Reservations Required –
or Not?
Recent Trends Concerning Reservation of Rights and the Impact
on Defense Handling, Control and Conflicts of Interest
Jeffrey O. Davis
Patrick J. Murphy
QUARLES & BRADY, LLP
411 E. Wisconsin Avenue, Suite 2300
Milwaukee, WI 35202
Email: [email protected]
Nicholas J. Boos
David Ajalat
SEDGWICK LLP
333 Bush Street, 30th Floor
San Francisco, CA 94104
Email: [email protected]
1
I. INTRODUCTION
One of the most valuable features of a liability policy is the insurer’s provision of a
defense against underlying suits or claims. Because the duty to defend is both valuable (to the
insured) and costly (to the insurer), it is perhaps not surprising that a myriad of issues can arise in
connection with the duty to defend, including questions regarding who selects defense counsel,
who controls the litigation, the scope of the duty to defend, and the consequences of any breach,
to name just a few.
Underlying most, if not (at least in some way) all of these issues is the interplay between
the duty to defend and the duty to indemnify, i.e., the duty of an insurer to pay any judgment or
settlement. The duty to defend, based as it is on mere pleaded allegations and potential, rather
than actual coverage, is generally broader than the duty to indemnify, as a suit that triggers the
duty to defend does not necessarily mean there is coverage for any resulting damages. The effect
of this maxim is that the insured, rather than the insurer, may be responsible for paying a
judgment notwithstanding the insurer’s provision of a defense. This effect, in turn, can give rise
to tensions between the insurer and the insured, particularly where there likely will be a direct
relationship between the vigor and competence of the defense and the likely outcome of a case.
The starting point for resolving those tensions has long been the “reservation of rights
letter” – the communication from the insurer that advises the insured that while the insurer will
provide the insured with a defense against an underlying suit, the insurer may not indemnify the
insured for a resulting judgment. Traditionally considered a mainstay of insurance law practice,
the law with respect to reservation of rights letters continues to evolve as courts adopt and reject
varying methods of analyzing the impact and indeed, necessity of the letter and what it says (or
does not say) on the insurer’s ability to deny coverage. This paper explores many of the issues
that arise by virtue of whether and how the insurer defends its insured while simultaneously
reserving its rights to contest coverage through a reservation of rights letter.
II. OVERVIEW OF THE RIGHT AND DUTY TO DEFEND
A.
General Principles
An insurer’s defense obligation is a matter of contract. Consequently, the existence and
scope of the defense obligation is determined by the language of the policy. Conceptually,
liability policies may provide defense obligations in one of two ways: a duty to defend or a duty
to reimburse defense costs. Most primary CGL policies include the former. Most excess and
umbrella policies, as well as many claims-made policies, include the latter (though some excess
policies are so-called “indemnity only” policies that provide no defense obligation at all). Where
there is a “duty” to defend, it is generally coupled with the “right” to defend, which to varying
degrees based on jurisdiction, is interpreted as giving an insurer a measure of control over the
defense.
While broad generalizations are difficult in light of varying state’s laws, the duty to
defend is generally considered broader than the duty to indemnify because it is triggered (at least
initially) by the allegations of the underlying complaint, even if those allegations are baseless, or
do not ultimately trigger indemnity.1, 2 The duty is also broader because, in many states, if any
2
allegation of the complaint would trigger coverage, if proven, the insurer is required to provide a
defense to the entire “suit.”3 Consistent with the dual “right and duty” feature of the defense
obligation, the insurer will often have the right to choose counsel, set billing guidelines, and
make settlement decisions, though these rights are not absolute.
B.
Independence of Counsel
In many states, an insurer-retained attorney is often be deemed to represent both the
insurer and the policyholder simultaneously – creating the so-called “tripartite relationship.”4
Other states hold that counsel only represents the insured.5
From the insured’s perspective, joint representation seems fine in theory because the
insured and insurer share the common purpose of minimizing the adverse financial impact of any
lawsuit; however, joint representation becomes problematic in practice where the insurer and
insured develop divergent interests in other regards. For example, an insured who believes she
has been unjustly sued may oppose settlement and prefer to proceed to trial to prove her case;
whereas the insurer who funds the defense may prefer an expeditious settlement to contain
defense costs.6 Or, an insured business whose continued viability is threatened by the lawsuit
may want a quick settlement, even at greater cost; whereas an insurer who can afford to proceed
at a more leisurely pace may prefer to draw out litigation to drive down the cost of settlement. 7
One of the most significant tensions that exists in an insurer-provided defense lies in the
fact that the party paying defense costs is not necessarily the same party that faces the full
consequences of an adverse outcome. For example, low limits may mean that insurance
proceeds are not sufficient to cover the ultimate judgment, meaning that the insured might be on
the hook for a significant portion of a judgment that is otherwise covered. Such a scenario can
give rise to disputes between the insurer and insured regarding defense strategy and control, with
the insured contending that the insurer will be less interested in a vigorous (and more expensive)
defense. Similarly, if the lawsuit involves covered and uncovered claims and the insurer reserves
the right to deny the uncovered claims, the insured may argue that the insurer has an interest in
shifting liability away from the covered claims to the uncovered claims – an interest that is
adverse to the policyholder’s interest in shifting liability away from the uncovered claims to the
covered claims. Under such circumstances, the policyholder may be entitled to independent
counsel, meaning counsel that only represents the insured.8
C.
Selection of Counsel
The insurer generally has the right to select counsel, and an industry of “panel counsel”
demonstrates the high degree to which this right is exercised. But this right does not exist under
all circumstances – the right to select counsel varies by jurisdiction and often depends on
whether a conflict exists. Some jurisdictions allow the insured to select independent counsel.9
Other jurisdictions allow the insurer to choose independent counsel for the insured, though the
insured can (and frequently will) challenge the independence of counsel chosen by the insurer.10
And, some courts have limited the insurer’s right to select counsel to circumstances where the
chosen counsel is “truly independent,” and the insurer acts in good faith in selecting counsel. 11
3
D.
Control of the Defense – Litigation Strategy, Rates and Billing Guidelines
Independent counsel must remain independent. In many jurisdictions, once the insured
retains independent counsel, the insurer no longer has the right to control the litigation
notwithstanding that the insurer is paying for some or all of independent counsel’s fees under a
reservation of rights.12 Independent counsel must advocate the insured’s interests irrespective of
the insurer’s interests. However, this general rule gives way to certain rights on the part of the
insurer to control how the litigation will be conducted.
1.
Settlement. If the insurance policy gives the insurer the right to make any
settlement without obtaining the insured’s consent, then courts generally uphold the insurer’s
decision to settle even over the insured’s objections.13 However, some courts have imposed a
duty on insurers to consider the insured’s interests at least equally with its own when evaluating
a potential settlement.14 If the insurance policy is silent on whether the insurer has the exclusive
right to settle, then the insurer may be required to obtain the insured’s consent before settling,
even if the proposed settlement amount would fall entirely within the policy limits.15
A minority of courts have held that where a substantial deductible is involved, the insurer
must obtain the insured’s consent to settlement.16 For example, where the insurer settles a claim
for $75,000 and the policy has a $10,000 deductible, some courts prohibit the insurer from
recovering the $10,000 deductible from the insured unless the insured consents to the
settlement.17 Similarly, if the insurer proposes to settle a claim in a manner that would require
the insured to pay a deductible under two policies instead of one, the insurer may be required to
obtain the insured’s consent.18
2.
Billing Guidelines. Litigation controls or “billing guidelines” cover such areas as
hourly rates, whether experts and investigators may be hired, whether depositions may be taken,
the extent of computer research permitted, whether written discovery may be sent, and how
many attorneys may attend hearings and trials. Such guidelines should not interfere with the
defense obligation, and according to insurers, they do not necessarily do so.19 Extreme cost
containment measures imposed by insurers may trigger bad faith claims for inadequate defense
preparation and trial presentation.20 By the same token, if defense counsel permits billing
guidelines to compromise his decision on how to handle the case, the insured may claim that the
attorney has breached his duty to the insured by allowing the guidelines to interfere with his
professional judgment.21 A number of decisions and ethics opinions have addressed the
circumstances under which billing and litigation guidelines run afoul of the insurer’s duty to
defend and violate independent counsel’s ethical duty to exercise his or her independent
professional judgment in rendering legal services.22
E.
Consequences of Breach
The consequences of an insurer’s breach of the duty to defend vary by jurisdiction. In
several jurisdictions, an insurer who wrongfully refuses to defend waives the right to challenge
coverage (or is estopped from challenging coverage) and subjects itself to liability for the cost of
the defense and the full amount of the judgment or good faith settlement of the suit up to the
policy limits.23 Indeed, in some jurisdictions and under some circumstances, breach of the duty
to defend subjects the insurer to liability in excess of the policy limits.24 However, in other
4
jurisdictions, the insurer’s liability is limited to the attorney fees incurred by the insured, and
breach of the duty to defend does not operate to waive coverage defenses.25 Of course, not all
jurisdictions have adopted a black-and-white approach to the waiver/estoppel issue – in several
jurisdictions, for example, waiver or estoppel may apply, limiting the insurer’s ability to
challenge coverage upon breach of the duty to defend, if and only if the insured suffers prejudice
because of the insurer’s breach.26
III. THE RESERVATION OF RIGHTS LETTER:
ITS TRADITIONAL PURPOSE AND RECENT TRENDS
When an insured tenders its defense to an insurer, the insurer generally will respond by
(1) denying the tender, (2) accepting the tender without raising any possible coverage defenses,
(3) accepting the tender under a reservation of rights, or (4) filing a complaint for declaratory
relief. Insurers often choose the third option – the provision of a defense under a reservation of
rights – where the coverage obligation is uncertain at the time of tender, because, among other
reasons, a reservation of rights letter allows the insurer to defend the insured while preserving its
ability to disclaim coverage.27
The consequences and necessity of a reservation of rights letter varies depending on the
applicable jurisdiction. The following are common issues that arise when an insurer agrees to
defend its insured under a reservation of rights.
A.
Must an Insured Assent to the Insurer’s Reservation of Rights?
An important initial consideration regarding reservation of rights letters is whether an
insurer may reserve its rights by unilaterally advising the insured of the reservation, or whether
the insured must assent to the reservation in order for it to be effective. Many jurisdictions
permit a unilateral reservation.28 However, some courts have held that an insured must assent to
the insurer’s reservation of rights.29 In such jurisdictions, where the insured refuses to assent to
the insurer’s provision of a defense under a reservation, the insurer may seek a declaratory
judgment as to its coverage obligation.30
B.
To What Extent is a Reservation of Rights Letter Required to Preserve Coverage
Defenses?
One of the purposes of an insurer’s reservation of rights is to prevent waiver of coverage
defenses. The extent to which a reservation of rights letter is required to achieve this purpose,
and the extent to which a reservation does achieve this purpose, depends on the applicable
jurisdiction, and the content of the reservation.
The provision of a defense without a reservation of rights could preclude the insurer from
disclaiming coverage under the doctrines of waiver or estoppel.31 In this regard, some courts
have held that the provision of a defense without the issuance of a reservation of rights letter can
preclude the insurer from asserting policy defenses where it was aware of grounds to deny
coverage but failed to do so.32
5
Other courts have taken a different position, holding that the failure to issue a reservation
of rights letter does not preclude the insurer from denying coverage based on a coverage
provision (i.e., not a forfeiture clause).33 For example, in Maxwell v. Hartford Unions High
School District, 814 N.W.2d 484 (Wis. 2012), the policyholder was sued by a former employee
in connection with her alleged wrongful termination. The policyholder’s insurer provided the
policyholder with a defense without reserving its right to disclaim coverage, but later declined to
indemnify the policyholder against a judgment entered against it on the grounds that coverage
was precluded by exclusions. The policyholder filed suit against the insurer, presenting the issue
of “whether, because [the insurer] failed to issue a reservation of rights letter to its insureds
(before or during the time that it provided an unsuccessful defense in the contract suit against
them), [the insurer] either waived or may be estopped from asserting its noncoverage defense,
thereby requiring [the insurer] to provide insurance coverage that is not in the insurance
contract.” Id. at 491. The court answered this question in the negative, holding that “the failure
to issue a reservation of rights letter cannot be used to defeat, by waiver or estoppel, a coverage
clause – as distinguished from grounds for forfeiture – in an insurance contract.” Id. at 487.
Citing to a series of Wisconsin cases, the court reasoned that a policyholder pays a premium to
cover certain risks, and that waiver and estoppel cannot be used to force an insurer to pay for
uncovered losses for which it has not received a premium. Id. at 492.
Courts also diverge where an insurer issues a reservation of rights letter specifying
certain defenses, and subsequently denies coverage based on a different coverage defense. Some
courts have held that the insurer is not estopped from denying coverage under such
circumstances notwithstanding that the insurer did not raise its ultimate coverage defense in the
initial reservation of rights letter.34 Other courts have deemed the insurer estopped from
asserting policy defenses which it did not assert with adequate specificity in its reservation of
rights.35
C.
The Effect of a Reservation of Rights Letter on the Right to Independent Counsel
A reservation of rights letter also serves to inform an insured of potential conflicts of
interest with its insurer. Such potential conflicts of interest may, depending on the jurisdiction,
entitle the insured to independent counsel.
In several states, the insured is entitled to independent counsel only if the potential
conflict can affect coverage.36 Courts in such states hold that a conflict that warrants
independent counsel can arise “when the basis for the reservation of rights is such as to cause
assertion [by counsel selected by the insurer] of factual or legal theories which undermine or are
contrary to the positions to be asserted in the liability case.”37 In these states, there is no
entitlement to independent counsel merely because a complaint involves potentially covered and
uncovered damages.38 “For independent counsel to be required, the conflict of interest must be
significant, not merely theoretical, actual, not merely potential.”39
Other courts hold that a reservation of rights always entitles an insured to independent
counsel.40 Still others have adopted the opposite rule, i.e., a reservation of rights never entitles
an insured to independent counsel.41
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D.
Reimbursement
In many jurisdictions, an insurer’s defense under a reservation of rights can entitle the
insurer to reimbursement of defense costs expended on claims that a court later determines to be
uncovered.42 In addition, in some states, insurers may seek reimbursement for uncovered claims
in “mixed” actions.43 On the other hand, a number of courts hold that an insurer may not seek
reimbursement of defense of costs, even where the insurer reserves the right to do so. These
courts hold that a right to reimbursement only exists if it is set forth in the insurance policy.44
IV. PRACTICAL CONCERNS FOR INSURERS AND INSUREDS
Because many jurisdictions consider the reservation of rights letter grounds for a
potential conflict of interest that may entitle the insured to independent counsel and, in some
cases, the right to select counsel, reserving the right to deny coverage may impair the insurer’s
ability to control the defense – a result the insurer generally hopes to avoid. However, failing to
issue the reservation of rights letter may mean that the insurer waives or is estopped from
asserting coverage defenses – a similarly distasteful result from the insurer’s perspective. So,
one of the questions that arises is whether an insurer can stave off these potential loss of control
issues by simply not issuing a reservation, while still maintaining the right to contest coverage
later?
Some courts, such as the Wisconsin Supreme Court in the recent decision in Maxwell,
supra, hold that an insurer’s failure to issue a reservation may not create coverage, although it
can cause the insurer to lose the right to assert grounds of forfeiture, such as late notice.
However, Maxwell did not flesh out all of the ramifications of its “no creation of coverage”
ruling. The decision does not, for example, discuss whether the “no creation of coverage” ruling
stands where an insurer does not issue a reservation of rights letter, and therefore does not
appoint independent counsel, but then, after judgment in the underlying suit, seeks to invoke an
exclusion that would have triggered a right to independent counsel had the insurer reserved its
right to rely on that exclusion. Insureds will likely argue that the “no creation of coverage”
ruling should not apply under these circumstances because the insured was not provided
independent counsel, while insurers may well argue that Maxwell should apply so as to avoid
creating coverage for which the parties did not bargain.
Notwithstanding this possible effect of Maxwell, insurers are likely to think twice before
deliberately deciding to contest coverage without issuing a reservation of rights letter. As stated
by the Maxwell court, its holding is not “a license for insurers not to communicate forthrightly
with their insureds – especially when insurers dispute coverage.” Indeed, insurers still have
numerous reasons to reserve rights despite cases such as Maxwell. Reservation of rights letters
serve an important function in providing an upfront means of informing insureds of the insurer’s
position, thereby avoiding any number of issues down the road, including loss of the right to
invoke conditions and a possible loss of any right of recoupment. Moreover, the reservation of
rights letter is necessary in almost all jurisdictions – including those employing the Maxwell rule
– to preserve forfeiture defenses. And, of course, the reservation of rights letter can be an
important part of the insurer’s defense against a claim of bad faith.
7
From the perspective of the insured, the overriding lesson from Maxwell with regard to
its dealings with its insurer is open communication – and that’s true whether a reservation of
rights letter is provided or not. It is critical for the insured to know whether its counsel considers
its only client to be the insured, or whether it includes the insurer. It is critical that insureds push
back on any aspect of a reservation with which it may take issue – such as a right of recoupment.
And it is critical that the insured take issue at the outset of any other aspect of the defense
handling with which it disagrees, including billing guidelines. All of these things require timely
communication. And, of course, that communication should be in writing, so that when a
dispute arises the paper trail will be one that reserves the insured’s rights at least to the same
extent as the insurer’s reservation of rights letter does for the insurer.
1
See Universal Underwriters Ins. Co. v. East Cent. Alabama Ford-Mercury, Inc., 574 So. 2d 716, 719 (Ala. 1990);
Tush v. Pharr, 68 P.3d 1239 (Alaska 2003); United States Fid. Guar. Co. v. Advance Roofing & Supply Co., 788
P.2d 1227, 1231 (Ariz. Ct. App. 1989); Waller v. Truck Ins. Exchange, Inc, 900 P.2d 619, 627 (Cal. 1995); Horace
Mann Ins. Co. v. Peters, 948 P.2d 80, 85 (Colo. Ct. App. 1997); Imperial Cas. and Indem. Co. v. State of
Connecticut, 714 A.2d 1230, 1240 (Conn. 1998); Consolidated Rail Corp. v. Liberty Mut. Ins. Co., 2005 WL
697943, at *3 (Del. Super. Ct. Mar. 16, 2005); Colony Ins. Co. v. G & E Tires & Service, Inc., 777 So. 2d 1034,
1037 (Fla. Dist. Ct. App. 2000); Nationwide Mut. Fire Ins. Co. v. Somers, 591 S.E.2d 430, 435 (Ga. Ct. App. 2003);
Finley v. Home Ins. Co., 975 P.2d 1145 (Haw. 1998); County of Kootenai v. Western Cas. & Sur. Co., 750 P.2d 87,
89 (Idaho 1988); Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 314-15 (Ill. 2005); Transamerica
Ins. Servs. v. Kopko, 570 N.E.2d 1283, 1285 (Ind. 1991); United Fire & Cas. Co. v. Shelly Funeral Home, Inc., 642
N.W.2d 648, 656 (Iowa 2002); Univ. Enters., Inc. v. American Cas. Co. of Reading, Pa., 2004 WL 834176, at *4 (D.
Kan. 2004); James Graham Brown Foundation v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky.
1991); A.J. Gregory v. Tennessee Pipeline Co., 948 F.2d 203, 205 (5th Cir. 1991) (applying Louisiana law);
Montgomery County Bd. of Educ. v. Horace Mann Ins. Co., 840 A.2d 220, 226 (Md. Ct. Spec. App. 2003);
Merrimack Mut. Fire Ins. Co. v. Nonaka, 606 N.E.2d 904, 907 (Mass. App. Ct. 1993); American Bumper & Mfg.
Co. v. Hartford Fire Ins. Co., 550 N.W.2d 475, 481 (Mich. 1996); Home Ins. Co. v. National Union Fire Ins. of
Pittsburgh, 658 N.W. 2d 522, 529 (Minn. 2003); Amer. Guar. & Liab. Ins. Co. v. 1906 Co., 273 F.3d 605, 611 (5th
Cir. 2001) (applying Mississippi law); Lampert v. State Farm Fire & Cas. Co., 85 S.W.3d 90, 93 (Mo. Ct. App.
2002); Farmers Union Mut. Ins. Co. v. Staples, 90 P.3d 381, 385 (Mont. 2004); White Mountain Constr. Co., Inc. v.
Transamerica Ins. Co., 631 A.2d 907, 909 (N.H. 1993); Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 174,
607 A.2d 1255 (1992); Lopez v. New Mexico Pub. Sch. Ins. Auth., 870 P.2d 745, 747 (N.M. 1994); Frontier
Insulation Contractors, Inc. v. Merchants Mut. Ins. Co., 690 N.E.2d 866, 868-69
(1993); Lambe Realty Inv., Inc. v. Allstate Ins. Co., 527 S.E.2d 328 (N.C. Ct. App. 2000); Schultze v. Continental
Ins. Co., 619 N.W.2d 510, 513 (N.D. 2000); City of Sharonville v. American Employers Ins. Co., 846 N.E.2d 833,
837 (Ohio 2006); Nisson v. Amer. Home Assurance Co., 917 P.2d 488, 489-90 (Okla. Civ. App. 1996); Abrams v.
Gen. Star Indem. Co., 67 P.3d 931, 934 (Or. 2003); Sclabassi v. Nationwide Mut. Fire Ins. Co., 789 A.2d 699, 703
(Pa. Super. Ct. 2001); Mellow v. Medical Malpractice Joint Underwriting Ass’n., 567 A.2d 367, 368 (R.I. 1989);
Town of Duncan v. State Budget and Control Bd., Div. of Ins. Servs., 482 S.E.2d 768, 773-774 (S.C. 1997); North
Star Mut. Ins. Co. v. Kneen, 484 N.W.2d 908, 912 (S.D. 1992); Travelers Indem. Co. of Am. v. Moore & Assocs.,
216 S.W.3d 302, 305 (Tenn. 2007); Nokia, Inc. v. Zurich Amer. Ins. Co., 202 S.W.3d 384, 388 (Tex. App. 2006);
Rosas v. Eyre, 82 P.3d 185, 190 (Utah Ct. App. 2003); City of Burlington v. Nat’l Union Fire Ins. Co., 655 A.2d
719, 721 (Vt. 1994); Parker v. Hartford Fire Ins. Co., 278 S.E.2d 803 (Va. 1981); Prudential Prop. & Cas. Ins. Co.
v. Lawrence, 724 P.2d 418, 420 (Wash. Ct. App. 1986); Horace Mann Ins. Co. v. Leeber, 376 S.E.2d
581, 584, 584 (W. Va. 1988); Fireman’s Fund Ins. Co. of Wis. v. Bradley Corp., 660 N.W. 2d 666, 673 (Wis.
2003).
2
In almost every jurisdiction, the duty to defend inquiry begins with analysis of the allegations pleaded in the
complaint, and in many jurisdictions, the inquiry also ends there. E.g., Cotter v. Amer. Empire Surplus Lines Ins.,
90 P.3d 814, 827 (Colo. 2004); QSP, Inc. v. Aetna Cas. & Sur. Co., 773 A.2d 906, 919-20 (2001); Consolidated
8
Rail Corp. v. Liberty Mut. Ins. Co., 2005 WL 697943, at *2 (Del. Super. Ct. Mar. 16, 2005); Jones v. Florida Ins.
Guar. Ass’n, Inc., 908 So. 2d 435, 443 (Fla. 2005); Black v. Fireman’s Fund Amer. Ins. Co., 767 P.2d 824, 830-31
(Idaho Ct. App. 1989); Prestenbach v. Badeaux, 865 So. 2d 180, 183 (La. Ct. App. 2003); James Graham Brown
Foundation v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991); York Ins. of Me. Inc. v.
Superintendent of Ins., 845 A.2d 1155, 1160 (Me. 2004); American Guar. & Liab. Ins. Co. v. Keiter, 360 F.3d 13,
19 (1st Cir. 2004); Gebrayel v. Transamerica Title Ins. Co., 888 P.2d 83, 86 (Or. Ct. App. 1995); Kvaerner Metals
Div. of Kvaerner U.S. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006); Travelers Indem. Co. v.
Children’s Friend & Serv., Inc., 2005 R.I. Super. LEXIS 175, at *8-*9 (R.I. Super. Ct. Dec. 1 2005); Travelers
Indem. Co. of Am. v. Moore & Assocs., 216 S.W.3d 302, 305 (Tenn. 2007); GuideOne Elite Ins. Co. v. Fielder Rd.
Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006); Union Ins. Co. v. Riverpoint, L.C., 2007 U.S. Dist. LEXIS 13313
at *6 (E.D. Va. Feb. 27, 2007); Fireman’s Fund Ins. Co. of Wis. v. Bradley Corp., 660 N.W. 2d 666, 673 (Wis.
2003).
However, in some jurisdictions, the inquiry is not limited solely to the allegations in the complaint – the
insurer may have a duty to defend if the insurer knows of, or upon reasonable investigation can discover additional
facts not pleaded in the complaint that bear on the potential for coverage. See, e.g., Northern Ins. Co. v. Morgan,
918 P.2d 1051, 1053 (Ariz. Ct. App. 1995); Acceptance Ins. Co. v. Brown, 832 So. 2d 1, 14 (Ala. 2001); Makarka ex
rel. Makarka v. Great American Ins. Co., 14 P.3d 964, 969 (Alaska 2000); Smith v. St. Paul Guardian Ins. Co., 622
F. Supp. 867 (W.D. Ark. 1985); Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal. 2005); Penn-America
Ins. Co. v. Disabled Veterans, Inc., 490 S.E.2d 374, 376 (Ga. 1997); Dairy Road Partners v. Island Ins. Co., Ltd.,
992 P.2d 93, 107 (Haw. 2000); Aselco, Inc. v. Hartford Ins. Group, 21 P.3d 1011, 1018 (Kan. Ct. App. 2001);
Dilbert v. Hanover Ins. Co., 825 N.E.2d 1071, 1075 (Mass. App. Ct. 2005); King v. Continentall Western Ins. Co.,
123 S.W.3d 259, 264 (Mo. Ct. App. 2003); SL Indus., Inc. v. American Motorists Ins. Co., 607 A.2d 1266, 1272
(1992); G&G Servs., Inc. v. Agora Syndicate, Inc., 993 P.2d 751 (N.M. Ct. App. 1999); Petr-All v. Fireman’s Ins.
Co., 188 A.D.2d 139, 141(N.Y.1993); Nationwide Mut. Fire Ins. Co. v. Grady, 502 S.E.2d 648 (N.C. Ct. App.
1998); Stoebner v. S.D. Farm Bureau Mut. Ins. Co., 598 N.W.2d 557, 559 (S.D. 1999); Truck Ins. Exch. v. Vanport
Homes, Inc., 58 P.3d 276, 282 (Wash. 2002); State Auto. Mut. Ins. Co. v. Alpha Eng’g Servs., Inc., 542 S.E.2d 876,
879 (W. Va. 2000).
In a few jurisdictions, such extrinsic facts can also be used to defeat the duty to defend even where the
complaint alleges potentially covered claims. E.g., Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal.
2005); Talen v. Employers Mut. Cas. Co., 703 N.W.2d 395, 405 (Iowa 2005); Knapp v. Commonwealth Land Title
Ins. Co., 932 F. Supp. 1169, 1171 (D. Minn. 1996).
3
See cases cited in footnote 1, supra.
4
See e.g., Paradigm Ins. Co. v. The Langerman Law Offices, 24 P.3d 593 (2001) (holding that insurer provided
defense counsel will have an attorney-client relationship with policyholder and insurer unless there is an existing or
potential conflict of interest); Hartford Ins. Co. of Midwest v. Koeppel, 629 F. Supp. 2d 1293 (M.D. Fla. 2009)
(predicting that Florida state appellate courts would follow the tripartite view); Rogers v. Robson, Masters, Ryan,
Brumond & Belom, 392 N.E.2d 1365, 1370-71 (Ill. App. Ct. 1979) (“The fact that the attorney also represents the
insurer in no way alters his obligations or responsibilities to the insured . . . .”); Gray v. Comm. Union Ins. Co., 468
A.2d 721, 725 (1983) (“There is no dispute that as a fundamental proposition a defense lawyer is counsel to both the
insurer and the insured.”).
5
The alternative view is that the insured is the sole client of the insurer-procured attorney. See, e.g., Atlantic Int’l
Ins. Co. v. Bell, 475 N.W.2d 294, 297 (Mich. 1991) (holding that insurer could not maintain a malpractice claim
against retained counsel because attorney-client relationship only existed between retained counsel and
policyholder); Safeway Managing Gen. Agency, Inc. v. Clark & Gamble, 985 S.W.2d 166, 168 (Tex. App. 1998);
Finley v. Home Ins. Co., 975 P.2d 1145 (Haw. 1998); Paradigm Ins. Co. v. Langerman Law Offices, 24
P.3d 593, 597 (Ariz. 2001); Metropolitan Life Ins. Co. v. Aetna Cas. & Sur. Co., 730 A.2d 51, 65 (Conn. 1999); In
re Youngblood, 895 S.W.2d 322, 328 (Tenn. 1995); Atlantic Cas. Ins. Co. v. Oregon Mut. Ins. Co., 153 P.3d 211,
216 (Wash. Ct. App. 2007); Barefield v. DPIC Co., Inc., 600 S.E.2d 256, 268 (W. Va. 2004). Some courts that
acknowledge the tripartite rule proceed to favor the policyholder in the event of a conflict. See, e.g., Parsons v.
Continental National Am. Group, 550 P.2d 94 (Ariz. 1976) (holding that retained counsel’s primary loyalty is to the
policyholder client, not the insurer, so that retained counsel may not share with the insurance company any
confidential information that could affect the policyholder’s insurance coverage rights).
9
6
See, e.g., Roussos v. Allstate ins. Co., 655 A.2d 40 (Md. 1995) (interests not adverse and insured not entitled to
independent counsel where insured believed she had been sued unjustly and opposed settlement and insurer wanted
to settle action expeditiously).
7
See, e.g., 69th Street and 2nd Ave. Garage Associates, L.P. v. Ticor Title Guarantee Co., 207 A.D.2d (N.Y. App.
Div. 1995) (insured entitled to counsel of its own choosing because the continued viability of insured’s business
depended on a quick resolution of the suit whereas insurer could afford to proceed at leisurely pace).
8
See, e.g., Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 371 (4th Cir. 2005);
Grube v. Daun, 496 N.W.2d 106 (Wis. Ct. App. 1992); Maryland Cas. Co. v. Peppers, 355 N.E.2d 24, 31 (Ill.
1976); CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113 (Alaska 1993).
9
E.g., Nandorf, Inc. v. CNA Ins. Cos., 479 N.E.2d 988, 991 (Ill. App. Ct. 1985); Northland Ins. Co. v. Heck’s
Service Co., Inc., 620 F. Supp. 107 (E.D. Ark. 1985); CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d
1113 (Alaska 1993); Moeller v. American Guar. & Liab. Ins. Co., 707 So. 2d 1062 (Miss. 1996); Belanger v.
Gabriel Chemicals, Inc., 787 So. 2d 559 (La. Ct. App. 1st Cir. 2001); Ladner v. American Home Assur., 201 A.D.2d
302, 304, (N.Y. App. Div. 1994); Roussos v. Allstate Ins. Co., 655 A.2d 40 (Md. 1995); Moeller v. Amer. Guar. &
Liab. Ins. Co., 707 So. 2d 1062, 1069 (Miss. 1996); Red Head Brass, Inc. v. Buckeye Union
Ins. Co., 735 N.E. 2d 48, 55 (Ohio Ct. App. 1999); Employers Cas. Co. v. Tilley, 496 S.W.2d 552, 558-59 (Tex.
1973).
10
See e.g., Friedline v. Shelby Ins. Co., 774 N.E.2d 37, 43 n.6 (Ind. 2002); First Newton Nat’l Bank v. General Cas.
Co. of Wisconsin, 426 N.W.2d 618, 630 (Iowa 1988); Patrons Mut. Ins. Assoc. v. Kerl, 732 P. 2d 741, 745 (Kan.
1987); Cardin v. Pacific Employers Ins. Co., 745 F. Supp. 330 (D. Md. 1990); Central Mich. Bd. of Trustees v.
Employers Reinsurance Corp., 117 F. Supp. 2d 627, 635 (E.D. Mich. 2000).
11
E.g., HK Systems, Inc. v. Admiral Ins. Co., 2005 WL 1563340 at *6 (E.D. Wis. 2005); see also Restatement 3d of
the Law Governing Lawyers § 134 cmt. (b) & (f) (insurer chooses independent counsel; however, insurer and
independent counsel must expressly acknowledge that counsel only represents the insured).
12
See e.g., Patrons Oxford Ins. Co. v. Harris, 905 A.2d 819, 825-26 (Me. 2006); Aetna Cas. & Sur. Co. v.
Dow Chem. Co., 44 F. Supp. 2d 847, 860 (E.D. Mich. 1997); In re Youngblood, 895 S.W.2d 322, 328 (Tenn. 1995).
13
See, e.g., Seltzer v. Barnes, 106 Cal. Rptr. 3d 290, 301 (Cal. Ct. App. 2010); Casualty Ins. Co. v. Town & Country
Pre-School Nursery, Inc., 498 N.E.2d 1177, 1179, (Ill. App. Ct. 1986); American Home Assur. Co., Inc. v.
Hermann's Warehouse Corp., 563 A.2d 444, 448 (N.J. 1989); Orion Ins. Co., Ltd. v. General Elec. Co., 129 Misc.
2d 466, 471–72, 493 N.Y.S.2d 397, 401 (Sup 1985), judgment aff'd, 125 A.D.2d 567, 509 N.Y.S.2d 778 (2d Dep't
1986) aff'd sub nom. U.S. Aviation Underwriters, Inc. v. General Elec. Co., 125 A.D.2d 567, 509 N.Y.S.2d 778 (2d
Dep't 1986); see also Saucedo v. Winger, 915 P.2d 129 (Kan. Ct. App. 1996) (allowing insured to challenge
settlement entered into by insurer over its objections, where policy did not give insurer exclusive right to settle).
14
See e.g., Merrit v. Reserve Ins. Co., 110 Cal. Rptr. 511, 519-20 (Cal. Ct. App. 1974); Bollinger v. Nuss, 449 P.2d
502, 510 (1969); Allstate Ins. Co. v. Miller, 212 P.3d 318, 322 (2009); Gen. Acc. Fire & Life Assur. Corp. v. Little,
443 P.2d 690, 697 (1968); Pinto v. Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir. 2000) (applying New York law);
Dairyland Ins. Co. v. Herman, 954 P.2d 56, 60 (1997); Eastham v. Oregon Auto. Ins. Co., 540 P.2d 364, 367 (1975).
15
See e.g., cases cited in footnote 14, supra.
16
See National Service Industries, Inc. v. Hartford Acc. & Indem. Co., 661 F.2d 458, 462 (5th Cir. 1981); St. Paul
Fire & Marine Ins. Co. v. Edge Memorial Hosp., 584 So. 2d 1316, 1327 (Ala. 1991); Employers' Surplus Line Ins.
Co. v. City of Baton Rouge, 362 So. 2d 561, 564–65 (La. 1978).
17
See Employers’ Surplus Line Ins. Co. v. City of Baton Rouge, 363 So. 2d 561 (La. 1978)
10
18
See Nation Service Indus., Inc. v. Hartford Accident & Indem. Co., 661 F.2d 458 (5th Cir. 1981) (applying
Georgia law).
19
See e.g., Pepsi-Cola Metro. Bottling Co. v. Ins. Co. of North America, 2010 U.S. Dist. LEXIS 144401 (C.D. Cal.
Dec. 28, 2010) (use of billing guidelines and reduction of independent counsel’s hourly rates was not a breach of the
duty to defend; guidelines were not applied in a manner that influenced independent counsel’s substantive strategy
decisions, but the purpose of the guidelines was instead to reduce overall fees based on objective standards relating
to billing practices, and to reduce costs that the insurer finds needless or unexplained under strategy-neutral criteria).
20
E.g., Kooyman v. Farm Bureau Mut. Ins. Co., 315 N.W.2d 30 (Iowa 1982) (triable issue as to whether defense
counsel’s inadequate investigation and trial preparation evidenced insurer’s indifference to insured’s interests which
would establish insurer’s bad faith).
21
See e.g., Bevevino v. Saydjari, 76 F.R.D. 88 (S.D.N.Y. 1977) (refusing insurer’s request to set aside unwarranted
malpractice verdict against its policyholder where verdict was result of insurer’s having “deliberately decided not to
provide the [policyholder] with the semblance of a defense”); In re Rules of Professional Conduct and Insurer
Imposed Billing Rules and Procedures, 2 P.3d 806 (2000) (insurer-imposed prior approval requirements, and threat
of withholding payment interfered with lawyer’s exercise of independent judgment).
22
See e.g., Nortek, Inc. v. Liberty Mut. Ins. Co., 858 F. Supp. 1231 (D.R.I. 1994) (insurer breached duty to defend
by its failure to reimburse independent counsel for all reasonable fees and expenses incurred when insurer’s billing
guidelines capped attorneys’ fees at $105 per hour and $55 per hour for paralegals, with no reimbursement for
secretarial overtime, and no reimbursement for meals or overnight travel without pre-approval.”); Dynamic
Concepts, Inc. v. Truck Ins. Exch., 71 Cal. Rptr. 2d 882, 889 fn. 9 (Cal. Ct. App. 1998) (insurer’s billing guidelines
requiring use of paralegals for “routine” discovery; limiting or restricting types of discovery, legal research, or
computerized legal research; or prohibiting retention of experts or the filing of certain pre-trial motions may
impermissibly impede independent counsel’s own professional judgment in rendering legal services.); ABA Model
Rule of Professional Responsibility 5.4(c) (“A lawyer shall not permit a person . . . who employs, or pays the lawyer
to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal
services.”); ABA Comm. On Ethics and Professional Responsibility, Op. 01-421 (2001) (“Although defense lawyers
must be sensitive to the economic interests of the insurance companies that employ them and cognizant of the fact
that costs of litigation ultimately are borne by insureds through premiums, they must not allow their professional
judgment or the quality of their legal services to be compromised materially by the insurer.”).
23
See e.g., Black v. Goodwin, Loomis & Britton, Inc., 681 A.2d 293, 298-99 (Conn. 1996); R.T. Vanderbilt Co. v.
Continental Cas. Co., 870 A.2d 1048, 1063 (Conn. 2005); Employers Ins. of Wausau v. Recticel Foam Corp., 716
N.E. 2d 1015, 1028 n.16 (Ind. Ct. App. 1995); Brickell v. United States Fire Ins. Co, 436 So. 2d 797, 801 (Miss.
1983); Mississippi Ins. Guar. Ass’n v. Byars, 614 So. 2d 959, 964 (Miss. 1993); Twin City Fire Ins. Co. v. City of
Madison, Miss., 309 F.3d 901, 907 (5th Cir. 2002); Miller v. Secura Ins. and Mut. Co. of Wisconsin, 53 S.W.3d 152,
155 (Mo. Ct. App. 2001); Lee v. USAA Cas. Ins. Co., 86 P.3d 562, 565 (Mont. 2004); Fireman’s Fund Ins. Co. v.
Imbesi, 826 A.2d 735, 749 (N.J. Super. Ct. App. Div. 2003); American Gen. Fire & Cas. Co. v. Progressive Cas.
Co., 799 P.2d 1113, 1117-18 (N.M. 1990); Winters v. Transamerica Ins. Co., 194 F.2d 1321, 1999 WL 699835 at*4
(10th Cir., Sept. 9, 1999); Ames v. Continental Cas. Co., 340 S.E.2d 479, 485 (N.C. Ct. App. 1986); Conanicut
Marine Service, Inc. v., 511 A.2d 967, 971 (R.I. 1986); Radke v. Fireman’s Fund Ins. Co., 577 N.W. 2d 366, 36970, 371 (Wis. Ct. App. 1998).
24
See e.g., Newhouse v. Citizens Sec. Mut. Ins. Co., 501 N.W. 2d 1, 6 (Wis. 1993).
25
See e.g., Alabama Farm Bureau Mut. Cas. Ins. Co. v. Moore, 349 So. 2d 1113, 1116 (Ala. 1977); Colonial Oil v.
Certain Underwriters at London, 491 S.E.2d 337, 338-39 (Ga. 1997); Elliot v. Hanover Ins. Co., 711 A.2d 1310,
1313 (Me. 1998); Broom v. Continental Cas. Co., 887 A.2d 1128, 1133 (N.H. 2005); Ross v. Home Ins. Co., 773
A.2d 654, 658 (N.H. 2001); Northwest Pump & Equip. Co. v. American States Ins. Co., 925 P.2d 1241, 1243 (Or.
Ct. App. 1996); Goodyear Rubber & Supply Co., Inc. v. Great Am. Ins. Co., 471 F.2d 1343, 1345-46 (9th Cir. 1973)
(applying Oregon law); Mace v. Atlantic Ref. & Mktg. Co., 785 A.2d 491, 497 (Pa. 2001); American States Ins. Co.
v. State Auto Ins. Co., 721 A.2d 56, 64 (Pa. Super. Ct. 1998).
11
26
See e.g., Potesta v. United States Fidelity & Guaranty Co., 504 S.E.2d 135, 150 (W. Va. 1998); Sentinel Ins. Co.,
Ltd. v. First Ins. Co. of Hawaii, Ltd., 875 P.2d 894, 913 (Haw. 1994); Cincinnati Ins. Co. v. Vance, 730 S.W.2d 521,
524 (Ky. 1987); see also Hanover Ins. Co. v. Suffolk Overhead Door Co., 207 A.D.2d 428, 430, (N.Y. App. Div.
1994); W.O. Hickok Mfg. Co. v. Unigard Mut. Ins. Co., 15 Pa. D. & C.3d 593, 595 (Pa. Ct. Comm. Pleas 1979).
27
See, e.g., Gray v. Zurich Ins. Co., 419 P.2d 168, 178 (Cal. 1966) (“[I]f the insurer adequately reserves its right to
assert the noncoverage defense later, it will not be bound by the judgment”); Alaska Nat’l Ins. Co. v. Bryan, 104
P.3d 1, 9 (Wn. App. 2004) (purpose of reservation of rights letter is to “identify the insurer’s position regarding
coverage and serves to protect the parties by providing a conditional defense to the insured and protecting the
insurer from a bad faith claim if coverage is due”); Katerndahl v. State Farm Fire and Cas. Co., 961 S.W.2d 518,
521 (Tex. App. 1997) (“The purpose of the reservation of rights letter is to permit the insurer to provide a defense
for its insured while it investigates questionable coverage issues”); Aetna Cas. & Sur. Co. v. Com. Of Ky., 179
S.W.3d 830, 841 (Ky. 2005) (an insurer that believes there is no coverage can “defend the claim anyway, while
preserving by a reservation of rights letter its right to challenge the coverage at a later date”).
28
See, e.g. Blue Ridge Ins. Co. v. Jacobsen, 22 P.3d 313, 317 (Cal. 2001); Draft Systems, Inc. v. Alspach, 756 F.2d
293 (3d Cir. 1985) (applying Pennsylvania law); Equity General Insurance Co. v. C & A Realty Co., 715 P.2d 768
(Ariz. App. 1985); Employers Ins. v. Ehlco Liquidating Trust, 708 N.E.2d 1122, 1134 (Ill. App. Ct. 1999); Colony
Ins. Co. v. G & E Tires & Service, Inc., 777 So. 2d 1034, 1037 (Fla. Ct. App. 2000); Nobel Ins. Co. v. AustinPowder
Co., 256 F. Supp. 2d 937, 940 (W.D.Ark. 2003); Cotter Corp. v. American Empire Surplus Lines Ins. Co., 90 P.3d
814 (Colo. 2004); W. T. A. v. Yeager, 832 So. 2d 1217, 1219 (La. App. 2002); AIG Hawaii Ins. Co. v. Smith, 891
P.2d 261 (Haw. 1995).
29
See, e.g. Sauer v. Home Indem. Co., 841 P.2d 176, 182-83 (Al. 1992); Medical Protective Co. v. Davis, 581
S.W.2d 25, 26 (Ky. 1979) ; N. Sec. Ins. Co. v. Claudia & David Pratt & Greystone Estates Residents Ass'n, 2011 Vt.
Super. LEXIS 36 (Vt. Super. Ct. May 19, 2011); Merchants Indemnity Corp. v. Eggleston, 179 A.2d 505, 511 (N.J.
1962).
30
See N. Sec. Ins. Co. v. Claudia & David Pratt & Greystone Estates Residents Ass'n, 2011 Vt. Super. LEXIS 36
(Vt. Super. Ct. May 19, 2011).
31
See, e.g. Olin Corp. v. Certain Underwriters at Lloyd’s London, 468 F.3d 120 (2d Cir. 2006) (applying New York
law); Arkwright-Boston Mfr. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 445 (5th Cir. 1992); World Harvest
Church, Inc. v. GuideOne Mut. Ins. Co., 695 S.E.2d 6, 9 (Ga. 2010).
32
See, e.g., Cedar Hill Hardware and Construction Supply, Inc. v. Insurance Corp. of Hannover, 563 F.3d 329, 342
(8th Cir. 2009) (applying Missouri law); Insurance Co. of N. Am. V. McCleave, 462 F.2d 587, 588 (3d Cir. 1972);
Pac. Indem. Co. v. Acel Delivery Serv., Inc., 485 F.2d 1169, 1173 (5th Cir. 1973) (applying Texas law).
33
See, e.g., Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 782 (Tex. 2008).
34
See, e.g., Federated Dep’t Stores, inc. v. Twin City Fire Ins. Co., 28 A.D.3d 32, 37-38 (N.Y. 2006) (a reservation
of rights “is a sufficient preventative to reliance even if the insurer later disclaims on a basis different from the
ground originally asserted in the reservation of rights”); Universal Fire & Cas. Ins. Co. v. Jabin, 16 F.3d 1465, 1470
(7th Cir. 1994) (applying Illinois law).
35
See Transamerica Insurance Group v. Beem, 652 F.2d 663, 664, 667 (6th Cir. 1981); Cincinnati Ins. Co. v. Hall,
2011 Mich. App. LEXIS 1048, *3-*4 (Mich. App. 2011) (unpublished).
36
See e.g., Hartford Underwriters Ins. Co. v. Found. Health Servs., Inc., 524 F.3d 588, 593 (5th Cir. 2008)
(discussing Louisiana law); Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 366,
371 (4th Cir. 2005) (discussing South Carolina law and collecting cases); Rx.com Inc. v. Hartford Fire Ins. Co., 426
F. Supp. 2d 546, 559 (S.D. Tex. 2006) (applying Texas law); Armstrong Cleaners, Inc. v. Erie Ins. Exch., 364 F.
Supp. 2d 797, 807-08 (S.D. Ind. 2005) (applying Indiana law); Tyson v. Equity Title & Escrow Co. of Memphis, 282
12
F. Supp. 2d 829, 831-32 (W.D. Tenn. 2003); MetLife Capital Corp. v. Water Quality Ins. Syndicate, 100 F. Supp. 2d
90, 94 (D.P.R. 2000); Long v. Century Indem. Co., 78 Cal. Rptr. 3d 483, 490-91 (Ct. App. 2008); Delmonte v. State
Farm Fire & Cas. Co., 975 P.2d 1159, 1174 (Haw. 1999); Mut. Serv. Cas. Ins. Co. v. Luetmer, 474 N.W.2d 365,
368-69 (Minn. Ct. App. 1991); Twp. of Readington v. Gen. Star Ins. Co., No. HNT-L-205-05, 2006 WL 551404, at
4 (N.J. Super. Ct. Law Div. Mar. 3, 2006); Red Head Brass, Inc. v. Buckeye Union Ins. Co., 735 N.E.2d 48, 55
(Ohio Ct. App. 1999); Nisson v. Am. Home Assurance Co., 917 P.2d 488, 490 (Okla. Civ. App. 1996); Unauthorized
Practice of Law Comm. v. Am. Home Assurance Co., 261 S.W.3d 24, 40 (Tex. 2008); and Johnson v. Cont'l Cas.
Co., 788 P.2d 598, 600 (Wash. Ct. App. 1990).
37
See, e.g. State Farm Fire & Cas. Co. v. Superior Court, 265 Cal. Rptr. 372, 374, fn. 3(Cal. Ct. App. 1989).
38
See, e.g. Dynamic Concepts, Inc. v. Truck Ins. Exchange, 71 Cal. Rptr. 2d 882, 887 (Cal. Ct. App. 1998); see also
McGee v. Superior Court, 221 Cal. Rptr. 421, 423 (Cal. Ct. App. 1985) (“The crucial fact in Cumis . . . was that the
insurer’s reservation of rights on the ground of noncoverage was based on the nature of the insured’s conduct, which
as developed at trial would affect the determination as to coverage.”)
39
James 3 Corp. v. Truck Ins. Exchange, 111 Cal. Rptr. 2d 181, 185-86 (Cal. Ct. App. 2001).
40
See, e.g. Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 788 N.E.2d 522, 539 (Mass. App. Ct. 2003); Am. Family
Life Assurance Co. v. U.S. Fire Co., 885 F.2d 826, 831 (11th Cir. 1989); Moeller v. Am. Guarantee & Liab. Ins. Co.,
707 So.2d 1062, 1071 (Miss. 1996); Union Ins. Co. v. The Knife Co., 902 F. Supp. 877, 880 (W.D. Ark. 1995);
Federated Dep't Stores, Inc. v. Twin City Fire Ins. Co., 28 A.D.3d 32, 37, fn. 1 (N.Y. App. Div. 2006).
41
See, e.g. Finley v. Home Ins. Co., 975 P.2d 1145 (Haw. 1998); St. Paul Fire & Marine Ins. Co. v. Engelmann, 639
N.W.2d 192 (S.D. 2002); L&S Roofing Supply Co. v. St. Paul Fire & Marine Ins. Co., 521 So.2d 1298, 1303
(Ala.1987); Tank v. State Farm Fire & Cas. Co., 715 P.2d 1133 (Wash. 1986).
42
See, e.g., Scottsdale Ins. Co. v. M.V. Transp., 115 P.3d 460 (Cal. 2005); Colony Ins. Co. v. G & E Tires & Serv.,
Inc., 777 So.2d 1034 (Fla. Dist. Ct. App. 2000); Travelers Cas. & Sur. Co. v. Ribi Immunochem Research, 108 P.3d
469, 480 (Mont. 2005); Gotham Ins. Co. v. GLNX, Inc., No. 92 Civ. 6415, 1993 WL 312243, at *4 (S.D.N.Y. Aug.
6, 1993); Travelers Prop. Cas. Co. v. R.L. Polk & Co., No. 06-12895, 2008 WL 786678 at *2 (E.D. Mich. Mar. 24,
2008); Scottsdale Ins. Co. v. R.I. Pools, Inc., 2011 WL 3563169 (D. Conn. Aug. 15, 2011).
43
See Buss v. Superior Court, 939 P.2d 766 (Cal. 1997).
44
See, e.g., U.S. Fid. V. US Sports Specialty, 270 P.3d 464 (Utah 2012); Am. & Foreign Ins. Co. v. Jerry's Sport
Ctr., Inc., 2 A.3d 526 (Pa. 2010); Westchester Fire Ins. Co. v. Wallerich, 563 F.3d 707, 719 (8th Cir. 2009)
(applying Minnesota law); Terra Nova Ins. Co., Ltd. v. 900 Bar, Inc., 887 F.2d 1213 (3d Cir. 1989) (applying
Pennsylvania law); Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1002 (Ill.
2005); Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. of Am., 448 F.3d 252 (4th Cir. 2006) (applying Maryland
law).
13