Untimely Ror Letter Leads To Estoppel

On Behalf of | Apr 25, 2019 | Insurance Law

Recently the Kansas Supreme Court held that the insurance company’s untimely reservation of rights letter estopped the insurer from denying coverage. In Becker v. The Bar Plan Mutual Insurance Co., 419 P.3d 212 (Kan. 2018), the trial court ruled that the insurance company that had issued the attorney’s claim made professional liability policy had no duty to defend a claim made before the policy’s inception, notwithstanding the insurance company’s failure to reserve its rights to deny coverage in a timely manner. The trial court found that coverage could not be expanded by estoppel. However, the Kansas Supreme Court disagreed.

The Supreme Court began its analysis by explaining the general rule that was followed by the lower courts against the expansion of coverage through waiver or estoppel was inconsistent with the widely-accepted principle that when an insurance company offers its insured a defense without a reservation of rights, the insurer loses its coverage defenses that the insurer had knowledge of when it undertook the defense without reservation. The Court reasoned that an insurer’s defense without a reservation of rights typically resulted in estoppel. Estoppel required detrimental reliance on the part of the proffering party. Once the insured’s reliance on the insurer‑controlled defense was established, prejudice to the insured was then assumed under Kansas law because the insurer was in a position to tailor the insured’s defense in a manner that advanced its own coverage defenses to the detriment of the insured. The Court held that a liability insurer’s failure to provide the insured with an adequate and timely reservation of rights to contest coverage before taking control of the insured’s defense estopped the insurer from raising coverage defenses thereafter. The question of adequacy and timeliness of the reservation were jury questions.