Opinion ID: 1448289
Heading Depth: 1
Heading Rank: 15

Heading: Americold's Refusal of NPIC's Offer to Defend

Text: What effect should Americold's refusal of NPIC's offer to defend subject to a reservation of rights have on the enforceability of the settlement against NPIC? Plaintiffs argue that NPIC's reservation of rights was ineffective because it was made orally on March 9, 1994, and the written reservation letter did not follow until sometime later. However, Hasty's February 16, 1994, letter informed Americold of the coverage defenses NPIC was asserting. Lack of a written reservation letter on March 9, 1994, is not controlling, in view of Hasty's February letter. If NPIC's rejection of a reasonable offer to settle within policy limits was either negligent or in bad faith after its wrongful coverage denial, Americold should be free to negotiate a reasonable, good faith settlement with plaintiffs, even though NPIC offered to defend Americold. We discussed the purpose of an insurer's offer to defend subject to a reservation of rights, in Bogle v. Conway, 199 Kan. 707, 713, 433 P.2d 407 (1967) ([The offer to defend and reservation of rights] must be made clear to the insured so that he may make an intelligent decision whether to consent to the assumption of his defense and the control of his lawsuit by the carrier, or to take another course.). After NPIC wrongfully denied coverage and refused to participate in settlement, it is not surprising that Americold rejected NPIC's offer to defend subject to a reservation of rights. Americold would face the risk of a jury verdict and additional litigation with NPIC over whether Americold had any coverage. NPIC contends that it did not have to announce its coverage position until assuming the defense, which did not occur until National Union tendered its policy limits. However, NPIC announced its coverage position in Hasty's February 16, 1994, letter, before National Union exhausted its coverage and tendered the defense to NPIC. Hasty's February 16, 1994, letter and NPIC's refusal to participate in settlement support the district court's conclusion that NPIC denied coverage. NPIC claims that it should not be bound by the terms of the settlement because it preserved its position by offering to defend Americold under a reservation of rights. See State Farm Fire & Casualty Co. v. Finney, 244 Kan. 545, Syl. ¶ 1, 770 P.2d 460 (1989) (Where an insurance company provides an attorney to defend its insured against a pending action while reserving its policy defenses, that attorney's defense of the action does not estop the insurance company from asserting its policy defenses in a subsequent civil proceeding.). NPIC has not been estopped from asserting its coverage defenses; it has done so in this garnishment proceeding. NPIC's offer to defend under the oral reservation of rights does not cure the wrongful denial of coverage. While NPIC's offer will not, by itself, preclude enforcement of the consent judgments against NPIC, it is relevant to the good faith and negligence issues surrounding NPIC's coverage denial and failure to settle within policy limits. We observe that NPIC's offer to defend included continuation of Armstrong, Teasdale as Americold's counsel at NPIC's expense.