Opinion ID: 1718972
Heading Depth: 1
Heading Rank: 4

Heading: Defense Under a Reservation of Rights.

Text: The estate appears to argue that Iowa Mutual's defense of McCarthy pursuant to a reservation of rights violated the contract. An insurer does not breach the policy simply because the defense it provides is under a reservation of rights. See 14 Couch § 202:38, at 202-95 to 202-96; accord Cay Divers, Inc. v. Raven, 812 F.2d 866, 870-71 (3d Cir.1987); Gates Formed Fibre Prods., Inc. v. Imperial Cas. & Indem. Co., 702 F.Supp. 343, 346 (D.Me.1988); United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246, 252 (1987); Miller v. Shugart, 316 N.W.2d 729, 733 (Minn.1982). Nevertheless, some courts have held that an insured may settle without the insurer's consent where the insurer provides a defense to the insured but reserves its right to deny liability for any ultimate judgment. See, e.g., Cay Divers, 812 F.2d at 870; Ins. Co. of N. Am. v. Spangler, 881 F.Supp. 539, 545 (D.Wyo.1995); Morris, 741 P.2d at 252. But see 1 Windt § 3.09, at 138 (An insured should not be allowed to enter into an unauthorized settlement simply because it is being defended pursuant to a reservation of rights.). We think the reasoning of these cases is flawed because they permit an insured to breach his duties under the policy without losing coverage, even though there has not been a breach of the contract by the insurance company. See 1 Windt § 3.09, at 138-39 (criticizing the Cay Divers and Morris cases). Therefore, we decline to follow them. This conclusion requires us to consider whether Iowa Mutual breached the policy in any of the other ways claimed by the estate.