Opinion ID: 752911
Heading Depth: 2
Heading Rank: 1

Heading: Reservation of Right to Contest Coverage

Text: 10 A few days prior to entering settlement negotiations, Interstate sent a letter to the Archdiocese and Lloyd's stating: 11 [T]here is a serious question as to whether or not one or more retentions [or SIRs] may apply to the Grgich claim, since the molestations occured [sic] over several policy periods.... 12 .... 13 In engaging in the settlement discussions we are reserving all of our rights with respect to the questions of coverage or reallocation of any settlement money spent by us in the settlement of the Grgich claim on our policies with the Diocese of Portland, Oregon. 14 We agree with the district court that this letter effectively reserved Interstate's right to contest its liability for any of the settlement payment. The defendants argue that the reservation is equivocal, and limited by the phrase [i]n engaging in the settlement discussions. As defendants would have it, the latter phrase precludes the reservation from extending to the conclusion of the settlement itself. This argument, however, ignores the unmistakable meaning of Interstate's reservation of rights with respect to ... reallocation of any settlement money spent by us in settling the Grgich claim. (Emphasis added). This language reserves to Interstate the right to pursue the reallocation it seeks in this litigation. 15 We also reject the contention of the Archdiocese and Lloyd's that summary judgment was improper because of the evidence that Interstate's claims representative said that, upon conclusion of the settlement, he would be closing [his] file, or by the fact that Interstate paid the Archdiocese's defense costs after the settlement. Waiver is the intentional relinquishment of a known right, and must be manifested in an unequivocal manner. Hohman v. Bartel, 128 Or.App. 384, 387, 876 P.2d 347, 348 (1994). The reference to closing the file is most reasonably understood as pertaining to the Grgich claims file, which was indeed being closed by the settlement. The paying of defense costs presents a closer question, but it can be viewed as part of the settlement process; it does not show an unequivocal waiver of the earlier reservation. 16 Nor did Interstate waive its reservation, or subject itself to estoppel, by negotiating and providing funds for the settlement. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 445 (5th Cir.1991) (indemnity insurer who negotiated and paid for settlement not estopped to deny coverage). The parties agree that Interstate's policy was an indemnity policy, and that Interstate assumed no contractual duty to defend claims against the Archdiocese. The district court ruled that, because Interstate had no duty to defend and did not defend, it was unnecessary for it to reserve its right to contest coverage. We need not address, however, the question whether an indemnity insurer must, under Oregon law, reserve its rights if it negotiates and pays for a settlement, because Interstate in fact did reserve its rights in the letter quoted above. Even if Interstate's position in negotiating and participating in the settlement could be analogized to defending the action, 3 Oregon law would permit the reservation. The general rule is well established that an indemnity insurer will not be estopped to set up the defense of nonliability by reason of having participated in defense of the action against the insured if it has given timely notice to the assured that it does not waive the benefit of such defense. Clark Motor Co. v. United Pac. Ins. Co., 172 Or. 145, 155, 139 P.2d 570, 574 (1943). 17 The Archdiocese and Lloyd's rely on Val's Painting and Drywall, Inc. v. Allstate Ins. Co., 53 Cal.App.3d 576, 126 Cal.Rptr. 267 (1975), in which the court held that an insurer who initially reserved its rights waived them by settling the case and disbursing the settlement payment. The court in Val's Drywall did not, however, hold that an insurer could not reserve its rights under those circumstances; it held only that Allstate had not pleaded facts indicating that it had done so in that case. 4 Allstate had announced its intention to reserve its rights in making any settlement, but had not alleged that it advised the insured of the settlement or that the insured agreed to the sum. Id. at 588, 126 Cal.Rptr. at 274. The court stated that the reservation of rights did not give Allstate carte blanche to settle the case with what will turn out to be the insured's own money. Id. If the insured did not agree to the expenditure of its money, the insurer is not permitted to seek reimbursement for a particular settlement unless it has secured specific authority to make that settlement or has notified the insured of a reasonable offer by the claimant and given the insured an opportunity to assume the defense. Id. 18 In the present case, Interstate has met all of these conditions, and the settlement does not present any of the dangers that the court sought to avoid in Val's Drywall. The Archdiocese and Lloyd's not only knew of the settlement offer, they endorsed it, and the Archdiocese threatened to sue Interstate for bad faith dealing if it did not participate in the settlement. All parties agree that the settlement was reasonable. There was thus a total lack of evidence that the insured relied upon [Interstate's] conduct to [its] detriment. Id. at 587, 126 Cal.Rptr. at 273. 19 Most important, the Archdiocese and Lloyd's not only participated in the settlement; they were both represented by their own counsel wholly independent of Interstate. The principle underlying the cases requiring a reservation of rights by an insurer who participates in the defense of a claim is to protect the insured from conflicts of interest. The reservation alerts the insured that it may need to employ its own counsel. See Arkwright-Boston, 932 F.2d at 445. Because the Archdiocese and Lloyd's already had their own counsel, there was no such danger of conflict of interest in this case. We conclude, therefore, that Interstate's negotiation of, and participation in, the settlement did not waive Interstate's claim for reimbursement, nor did it estop Interstate from asserting that claim.