DEFENSES / INSURANCE: Estoppel to deny coverage by failure to timely raise reservation of rights (Ohio Cas. Co. vs. Wellington Place Council, COA NPO 1/20/2014)

Insurance.  Estoppel to deny coverage.
Ohio Ca. Ins. Co. vs. Wellington Place Council of Co-Owners Homeowners Association
COA NPO 1/10/2014
The COA affirmed the trial court’s determination that the insurance company was estopped from denying coverage by defending without advising insured of a reservation of rights.  Lesson learned here is that counsel retained by an insurance company to defend should be quiet on a reservation of rights issue and not push it.  Should they force the issue rather than allow the passage of time to set up an estoppel, would that a. raise a claim of legal negligence; b. conflict of interest; and/or c. result in an estoppel any way since the retained counsel breached his/her fiduciary duty and potentially saved money for the carrier paying his legal bill.  This would sorely test the three-legged stool (aka tri-partite relationship) of client-lawyer-insurance company.  A discovery can of worms could provide a reason for re-examining this time-honored rule and remember the duties are owed to the insured client and no one else.

STUMBO, JUDGE: Ohio Casualty Insurance Company and West American Insurance Company appeal from an Amended Order and Judgment of the Campbell Circuit Court granting Summary Judgment in favor of Wellington Place Council of Co-Owners Homeowners Association, Inc. The Appellants argue that the circuit court improperly failed to apply an intervening decision of the Kentucky Supreme Court establishing that negligent or faulty construction claims are not “occurrences” triggering coverage under a builder’s commercial general liability policy. We find no error in the circuit court’s conclusion that the Appellants’ failure to issue a timely reservation of rights letter constituted a waiver of, or estoppel from, their right to assert coverage defenses including those of noncoverage. Accordingly, we affirm the Amended Order and Judgment of the Campbell Circuit Court.

Wellington Place has the requisite standing to assert waiver and estoppel. It is uncontroverted that once an injured party secures a judgment against an insured, it may move forward with those claims against the insurer. State Auto. Mut. Ins. Co. v. Empire Fire & Marine Ins. Co., 808 S.W.2d 805 (Ky. 1991). In so doing, it has rights no greater or lesser than those of the insured. Tharp v. Security Ins. Co. of New Haven, Conn., 405 S.W.2d 760 (Ky. 1966). An “injured party generally stands in the shoes of the insured.” Id. The parties entered into a Stipulated Judgment as to coverage; therefore, Wellington Place may assert claims against Ohio Casualty as if it stood in the shoes of the Erpenbeck Defendants. We find no error.