Source: http://dutytodefend.com/practice-pointer-response-options-to-insurer-decision-scope-of-reservation-of-rights/
Timestamp: 2019-04-22 08:36:21+00:00

Document:
When a liability insurer learns that its policyholder has been sued, it must make a series of decisions, the first of which is Yes, No, or Maybe. The policyholder, the plaintiff and their respective counsel have many options how to respond to each decision the insurer makes. When an insurer decides to reserve its rights to later deny coverage, the policyholder may respond to determine the scope of the reservation, its impact on conflicts of interest and what the policyholder may do about it.
A plaintiff sued a policyholder, who in turn notified a liability insurer, which in turn agreed to defend subject to a reservation of its rights to later deny coverage.
Determine the scope of the insurer’s reservation of rights, its impact on conflicts of interest, and the insurer’s obligation to pay for independent counsel.
“[A]n insurer may provide a defense under a reservation of rights. In some cases, there is a conflict of interest involv[ing] the insured trying to obtain coverage and the insurer trying to avoid it. When this happens, [t]he insurer may be required to provide the insured with independent counsel, who then controls the litigation.” “But not every reservation of rights entitles an insured to select Cumis counsel.” What constitutes a “disqualifying” conflict of interest that triggers an obligation by the insurer to pay for independent counsel has been stated variously by the courts, but the concept described is the same. A disqualifying conflict exists if any factual or legal dispute is unrelated to, irrelevant to, extrinsic to, independent of, or have nothing to do with the third party litigation. The insurer’s coverage dispute cannot be allowed to prejudice the policyholder. In the absence of express waivers by the insurer, a reservation of rights is unlimited as a matter of law.
A liability insurer must defend “immediately.” “To defend meaningfully, the insurer must defend immediately. ‘To defend immediately, it must defend entirely.’” “[E]very insurer shall immediately accept or deny the claim, in whole or in part. [It] shall do so in writing and shall provide to the claimant a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer’s knowledge [and] provide an explanation of the application of the provision, condition or exclusion to the claim [being denied].” Still, some courts have permitted insurers to reserve rights after significant delays.
Since the insurer has taken steps to protect its interests, the policyholder may decide whether to: 1) yield or resist; 2) cooperate with the plaintiff; 3) support or resist evidence of covered liability; and welcome a policy limit settlement offer.
“Where an insurer denies a claim, it shall provide to the [policyholder] a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer’s knowledge [including] an explanation of the application of the provision, condition or exclusion” relied upon.” However, a typical reservation of rights agrees to defend and broadly reserves “all” rights to later deny coverage, which many courts accept as sufficient. For example, where an insurer “undertook defense without specifically reserving any right [but was] largely general in nature and for the purpose of protecting against unknown eventualities which might subsequently arise [the court found that] this reservation created no disqualifying conflict.
7) whether the insurer will solicit a policy limit settlement offer from the plaintiff.
Confusion over the scope of an insurer’s reservation of rights may impact the policyholder in many ways: 1) whether the policyholder must accept representation by dependent counsel; 2) whether the policyholder may hire independent counsel at the insurer’s expense; 3) what response options the policyholder has to a Buss reservation; 4) and to a Blue Ridge reservation; and, 5) the proper scope of an immediate declaratory relief action.
Confusion over the scope of an insurer’s reservation of rights may impact dependent counsel: 1) dependent counsel’s ethical obligations to the policyholder; 2) including whether dependent counsel must comply with Rule 3-310; whether dependent counsel may be paid; whether dependent counsel must disgorge fees and costs to the policyholder; whether dependent counsel may be disciplined; and whether dependent counsel faces civil liability for breach of fiduciary duty.
The plaintiff may directly influence the scope of a coverage dispute be pleading into or out of coverage.
 See, Article: Estoppel, Waiver, and Forfeiture.
 Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 754; See Article: Silence Usually Concedes Coverage.
 Buss v. Superior Court (1997) 16 Cal.4th 35, 61 fn. 27 (ellipsis omitted).
 Assurance Co. of America v. Haven (1995) 32 Cal.App.4th 78, 84 (citations and ellipses omitted).
 Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1006.
 See, Montrose I, supra, 6 Cal.4th at 301; Montrose II, supra, 25 Cal.App.4th at 909.
 Mariscal, supra, 42 Cal.App.4th at 1623.
 Mariscal, supra, 42 Cal.App.4th at 1619-1620.
 Buss v. Superior Court (1997) 16 Cal.4th 35, 48; citing Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295.
 Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 31.
 See, Practice Pointer: Incentives to Confess Covered Liability.
 See, Practice Pointer: How to Make a Policy Limit Settlement Offer Properly.
 Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 131 (ellipses omitted).
 See, Article: Duty to Investigate.
 See, Article: Civil Code §2860 – Limited Application.
 See, Article: Dependent Counsel Is Not Exempt from Rule 3-310.
 See, Article: Duty to Advise Settlement.
 See, Article: Dependent Counsel Conflicts Arise When the Insurer Reserves Rights.
 See, Practice Pointer: Buss Defense Cost Reimbursement – Response Options.
 See, Practice Pointer: Blue Ridge Settlement Reimbursement – Response Options.
 See, Practice Pointer: Downside of Suing for Declaratory Relief.
 See, Article: Duty of Confidentiality.
 See, Article: Plead Into Coverage Properly.

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