Opinion ID: 1743416
Heading Depth: 2
Heading Rank: 1

Heading: Implied Consent to Reimburse

Text: TAC contends that the County's silence in response to its reservation-of-rights letter, together with the County's stipulation acknowledging no dispute as to the settlement's reasonableness, establishes an implied-in-fact contractual obligation for the County to provide reimbursement. For a number of reasons, we disagree. First, a unilateral reservation-of-rights letter cannot create rights not contained in the insurance policy. See Shoshone First Bank v. Pac. Employers Ins. Co., 2 P.3d 510, 515-16 (Wyo.2000) (rejecting the notion that the insurer could base a right to recover defense costs on a reservation letter and stating we will not permit the contract to be amended or altered by a reservation of rights letter.). The insurance policy at issue allows TAC to settle a case against its insured without the insured's consent. It would have been a simple matter for TAC to also state in the policy that it could seek reimbursement for those settlement funds if it is later determined that the policy does not provide coverage. [4] If TAC had done so, its reservation letter would in fact be reserving contractual rights. But TAC's reservation letter was simply a unilateral offer to append a reimbursement provision to the insurance contract. That provision is binding only if the County accepted it. TAC contends that the County implicitly agreed to reimburse the settlement funds by not responding to TAC's reservation-of-rights letter. But as a general rule, silence and inaction will not be construed as an assent to an offer, 2 Williston on Contracts § 6:49 (4th ed.1991), and none of the narrow exceptions to this general rule apply in this case. TAC cites our decision in Preston Farm & Ranch Supply, Inc. v. Bio-Zyme Enters., 625 S.W.2d 295, 298 (Tex.1981), for the proposition that an insured's silence may suffice to show that it consented to reimburse the insurer. But our decision in Preston Farm did not turn on one party's failure to respond to a unilateral offer. Instead, it rested on a continuing course of conduct between two merchants: [T]here is evidence of a course of conduct which gave rise to an agreement to pay interest. The record reflects that the parties had extensive dealings with one another. Altogether twenty separate sales were made from Bio-Zyme to [Preston]. The sales continued for over a year, and [Preston] received a statement each month containing the service charge provision.... [Preston] continued [the] credit purchases and ... continued to accept the goods.... No objections to the service charges in question were ever made. To the contrary, Preston Farm paid [the service charges].... By [Preston's] continued purchases and payments [it] at least impliedly agreed to pay the specified interest. Id. at 298 (emphasis added). The Court recognized this distinction in Triton Oil and Gas Corp. v. Marine Contractors and Supply, Inc., 644 S.W.2d 443, 445 (Tex.1982). In Triton Oil, we rejected the notion that Marine Contractors' unilateral act of charging interest on Triton's invoices and its deduction of those charges from amounts due Triton were evidence of an agreement between the parties that Triton would pay the interest charges. Id. at 445-46. We distinguished Bio-Zyme, noting that the mere failure to object within a reasonable time to the interest charges, without more, could not establish an agreement between the parties. Id. at 445. TAC's suggestion that an insured's failure to object to a letter reserving the right to seek reimbursement implies consent is irreconcilable with Triton. TAC purports to find support for its implied contract theory in Western Casualty & Surety Co. v. Newell Mfg. Co., 566 S.W.2d 74, 76 (Tex.Civ.App.-San Antonio 1978, writ ref'd n.r.e.). But Newell does not hold, or even imply, that an insurer may unilaterally impose affirmative, extracontractual obligations upon an insured by issuing a reservation-of-rights letter. Instead, the appeals court merely noted the unremarkable proposition that an insured's agreement that an insurer does not waive coverage defenses may be inferred from his conduct after receiving notice of the insurer's offer to defend under a reservation of rights. Id. By allowing the insurer to defend the action, the insured impliedly agrees that the insurer will not thereby waive its right to later contest coverage. Id. The Newell court did not suggest that an insured, by accepting an insurer's defense under a reservation of rights, might somehow impliedly consent to additional obligations not contained in the insurance contract. This is a critical distinction: There is a difference between an insurer's reservation of its right to disclaim coverage, which occurred here, and an agreement by the insured that he will reimburse the insurer for any reasonable settlement, which did not occur here. An insurer's reservation of rights is the notification to the insured that the insurer will defend the insured, but that the insurer is not waiving any defenses it may have under the policy, and it protects an insurer from a subsequent attack on its coverage position on waiver or estoppel grounds. Medical Malpractice Joint Underwriting Ass'n v. Goldberg, 425 Mass. 46, 680 N.E.2d 1121, 1129 n. 31 (1997); see Shoshone, 2 P.3d at 516 (denying the insurer reimbursement for defense costs in a similar context and stating: endorsing such conduct is tantamount to allowing the insurer to extract a unilateral amendment to the insurance contract. If this became common practice, the insurance industry might extract coercive arrangements from their insureds....) (quoting Order on Plaintiff's Motion for Summary Judgment, America States Ins. Co. v. Ridco, Inc., Riddles Jewelry, Inc., and Ken B. Berger, Civ. No. 95CV158D (D.Wyo.1999)). Thus, the County's silence in response to TAC's reservation-of-rights letter cannot support an implied agreement to reimburse settlement costs. Moreover, a meeting of the minds is an essential element of an implied-in-fact contract. See Haws & Garrett Gen. Contractors, Inc. v. Gorbett Bros. Welding Co., 480 S.W.2d 607, 609 (Tex.1972). Yet TAC's own evidence demonstrates that there was no meeting of the minds between the County and TAC regarding reimbursement. TAC's letter advising the County that it intended to settle the Coseboon case specifically acknowledged that the County was `looking to [TAC] to settle the Coseboon litigation without a contribution from Matagorda County, ' and further noted that the County had chosen not to contribute to the funding of the settlement. (Emphasis added). The record demonstrates that the County consistently contested TAC's coverage position and insisted that TAC pay under the policy. TAC relies upon the County's failure to dispute the settlement's reasonableness to support a reimbursement right. But the mere fact that the County did not dispute the settlement's reasonableness does not imply that it agreed to reimburse TAC should TAC decide to accept the settlement and then later prevail on its coverage defense. Accord Goldberg, 680 N.E.2d at 1128 (stating that the court could not infer an agreement to reimburse the insurer when the insured had consistently asserted that the claims were covered and challenged the insurer's reservation of rights). We hold that the County's agreement to reimburse TAC for funds paid to settle the Coseboon suit cannot be implied from this record. We now consider whether the circumstances presented will support imposing upon the County an equitable reimbursement obligation.