Coverage Analysis
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ESTOPPEL AND WAIVER

The measure of damages for breaching the duty to defend “is that amount which will compensate the insured for the harm or loss caused by the breach of the duty to defend, i.e., the cost incurred in defense of the underlying suit.”  Amato v. Mercury Casualty Company, 18 Cal. App. 4th 1784, 1794 (1993).  

Waiver is the intentional relinquishment of a known right upon knowledge of the facts.  Waiver may be expressed, based on the words of the waiving party; or implied, based on conduct indicating an intent to relinquish the right.  Waller v. Truck Insurance Exchange, 11 Cal. 4th 1, 31 (1995).  Where in doubt, California courts have decided against the existence of waiver. 

An insurer that denies coverage on the basis of certain specific terms does not waive the right to raise other defense to coverage. Waller v. Truck Ins. Exchange, 11 Cal.4th 1 (1995).  See also  Titan Corp. v. Aetna Cas. & Sur. Co., 22 Cal. App. 4th 457, 27 Cal. Rptr. 476 (1994); Legarra v. Federated Mutual Insurance Company, 35 Cal. App.4th 1472, 42 Cal. Rptr.2d 101 (3d Dist. 1995); Intel, supra.  Similarly, the Ninth Circuit ruled in Aceves v. Allstate Ins. Co., 68 F.3d 1160 (9th Cir. 1995) that an insurer's delay in investigating a first party claim did not create coverage where the insured's notice had itself been brought after the statutory period for bringing a claim.

An insurer that fails to respond to its insured's claim may not subsequently object that the insured breached the policy's cooperation clause by entering into a settlement without the insurer's consent.  National American Ins. Co. of California v. Certain Underwriters at Lloyd's, 1996 WL 459864 (9th Cir. August 15, 1996)(also holding that failure to promptly object to untimely notice waives coverage defense).

An insurer's defense without reserving its rights will only estop it from subsequently disputing coverage if its insured's interests have been prejudiced in the interim. Intel Corp. v. Hartford Acc. & Ind. Co., 952 F.2d 1551, 1559 (9th Cir. 1991);  National Union Fire Ins. v. Siliconix, Inc., 726 F.Supp. 264 (N.D. Cal. 1989).  Waiver will only be found where there is "some element of misconduct by the insurer or detrimental reliance by the insured."  Garcia v. CalFarm Ins. Co., 6 Cal. App. 4th 885, 895 (1992). 

A reservation of rights need not be written.  State Farm v. Jioras, 24 Cal. App. 4th 1619, 29 Cal. Rptr.2d 840 (1994).  In Jioras, the Court of Appeal further ruled that an umbrella insurer, having never had a duty to defend, could not be estopped for failing to issue a reservation of rights letter.

A wrongful refusal to defend does not estop an insurer from disputing the extent of its claimed indemnity obligation.  Yap v. Industrial Indemnity Co., 1993 Cal. App. LEXIS 840 (Cal. App. August 17, 1993).

Findings in a judicial arbitration of the underlying liability claims are not binding in a subsequent insurance coverage dispute particularly if they are subsequently nullified through a timely request for trial de novo.  Quan v.  Truck Ins.  Exchange, 67 Cal. App.4th 583, 79 Cal. Rptr.2d 134 (2nd Dist.1998).  This is particularly so where the “findings” are in fact the legal opinions of the arbitrator. The Court of Appeal further declared that the insurer was not estopped to dispute coverage because of internal memoranda and file comments prepared by its claims handler suggesting a potential for coverage.  The court noted that opinion evidence is completely irrelevant to the interpretation of an insurance contract.  See also Chatton v.  National Union Fire Ins.  Co., 10 Cal.  App.  4th 846, 865 (1992).

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