Court Of Appeals:
Disclaimer Valid Even Where Reservation of Rights Language Is Used
As part of our continuing commitment to provide outstanding representation and to serve as an information resource, we wish to inform you of a recent Court of Appeals case interpreting disclaimers of coverage.
One of the areas that generates caselaw and uncertainty in coverage matters, is the phrase "reservation of rights". Case law holds that a reservation of rights does not qualify as a disclaimer. A reservation of rights by an insurer is not a substitute for a required disclaimer because the reservation of rights simply reserves coverage arguments for another day. As all should remember, in order to be effective, a disclaimer is required to apprise the claimant with a high degree of specificity of the grounds of which the disclaimer is based. In a coverage matter that our firm handled, the Court of Appeals recently was asked to decide whether a letter that contained "reservation of rights" language was sufficient to serve as a notice of disclaimer.
In QBE Insurance Corporation v. Jinx Proof, Inc., our firm was retained to commence a declaratory judgment action. The underlying matter arose out of injuries at a bar owned by Jinx-Proof. Plaintiff, Hendrix instituted a suit against Jinx-Proof and Jinx-Proof notified QBE through a third-party administrator of the suit thereafter. The claims administrator sent a letter to the insured in which it apprised they were "making this reservation of rights because your policy specifically excludes coverage actions and proceedings . . . for bodily injuries arising from assault and batteries . . . QBE Insurance Company will not be defending or indemnifying you under the General Liability portion of the policy for the assault and battery allegations. Accordingly we suggest you consult an attorney in order to protect your interests and provide a defense for the assault and battery claim".
Approximately one month later, the claims administrator for QBE sent the insured another letter in which it stated that "we are defending this matter under the liquor liability portion of the CGL coverage and under strict reservation of rights for allegations of Assault and Battery. Your policy excludes coverage for assault and battery claims . . . Therefore, should this matter proceed to verdict, any awards by the Court stemming from allegations of Assault and Battery will not be covered under your Commercial General Liability policy". Thereafter, in the underlying matter the Court dismissed plaintiff Hendrix's claims against Jinx-Proof in the underlying matter leaving only a claim for assault and battery.
Our firm commenced the declaratory judgment action for QBE in which we argued that the two letters were sufficient to disclaim coverage for assault and battery. The Supreme Court granted QBE's motion for summary judgment declaring that it was not obligated to defend or indemnify Jinx-Proof in the underlying action. Jinx-Proof appealed to the First Department. The First Department affirmed, finding that although the two letters from the claims administrator had used the phrase "reservation of rights", they were sufficient to apprise the insured that there was no coverage for the assault and battery allegations. Because there was a dissent in the Appellate Division, Jinx-Proof sought leave to appeal to the Court of Appeals which was granted. The Court of Appeals affirmed.
The Court of Appeals found that the courts below had properly determined that QBE effectively disclaimed coverage for assault and battery claims in the underlying action. The first letter sent to Jinx-Proof stated that QBE would not defend or indemnify Jinx-Proof under the general liability portion of the policy for assault and battery allegations, and that Jinx-Proof did not have liquor liability coverage.
The second letter stated that Jinx-Proof had liquor liability coverage, but the policy excluded coverage for assault and battery claims. The Court of Appeals found that although the letters contained some "contradictory and confusing language, the confusion was not relevant to the issue in this case". The Court found that the letters specifically and consistently stated that Jinx-Proof's insurance policy excluded coverage for assault and battery claims. The Court of Appeals wrote that "these statements were sufficient to apprise Jinx-Proof that QBE was disclaiming coverage on the grounds of the exclusion for assault and battery, and this disclaimer was effective even though the letters also contained 'reservation of rights' language".
Judge Pigott dissented and found that the two letters did not communicate the requisite unequivocal written notice of disclaimer, and that the letters were contradictory and confusing and therefore, did not serve as a disclaimer.
The case can be used for the proposition that even where a disclaimer letter is confusing or uses "reservation of rights" language, it may be an effective disclaimer if it is clear as to what is not being covered. The better practice is to avoid using the phrase "reservation of rights" unless the letter is intended to advise the insured that coverage questions are to be determined at a later time in order to avoid any confusion with a disclaimer of coverage.
Should you have any questions, please call.
Thomas M. Bona
