coverage
• Insurer usually has limited information at inception of case
Additional info may show claims are not covered
Insurer wants to avoid defense/indemnity for non-covered claims and
preserve right to reimbursement of defense costs expended
• Insured may need quick defense to respond to pleadings
Notifies insured of potential coverage limits to make
informed decision
• E.g., scope of defense, covered and non-covered claims,
potential exclusions to coverage, potential conditions
11
© 2017 Goldberg Segalla LLP
Scope of Reservation of Rights
• Coverage defenses – claim outside purview of
insuring agreement or exclusion applies
• Policy defenses – basis for rescinding/voiding
coverage or denial due to breach of condition
• Reimbursement of fees, costs and payments
expended
• Request info from insured to further analyze
defenses
12
© 2017 Goldberg Segalla LLP
Timing of Reservation of Rights • Most states have rules about promptly responding
to request for coverage (e.g., N.J.A.C. 11:2-17.7)
• While no specific time for ROR letter, it should be
sent within a reasonable time
4 months or less can be reasonable. See Fire Ins. Exch.
v. Fox, 423 N.W.2d 325, 327 (Mich. App. 1988)
10 months or more can be unreasonable. See
Transamerica Ins. Group v. Chubb & Son, Inc., 554 P.2d
1080 (Ct. App. Wash. 1976)
• Focus is typically whether the untimely reservation
is prejudicial to the insured
• May need to update ROR as new info becomes
available
13
© 2017 Goldberg Segalla LLP
Drafting the ROR - Preparation • Choice of Law
Which state’s substantive law governs the provisions of
the policy at issue
Certain provisions may be void under state public policy
• Policies (and coverage parts) at issue
Type of policy – occurrence based or claims made
Primary or excess policy
Different coverage parts in package policy
• Relevant pleadings
• Extent of tender
Multiple insureds requesting coverage (e.g., owner and
company are sued)
14
© 2017 Goldberg Segalla LLP
Drafting the ROR - Generally
• “Fairly inform” insured of coverage position
• Some jurisdictions have no specific statutory or
regulatory requirements
• Must be comprehensive – risk of waiver and
estoppel in certain jurisdictions
Typically waiver and estoppel cannot be used to create
insurance coverage when none exists
Exception to general rule is when insurer assumes
defense without timely reserving its right to deny coverage.
See, e.g., Merchants Indem. Corp. v. Eggleston, 179 A.2d
505, 512 (N.J. 1962)
15
© 2017 Goldberg Segalla LLP
Drafting the ROR - Contents
• Introduction
• Factual background and procedural history
• Pertinent policy provisions
• Insurer’s coverage position
• Requests for additional information
16
© 2017 Goldberg Segalla LLP
Drafting the ROR - Introduction
• Identify claim/lawsuit against insured or putative
additional insured
• Identify documents reviewed
• Provide very brief summary of coverage position
(i.e., agree to defend under reservation of rights as
set forth in detail below)
17
© 2017 Goldberg Segalla LLP
Drafting the ROR – Factual
Background
• Identify pleadings that assert claims against the
insured
May be more than one pleading at issue (e.g., third-party
claims, cross-claims as well as Plaintiff’s complaint)
• Address specific counts in pleadings – whether they
pertain to insured
• Acknowledge that allegations may lack merit, but
this does not affect coverage
18
© 2017 Goldberg Segalla LLP
Drafting the ROR – Policy Provisions
• Identify each policy number, effective dates and
applicable limits
• Note whether any policy has “burning limits” –
where defense costs reduce indemnity limits
• Set forth applicable insuring agreement, exclusions,
conditions and definitions
• Set forth any endorsements or policy change forms
that may alter limits or relevant terms
• Note right to rely upon other provisions, whether or
not specifically quoted in letter
19
© 2017 Goldberg Segalla LLP
Drafting the ROR – Coverage Position • Issues affecting coverage for the entire lawsuit
E.g., occurrence outside of policy period, person does not
qualify as insured, exclusion that pertains to all claims
• Issues affecting coverage for certain claims
Intentional act claims v. negligence claims
Claims for punitive damages
• Whether duty to defend is triggered
Is policy umbrella, true excess, or excess by its terms?
No “suit” at the time of the tender
• Extent of legal analysis
Is letter addressed to coverage counsel or insured?
20
© 2017 Goldberg Segalla LLP
Drafting the ROR – Coverage Position
• With respect to issues identified reserve certain
rights to:
Withdraw from the defense
Deny coverage for all or part of settlement or adverse
judgment
Re-evaluate coverage/ supplement ROR upon discovery
of new information
Seek reimbursement of fees and costs expended
• Include “catch-all” reservation
Reserving all rights under the Policy at law, or in equity,
and noting that nothing in the letter should be construed by
the insurer as an admission of liability or waiver of any
defense. 21
© 2017 Goldberg Segalla LLP
Additional Considerations • State specific issues
Right to independent counsel due to defense under ROR
Provide insured with option to “accept or reject” defense
under ROR. See Burd v. Sussex Mut. Ins. Co., 56 N.J.
383, 389 (1970) (NJ does not recognize independent
counsel and instead requires such language)
Insured’s right to enter into a Morris agreement. See
United Servs. Auto. Ass’n v. Morris, 154 Ariz. 113 (1987)
• Balancing preservation with being overly broad
Do not need to include extraneous facts or inapplicable
policy provisions
May avoid overly burdensome requests (due to business
relationship)
• Identify defense counsel and issues with payment
of defense costs 22
Potential Conflicts of Interest
Renee C. Callantine
415.230.8737
23
Does a Reservation of Rights Entitle the Insured to Independent Counsel?
Some states: Mere assumption of defense under a reservation of rights entitles insured to independent counsel. ◦ Union Ins. Co. v. Knife Co., Inc., 902 F. Supp. 877, 880 (W.D.
Ark. 1995) (Insured entitled to independent counsel whenever some, but not all, claims are covered)
Other states: Insurer must offer independent counsel if reservation of rights creates a potential conflict of interest. ◦ Golotrade Shipping and Chartering, Inc. v. Travelers Indem.
Co., 706 F. Supp. 214, 219 (S.D.N.Y. 1989)
Michigan: Insured has no right to independent counsel. Appointed counsel must resolve conflicts in favor of the insured. ◦ Federal Ins. Co. v. X-Rite, Inc., 748 F. Supp. 1223, 1229 (W.D.
Mich. 1990).
24
Majority Rule
Insurer must offer independent counsel if reservation of rights creates an actual
conflict of interest. The conflict must be “significant, not merely theoretical, actual, not merely potential” - Dynamic Concepts, Inc. v. Truck Ins. Exch., 61 Cal. App. 4th 999, 1007 (1998) “The requirement of providing independent counsel for the insured arises only when there is an actual conflict of interest, rather than an appearance of a conflict of interest.” – Mut. Serv. Cas. Ins. Co. v. Luetmer, 474 N.W.2d 365, 368 (Minn. App. 1991). 25
How to determine if actual conflict exists
A conflict of interest triggering a right to independent counsel exists where “the facts to be adjudicated in the liability lawsuit are the same facts upon which coverage depends.” N. county Mut. Ins. Co. v. Davalos, 140 S.W.3d 685, 689 (Tex. 2004).
When the dispute between the insured and third party will require resolution of an issue that will bear directly on the outcome of the coverage dispute. Long v. Century Indem. Co., 163 Cal.App.4th 1460 (2008).
26
Issues that do not Give Rise to Right to Independent Counsel
Reservation of right to seek reimbursement of defense costs or amounts paid to settle claims against insured. Long v. Century Indem. Co., 163 Cal. App. 4th 1460 (2008)
Parties disagreement about venue not a conflict triggering right to independent counsel. N. County Mut. Ins. Co. v. Davalos, 140 S.W.3d 685, 688 (Tex. 2004)
27
Other Issues that may not Give Rise to Right to Independent Counsel
• Mere presence of covered and non-covered claims
• Reservation on issue not litigated in underlying matter
• Damages sought in excess of policy limits
• Punitive damages
• Defense of multiple insureds
28
Application: Reservation not on issue pertinent to resolution of underlying action
Where insurer reserves right to deny coverage because the person suing the insured in a personal injury action might be a “resident relative” whose claims are excluded from coverage, no true conflict exists because that issue will not be decided in the underlying action. See McGee v. Sup. Ct., 176 Cal.App.3d 221, 228 (1985).
Claimant in underlying copyright infringement claim had to prove only that it had ownership of a valid copyright and the copying of constituent elements of the work that are original; thus insurer’s reservation of rights on several potential exclusions that did not involve this proof did not trigger a right to independent counsel, even where they involved issues that were raised in the underlying action. Partain et al. v. Mid-continent Specialty Insurance Services, Inc., 2012 U.S. Dist. LEXIS 7530, *46.
29
Classic examples of reservations triggering right to Independent Counsel
• Where there are claims for both intentional and non-intentional acts, and the insurer reserves its right to deny coverage for intentional conduct.
• Toxic tort claims where some claims of injury would fall under the pollution exclusion.
• Construction defect claims where some damage would fall outside coverage.
30
Reservation based on Policy defense?
Continental Ins. Co. v. Bayless and Roberts, Inc., 608 P.2d 281 (Alaska 1980) – Insurer’s reservation on ground that insured violated policy conditions gave rise to right to independent counsel.
“Where, as here, the insurance company challenges the insured's right to enforce the policy on the ground the insured has breached a condition thereof, the insured has a right to demand an unconditional defense. Thus, the insurance company must either affirm the policy and defend unconditionally or repudiate the policy and withdraw from the defense.”
31
Who Chooses Independent Counsel?
• In some states, the insured selects independent counsel
• There may be statutory or other limitations on rates – e.g., Cal. Civ. Code section 2860(d)
• In some states, the insurer has the right to select independent counsel
• E.g., Michigan Millers Mut. Ins. Co. v. Bronson Plating Co., 496 N.W.2d 373, 378 (Mich.Ct.App. 1992), overruled in part on other grounds in Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776 (2003).
• In some states, independent counsel must be mutually agreed upon
• E.g., Fla. Stat. Ann. 627.426
32
© 2017 Goldberg Segalla LLP
www.GoldbergSegalla.com
NEW YORK | ILLINOIS | FLORIDA | MARYLAND | MISSOURI | NORTH CAROLINA
PENNSYLVANIA | NEW JERSEY | CONNECTICUT | UNITED KINGDOM
Critical Issues Raised By A
Defense Under An ROR:
Insurer’s Right to
Reimbursement Of Defense
Costs
Christopher R. Weiss (973) 681-7003| [email protected]
Christian A. Cavallo (973) 681-7004| [email protected]
© 2017 Goldberg Segalla LLP
Choice of Law Consideration
• Is right procedural issue or substantive issue?
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (procedural
matters governed by law of forum)
• Borden-Perlman Ins. Agency, Inc. v. Utica Mut. Ins.
Co., 2016 WL 1368589, at *5 (N.J. Super. Ct. App.
Div. Apr. 7, 2016) (finding reimbursement issue was
substantive and applied state law that governed the
terms of the policy)
34
© 2017 Goldberg Segalla LLP
Obligation to Reserve Right to
Reimbursement
• At a minimum, insurer should reserve this right in
ROR letter to preserve issue
Buss v. Superior Court, 939 P.2d 766 (Cal. 1997) (noting
insurer must properly reserve its right to reimbursement to
seek same)
Knapp v. Commonwealth Land Title Ins. Co. Inc., 932 F.
Supp. 1169 (D. Minn. 1996) (finding policyholder’s
acceptance of defense under ROR with right to reimburse
was implicit agreement)
Cincinnati Ins. Co. v. Grand Pointe LLC, 501 F. Supp. 2d
1145 (E.D. Tenn. 2007) (permitting reimbursement under
Tennessee law when noted in ROR)
35
© 2017 Goldberg Segalla LLP
Need for Policy Provision Allowing
Such Recovery
• Some courts will not permit ROR letter to broaden
the rights of the insurer (and obligations of the
insured) under the contract
General Agents Ins. Co. of Am., Inc. v. Midwest Sporting
Goods Co., 828 N.E.2d 1092 (Ill. 2005) (finding insurer
could not unilaterally modify its contract to create right)
Westchester Fire Ins. Co. v. Wallerich, 563 F.3d 707, 715
(8th Cir. 2009)(stating that the most recent decisions “have
refused to recognize claims by insurers for reimbursement
of defense costs expended under a unilateral reservation
of rights, absent a provision for such reimbursement in the
insurance policy.”).
36
© 2017 Goldberg Segalla LLP
Reasons in Favor of Allowing
Reimbursement (the “majority” approach)
• “Unjust enrichment” where insurer is paying for
unbargained-for defense costs. See Buss, 16 Cal. 4th
at 51; Hebela v. Healthcare Ins. Co., 851 A.2d 75, 86 (N.J.
App. Div. 2004)
• Further public policy that insurers would provide
defenses to insureds even in “questionable cases”.
• If insured fails to object to reserving right for
reimbursement, it is arguably estopped from doing
so later. See Century Sur. Co. v. Franchise Contractors,
LLC, 2016 WL 1030134, at *13 (S.D.N.Y. Mar. 10, 2016)
37
© 2017 Goldberg Segalla LLP
Reasons Against Permitting
Reimbursement (the “minority” approach) • If policy does not provide right to reimbursement,
ROR letter cannot broaden rights of insurer under
the terms of the contract
• Insurer has a contractual obligation to provide
defense for potentially covered claims. See Am. &
Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 2 A.3d 526 (Pa.
2010)
• Allowing reimbursement may undermine the broad
duty to defend. See Perdue Farms Inc. v. Travelers
Casualty and Surety Co. of Am., 448 F.3d 252 (4th Cir. 2006)
(finding partial reimbursement would create “backdoor
narrowing” of the duty to defend)
38
© 2017 Goldberg Segalla LLP
Considerations That May Affect Claim
• Which state’s substantive law governs the policy at
issue
• Whether insured specifically objected to reservation
of right or stayed silent
• Whether policy provides for right to reimbursement
• Whether non-covered claim was potentially covered
initially or was never covered
39
If Coverage Is Denied
Insured controls its own defense
Insured is responsible for payment of defense costs
Insurer has no right to control defense
If coverage is later found, may be required to pay all defense costs…regardless of rate and reasonable
41
If Coverage is Accepted Without Reservation
Generally, insurer has complete control of defense Exceptions can apply, e.g., potential for excess exposure
Insurer responsible to choose and pay for defense counsel “Tripartite Relationship” Insurer Insured Retained Defense Counsel
“Common interest” throughout litigation. Communications protected by privilege. Relationship between counsel and insured. Limitations of retained counsel’s representation.
42
If Coverage Is Accepted With Reservation
Who controls (and selects) the defense for defense under ROR depends on jurisdiction
Insurer retains control over defense under ROR, e.g., Washington State
Right to independent counsel – e.g., Indiana
Potential right to independent counsel when conflict arises – e.g., California
When independent counsel is required, there are other issues to consider
Statutory or other limitations on rates?
Who chooses independent counsel?
Varies by state
Some states require mutual agreement by insured and insurer – e.g., Florida
43
Insured perspective: ◦ Phrasing of discovery
◦ Decision to develop evidence in underlying case that may relate to coverage issues
◦ Summary judgment considerations ◦ Decision to move (or not move) for summary judgment on
potentially covered claims that would leave only uncovered claims remaining
◦ Trial strategy ◦ Jury instruction and jury interrogatories ◦ Potential that verdict may have implications on coverage
depending on how the verdict form is worded
Impact of Coverage Issues on Defense - ROR
44
Impact of Coverage Issues on Settlement - ROR
• Ability to settle when defended under ROR – Varies by State
• In some states, insured must obtain insurer consent to settle when defended under ROR – e.g., Washington
• In other states, insured has right to settle without insurer’s consent if notice is provided - e.g., Arizona
• Impact of policy limits (or less) settlement demand on insurer – Insurer must decide to accept demand
– Personal contribution by insured?
– If rejected, insurer risks potential waiver of policy limits for excess judgment against insured
– Potential bad faith/punitive damage exposure • Insured may have right to assignment of claim without insurer’s consent upon
rejection of policy limits demand
45