Liability Insurers Risk Waiver by Failing to Explicitly List Coverage Defenses
By: Erik Johnson
In SavaSeniorCare, LLC v. Starr Indemnity & Liability Co., 2020 WL 5820643 (N.D. Ga. Sept. 29, 2020), the U.S. District Court for the Northern District of Georgia recently analyzed and applied the Hoover waiver rule, which provides that boilerplate disclaimers of coverage in third-party coverage claims are ineffective. Rather, an insurer must specifically assert coverage defenses in order to avoid waiver of those defenses.
In Hoover v. Maxum Indemnity Co., 730 S.E.2d 413 (Ga. 2012), the Supreme Court of Georgia warned insurers about the common practice of drafting reservation of rights and coverage denial letters and then later amending or supplementing that denial to assert new coverage defenses after the initial defenses to coverage were unsuccessful. According to the Hoover waiver rule, a liability insurer presented with a claim has three possible courses of action:
- defend the claim against its insured and waive any policy defenses or claims of non-coverage;
- defend its insured under a reservation of rights; or
- deny coverage and refuse to defend its insured, leaving all explicitly raised policy defenses open for future litigation while waiving all unasserted defenses to coverage.
Id. at 416-17.
Thus, when denying coverage, the insurer must identify the specific grounds for denying coverage in its denial letter or risk waiver of defenses that are not specifically identified. Id. at 418.
Recently, insurers unsuccessfully attempted to distinguish the Hoover waiver rule. SavaSeniorCare, LLC v. Starr Indemnity & Liability Co. involved an insurance coverage dispute between insured SavaSeniorCare, LLC, and its insurers, Starr Indemnity & Liability Company and Aspen American Insurance Company. 2020 WL 5820643 at *1. When requesting insurance coverage for the defense costs for multiple False Claims Act lawsuits, Starr and Aspen denied coverage for defense costs exceeding $1 million pursuant to a “Return of Fraud Exclusion” it contended applied to the alleged False Claims Act violations in the lawsuits against SavaSeniorCare. Starr and Aspen sent approximately six denial letters containing a boilerplate disclaimer and general reservation of rights.
In a coverage lawsuit initiated by SavaSeniorCare against Starr and Aspen for their failure to provide defense costs in the False Claims Act lawsuits, Starr and Aspen asserted a late-notice defense, which they had not previously asserted in their denial letters. SavaSeniorCare eventually moved for partial summary judgment on the ground that Starr and Aspen waived the new late-notice defense by not asserting the defense in its multiple pre-litigation coverage letters. In response, Starr and Aspen argued (1) they did not “deny” coverage under the policies, (2) the Hoover waiver rule did not apply to indemnity policies that reimburse defense costs and (3) they lacked sufficient information to deny coverage based on late notice at the time of the initial coverage decision.
The court agreed with SavaSeniorCare and rejected the insurers’ defenses. First, the court rejected the insurers’ argument that they did not “deny” coverage, holding that “given the principles embodied in Hoover and its progeny . . . invoking a policy’s sublimit of liability provision constitutes a ‘denial’ of all other coverages for purposes of determining whether any subsequently noticed defenses have been waived.” Id. at *7. Second, the court held the duty to pay defense costs was synonymous with the duty to defend discussed in Hoover, reasoning that Hoover was not “to be so narrowly limited as to only cover an insurer’s duty to defend . . . [and] such a finding is not supported by the decision itself or in the underlying history of the case.” Id. at *8. Lastly, the court rejected the contention that the insurers lacked sufficient information to raise a late-notice defense in their initial coverage letters. The court explained, similar to Hoover, SavaSeniorCare’s insurers were presented with multiple choices regarding coverage, but were not permitted to “deny the lion-share of the policies’ coverage limits on one ground, issue a boilerplate reservation of rights, and then ‘continue to investigate to come up with additional reasons on which the denial could be based if challenged.’” Id. at *9 (citing Hoover, 730 S.E.2d at 416-17).
The recent holding in SavaSeniorCare, LLC, reiterates the Hoover waiver rule will be strictly applied in Georgia. Thus, liability insurers should take care to thoroughly investigate claims presenting coverage issues and specifically raise all applicable policy provisions in coverage position and reservation of rights letters.
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