Recently the Superior Court of Pennsylvania held that an insurer’s reservation of rights (“ROR”) letter that failed to clearly communicate the extent of the rights being reserved and the reason for same, resulted in presumptive prejudice to the insured. The Court cautioned that any such reservation of rights “must fairly inform the insured of the insurer’s position and must be timely, although delay in giving notice will be excused where it is traceable to the insurer’s lack of action or constructive knowledge of the available defense.” See Selective Way Ins. Co. v. MAK Servs., 2020 PA Super 103.
Defendant was in the business of snow and ice removal and in a “comedy of errors” obtained insurance coverage from Plaintiff/Insurance Company that excluded various types of coverage including “snow and ice removal.” Thereafter an individual slipped, fell, and filed suit against Defendant. The individual alleged that Defendant was negligent in removing snow and ice. Plaintiff/Insurance Company appointed defense counsel to represent the Defendant in the slip/fall lawsuit and also sent a ROR letter. The ROR letter did not acknowledge or discuss the snow and ice removal exclusion contained in the Policy.
Thereafter defense counsel retained by Plaintiff/Insurance Company defended the matter for approximately eighteen months. Also thereafter, Plaintiff/Insurance Company filed a declaratory judgment and averred that Defendant’s “potential negligence is based solely upon ice and snow removal activity, and the [Policy] specifically excludes a defense and indemnity for any damages arising from snow and ice removal activity . . . .” The trial court entered judgment in favor of Plaintiff/Insurance Company and found that the Insurance Company had no duty to defend or indemnify Defendant related to the slip/fall lawsuit. Defendant filed an appeal and the Superior Court summarized the issue on appeal: “[Defendant] is essentially challenging the sufficiency of [Plaintiff/Insurance Company’s] reservation of rights letter, and thereby its preservation of the snow and ice removal exclusion.”
First the Court examined the timeliness of the Insurance Company’s letter. The Court noted that the general principle is that a ROR letter sent close-in-time to the institution of a potentially covered legal action is "timely" under Pennsylvania law. In this case the Insurance Company sent the letter approximately three weeks after of the filing of the slip/fall lawsuit.
Second, the Court examined whether the ROR letter was “‘fairly inform[ed] the insured of the insurer's position’ to validly preserve defenses to coverage under the policy.” In this case, the Court found that the ROR letter may have sufficiently apprised Defendant that future exigencies might affect coverage; however, the letter did not provide notice “of the existing coverage issue appearing on the face of the Policy, i.e., the snow and ice removal exclusion.”
The Court concluded that the Insurance Company’s ROR letter failed to “clearly communicate” the extent of the rights being reserved, which resulted in presumptive prejudice to Defendant. As a result of this prejudice, the Insurance Company should have been estopped from asserting a policy exclusion for the first time eighteen months later without sufficient notice. The Court reversed the trial court’s decision and remanded the matter for further proceedings.