Opinion ID: 780514
Heading Depth: 3
Heading Rank: 3

Heading: Estoppel of Scottsdale from Denying Duty to Indemnify Freddie Mac for Settlement Expenses

Text: 89 The district court also held that Scottsdale had a duty to indemnify Freddie Mac for the settlement amounts paid to the residents who had brought claims against Freddie Mac. The district court determined that Scottsdale was estopped from asserting that it did not have a duty to indemnify Freddie Mac for settlement expenses: 90 I find that [Freddie Mac was] prejudiced by Scottsdale's wrongful refusal to defend. And I conclude that it is irrelevant whether the insurer would have been liable under the policy because of the very clearly articulated case law. Because of its actions, Scottsdale is equitably estopped from denying coverage and liable to indemnify plaintiffs for the settlements that have been entered. 91 District Court Bench Op. at 71-72, App. 81-82 (emphasis added). 92 We conclude that the district court did not err in holding that Scottsdale was equitably estopped from denying an obligation to indemnify Freddie Mac for the costs of settling the underlying claims. 11 93 In Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163 (1982), the New Jersey Supreme Court explained that [u]nreasonable delay in disclaiming coverage, or in giving notice of the possibility of such a disclaimer, even before assuming actual control of a case or a defense of an action, can estop an insurer from later repudiating responsibility under the insurance policy. Id. at 168. The Griggs court stated that an insurer is entitled to a reasonable period of time in which to investigate whether the particular incident involves a risk covered by the terms of the policy. Id. (citations omitted). This right, however, is accompanied by a corresponding duty, once an insurer ... has learned of grounds for questioning coverage ... promptly to inform its insured of its intention to disclaim coverage or of the possibility that coverage will be denied or questioned.  Id. (emphasis added) (citations omitted). The New Jersey court reasoned that disclosure is especially important where the results of an investigation reveal a conflict between the interests of the insured and its insurer, id. at 170 (citations omitted), and that [f]ailure to give prompt notice of such a conflict, or potential conflict, is inconsistent with the overriding fiduciary duty of an insurer to deal with an insured fairly and candidly so that the insured can, if necessary, protect itself. Id. (citation omitted). 94 Based on these principles, the Griggs court ultimately held that 95 where, after timely notice, adequate opportunity to investigate a claim, and the knowledge of a basis for denying or questioning insurance coverage, the insurance carrier fails for an unreasonable time to inform the insured of a potential disclaimer, it is estopped from later denying coverage under the insurance policy in the event a legal action is subsequently brought against its insured. 96 Id. at 171. 97 As the district court held, Griggs is directly applicable to the case at hand. The delay involved in Scottsdale's announcing to Freddie Mac its intent to disclaim coverage was at least approximately as long as the eighteen-month delay that the New Jersey Supreme Court found sufficiently prejudicial in Griggs to invoke equitable estoppel. 12 98 The district court determined that just under eighteen months elapsed from the date of Freddie Mac's demand to Scottsdale for coverage, October 29, 1998, to the date when Scottsdale disclaimed coverage in its answer of April 24, 2000, filed in response to Freddie Mac's complaint. Indeed, the district court indicated that T & R, which had the same counsel as Scottsdale, was aware that it should provide discovery to Freddie Mac on the availability of additional insured coverage as early as November 1997, when Freddie Mac filed its third-party complaint against T & R. 13 The district court noted that Freddie Mac made a number of discovery requests of T & R regarding insurance coverage in March and June 1998. It was not until August 1998 that T & R responded to interrogatories by stating that T & R was insured by Scottsdale at the time of the fire, and it was not until October 1998 that T & R, under an order from the magistrate judge, provided a copy of the Scottsdale policy to Freddie Mac. Furthermore, the district court observed: 99 Scottsdale was well aware of the underlying matter because it defended T & R against the claims asserted in third-party complaint[s] brought by the plaintiffs. Unlike plaintiffs, T & R [and] Scottsdale had access to their own policies and where aware of named additional insureds, yet despite repeated requests shirked their obligation to provide discovery, to investigate the matter and provide a timely and reasonable explanation of its disclaimer of coverage. Its failure to respond forced plaintiffs into defending themselves at a given point of time and into this litigation. 100 District Court Bench Op. at 71, App. 81. 101 Based on the facts identified by the district court, we think it clear that the district court did not err in applying equitable estoppel, per Griggs, to Scottsdale. Scottsdale does not dispute any of the district court's determinations regarding its behavior. Nor does Scottsdale cite any cases that militate against the district court's application of Griggs. 102 Scottsdale does argue that there was a twenty-month delay between the filing of the first underlying complaint against Freddie Mac and the filing of the third-party complaint by Freddie Mac against T & R and that Freddie Mac failed to comply with certain discovery obligations, and that in light of these facts, the district court should not have estopped Scottsdale from denying a duty to indemnify for settlement expenses. See Scottsdale Reply Br. at 14-16. These assertions, however, do not negate the district court's conclusions. The fact remains that T & R and Scottsdale, represented by the same counsel, delayed informing Freddie Mac of the existence and contents of the Scottsdale policy; and that Scottsdale engaged in inordinate delay before it announced to Freddie Mac that it would disclaim coverage, and the reasons for doing so. 103 We therefore hold that the district court did not err in granting summary judgment to Freddie Mac on Count One and in ordering Scottsdale to reimburse Freddie Mac for defense costs and to indemnify Freddie Mac for settlement expenses.