Opinion ID: 1205488
Heading Depth: 3
Heading Rank: 3

Heading: Waiver, Estoppel, and HRE 403

Text: The fire loss in this case occurred on or about June 21, 1987. Best Place timely notified Penn of the loss, and, by letter dated October 21, 1987, submitted a Sworn Statement in Proof of Loss. On December 15, 1987, Penn sent a letter to Best Place acknowledging receipt of Best Place's letter but contesting and rejecting the amounts set forth in the Proof of Loss. Penn's letter also requested that, by December 29, 1987, Best Place submit various documents pertaining to its business. The letter concluded as follows: On the condition that the above documents have been received in this office before the close of business hours on December 29, 1987, Penn-America requests that the insured submit to an examination under oath on any and all matters material to the rights and obligations of the parties with respect to the claim being made. That examination under oath will start at these offices on January 13, 1988 at 10:00 a.m. and will be conducted by a member of this firm in the presence of a court reporter. If it is impossible for the insured to attend the proceeding, please contact me as soon as possible to arrange for a mutually convenient date. Neither this letter nor any investigation, adjustment or proceeding mentioned above is intended to and shall not be construed as an admission or denial of liability on the part of Penn-America as to the claim being made nor as a waiver of any of the terms, provisions or conditions of the captioned contract of insurance, nor of any of the obligations of the insured, nor of any defense now or hereafter available to Penn-America. I especially call your attention to the requirement that the insured shall render to the company a Proof of Loss within 60 days following the date of damage to or destruction of personal property. Best Place did not comply with any of Penn's request. Instead, Best Place retained counsel who sent three letters to Penn's attorney dated February 3, 1988, February 19, 1988, and March 23, 1988. The three letters sought to ascertain the basis of Penn's prior requests, as well as an explanation for nonpayment on Best Place's claim. No further communication transpired between the parties, and, on June 20, 1988, Best Place filed suit. On August 5, 1991, Best Place filed a motion in limine to preclude evidence based on: (1) Penn's Waiver; (2) Estoppel; and (3) HRE Rule 403. Specifically, Best Place sought to exclude the following: (1) any and all evidence that the fire that damaged Best Place's property was an arson fire; (2) any and all evidence of any complicity of Best Place in causing the fire in question; (3) any and all evidence of Best Place's financial condition at the time of the fire; and (4) any and all evidence of Best Place's alleged breach of duty under the insurance contract. On March 12, 1992, the trial court filed an order granting Best Place's motion to exclude evidence based on waiver, estoppel, and HRE Rule 403. Unfortunately, a review of the record does not indicate the trial court's precise basis for its ruling. Accordingly, we examine each of the grounds asserted for exclusion and analyze the issues accordingly. The underlying premise of Best Place's motion to exclude evidence of arson and breach of contractual duties is that Penn's failure to respond constituted a denial of the claim and a waiver of certain defenses. The first issue we must address, then, is whether Penn's failure to respond to the three letters sent by Best Place's attorney constituted a denial of Best Place's claim. Determining the legal effect of an insurer's failure to respond to its insured is a question of law that we review de novo. Best Place, citing Ward v. Pacific Fire Ins. Co., 115 S.C. 53, 104 S.E. 316 (1920), contends that, unless there is a bona fide attempt to adjust a loss, there is, as a matter of law, a denial of the claim. In Ward, the insurer failed to respond to three letters informing the insurer of its insured's fire loss. After approximately eight months from the date of the fire, the insurer had still not responded substantively to the letters informing it of the fire loss, and the insured brought suit. The insurer denied liability generally, and specifically on the ground, inter alia, that the insured had not furnished a proof of loss as required by the policy. Nevertheless, the insured prevailed at trial. In affirming the judgment, the court in Ward rejected the insurer's contention that the trial court erred in refusing its motion for a directed verdict on the ground that plaintiff had not filed proofs of loss within the time required by the policy. The court reasoned that the insurer's denial of liability precluded the necessity of furnishing proofs of loss as required by the policy. In recognizing that the insurer had denied liability, the court stated that [w]hile there was no express or unequivocal denial of liability during the period of time prescribed in the policy within which proofs of loss were to be and might have been furnished, yet defendant's silence, in the light of facts and circumstances, clearly warranted the inference that liability was and would be denied, as it was in fact denied, and plaintiff was warranted in so believing and in acting accordingly. Id. 104 S.E. at 317. As to the question whether an insurer's silence may be interpreted as a denial of a claim so as to constitute a waiver of a policy's proof of loss requirement, `[i]t has been stated that unless there is a bona fide attempt by the [insurance] company to adjust a loss, there is a refusal to pay. Therefore, the mere effect of silence or inaction might be sufficient to excuse compliance.' Reeder v. Western Fire Ins. Co., 241 Ark. 731, 410 S.W.2d 122, 124 (1967) (quoting Appleman's Insurance Law and Practice, Volume 5, § 3633). We agree that a denial of a claim need not be express. In this case, Penn failed to respond for over four months to three letters sent by the insured's attorney which sought information on the status of the claim and indicated a willingness to comply with Penn's future requests. Penn contends, however, that, because Best Place never submitted the information it requested in its original letter dated December 15, 1987, Penn was unable to decide whether to pay or deny the claim. Although Best Place failed to respond in a timely manner to the requests and obligations set forth in Penn's December 15, 1987 letter, we are not persuaded that Penn's letter released it from any further obligation under the policy. Accordingly, we hold that the trial court was correct in concluding that Penn's failure to respond for over four months warranted an inference that Best Place's claim was denied. We now turn to the issue whether Penn's denial of Best Place's claim precluded evidence relating to the defenses of arson and breach of duty under the policy in question. Best Place asserted waiver, estoppel, and HRE Rule 403 as the three grounds in support of its motion to exclude such evidence. We now address those grounds in turn. We note at the outset that: [i]n the context of insurance law, and especially with regard to limitation provisions in insurance policies, the terms waiver and estoppel have often been used without careful distinction, and thereby abused and confused. This doctrinal confusion, epitomized by the frequently echoed phrase waiver by estoppel, is so deeply rooted some courts have suggested that the term waiver, as applied in Illinois to insurance cases, is simply another term for estoppel. Notwithstanding the confusion already engendered by any of these cases, it is elementary that waiver and estoppel are two separate and distinct doctrines. The fact that these doctrines are closely akin and often may coexist does not mean they are identical in connotation. Waiver encompasses either an express or implied voluntary and intentional relinquishment of a known and existing right. Waiver is essentially unilateral in character, focusing only upon the acts and conduct of the insurer. Prejudice ... or detrimental reliance is not required. Equitable estoppel, on the other hand, generally is based upon an insurance carrier's conduct and/or representations which misled an insured to his [or her] detriment. Salloum Foods & Liquor, Inc. v. Parliament Ins. Co., 69 Ill.App.3d 422, 26 Ill.Dec. 399, 403-04, 388 N.E.2d 23, 27-28 (1979) (citations and footnote omitted).
As previously stated, waiver is defined as an intentional relinquishment of a known right, a voluntary relinquishment of rights, and the relinquishment or refusal to use a right. Estate of Janet Frances Searl, 72 Haw. 222, 226-27, 811 P.2d 828, 831 (1991) (citation omitted). In addition, waiver may result from `such conduct as warrants an inference of [an intentional relinquishment of a known right], and it is not essential to its application that prejudice results to the party in whose favor the waiver operates.' Wilart Associates v. Kapiolani Plaza Ltd., 7 Haw.App. 354, 359, 766 P.2d 1207, 1210 (1988) (citation omitted). Best Place contends that the following statement in its counsel's letter dated March 23, 1988, precipitated an intentional relinquishment by Penn of a known right: If you do not respond to my February 3 inquiries by the end of my business day on March 30, 1988, I will take the position, on behalf of my client, that your company has waived its right to further investigation of the claim.... In our view, this statement standing alone, made by the party seeking to assert the doctrine of waiver, is not sufficient to establish an intentional relinquishment of a known right on the part of the party against whom the doctrine is sought to be enforced. Indeed, Penn's letter of December 15, 1987, expressly stated that Penn was not waiving any of the terms, provisions or conditions of the captioned contract of insurance, nor of any of the obligations of the insured, nor of any defense now or hereafter available to Penn-America. Therefore, Penn's failure to respond in a timely manner, standing alone, cannot be said to have been the equivalent of an intentional or voluntary relinquishment of any rights. Penn's conduct with regard to the Proof of Loss, however, was inconsistent with statements in Penn's letter. If Penn intended to enforce the sixty-day time limitation for the proof of loss, it could have simply denied the claim on that basis alone. Instead, Penn chose to implicitly waive that provision as evidenced by its letter, which sought more information with respect to documents tending to establish the legitimacy of Best Place's claim. [I]f an insurer receives and retains or acts upon notice or proofs of loss after the time specified in the policy for giving such notice or proofs has expired and fails within a reasonable time thereafter to object to the time within which such notice or proofs are furnished, it waives the delay, or at least an inference of waiver is justified from such conduct. 44 American Jurisprudence 2d 324 § 1390 (citations omitted). Therefore, as to the policy limitation on submitting proofs of loss, we hold that Penn's conduct warranted an inference that it was waiving the sixty-day time limitation and that it is precluded from introducing evidence of Best Place's breach of duty with regard to the Proofs of Loss. [12] However, because Penn did not intentionally relinquish any other rights or engage in conduct warranting an inference of such surrender, we further hold that Penn did not waive the defense of arson or evidence of any of Best Place's other obligations under the policy. Accordingly, to the extent that the trial court relied on the doctrine of waiver to preclude evidence relating to the alleged breach of Best Place's duty to submit a timely proof of loss, we hold that the trial court was correct. However, to the extent that the trial court relied on the doctrine of waiver to preclude evidence of arson or any of Best Place's other obligations under the policy, we hold that the trial court was wrong.
Best Place contends that an insurer who refuses to pay can only defend on the grounds stated in the denial. Consequently, Best Place contends that, because there were no articulated reasons for the denial, Penn is estopped from asserting any defenses. We disagree with Best Place's contention. [T]he general rule is that an insurer which denies liability on a specified ground may not thereafter shift the basis for its disclaimer to another ground known to it at the time of its original repudiation.... The vast majority of jurisdictions recognize, however, that this rule of estoppel is limited in its application to those instances where the insured has suffered some degree of prejudice as a result of the insurer's attempt to shift its defense from one basis to another. This rule of estoppel has its limitations and exceptions, which are as clearly established as the rule itself, one of which is that before the rule can apply it must appear that claimant was misled to his [or her] injury. .... While it is true that an insurer's specification of one of several available grounds for disclaimer may be taken by the insured as an indication that the other grounds have been overlooked, as a basic matter of fairness we see no reason why this circumstance should operate to bar the later assertion of the other grounds for disclaimer where the insured cannot claim to have suffered any degree of prejudice. The overwhelming majority of American jurisdictions refuse to impose this sort of estoppel in the absence of prejudice, and it is clear that the rule as formulated continues to be valid. Guberman v. William Penn Life Ins. Co. of New York, 146 A.D.2d 8, 538 N.Y.S.2d 571 (1989) (citations omitted). This jurisdiction is in accord with the foregoing views expressed in Guberman. See Doherty v. Hartford Ins. Group, 58 Haw. 570, 573, 574 P.2d 132, 134-35 (1978) (One invoking equitable estoppel must show that he or she has detrimentally relied on the representation or conduct of the person sought to be estopped, and that such reliance was reasonable. (Citations omitted.)). In this case, Penn never expressly denied Best Place's claim. Rather, the denial of the claim was inferred by Penn's failure to respond to Best Place's inquiries in a timely manner. Penn made absolutely no representation that it would assert a particular ground for disclaimer, or that any grounds had been overlooked. Furthermore, there is no indication that Best Place reasonably relied on Penn's silence to its detriment. Therefore, Best Place's theory of estoppel must fail. Accordingly, to the extent that the trial court relied on the doctrine of estoppel to preclude any evidence, we hold that the trial court erred.
Penn fails to set forth any argument regarding the exclusion of evidence pursuant to HRE Rule 403. [13] Best Place, nevertheless, contends that the evidence it sought to exclude would be highly prejudicial and could mislead the jury whose focus should be on the stated reasons for the denial. We now proceed on the assumption that the trial court excluded the evidence based on HRE Rule 403. A motion to exclude evidence based on HRE Rule 403, of course, requires the trial court to make a judgment call as to the probative value of the proffered evidence. We therefore review the trial court's ruling on the HRE 403 motion under the abuse of discretion standard as the traditional abuse of discretion standard should be applied in the case of those rules of evidence that require a `judgment call' on the part of the trial court. Kealoha, 74 Haw. at 319-20, 844 P.2d at 676. Best Place sought to preclude evidence of: (1) arson; (2) Best Place's financial condition (which the jury might infer was a the motive for arson); and (3) Best Place's alleged breach of duties under the policy. Because we determine that, except for the evidence relating to Best Place's failure to timely submit proofs of loss, the doctrines of waiver and estoppel do not apply to the evidence that Best Place sought to exclude, such evidence is clearly probative of material issues in this case. Indeed, the defense of arson and breach of duty under the policy provisions go to the very heart of the issue whether Penn was warranted in denying the claim. Accordingly, we hold that its probative value clearly outweighs any prejudicial effect. Therefore, to the extent that the trial court based its ruling on HRE 403, we hold that the trial court abused its discretion.