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Failure to Strictly Follow Policy, in Reliance on Customer Service, Waives Insurer’s Duty to Defend

By Alexander Beeby posted 09-26-2021 14:51

Contributing Editor: Lara L. Overton, Overton Law, LLC

In Dowden v. Cornerstone National Insurance Co. (In re Huchingson), --- F.4th ---, 2021 WL 3849404 (8th Cir. Aug. 30, 2021), summary judgment in favor of the insurer was proper because the trustee’s waiver and estoppel arguments fail, and the insured failed to strictly comply with a condition precedent to the coverage of the automobile insurance policy when he did not promptly forward legal documents to the insurer.

The trustee had sued the insurer alleging it breached the duty to defend the insured debtor when it failed to timely file an answer in a lawsuit against the insured. The U.S. District Court, Western District of Arkansas, awarded summary judgment to the insurer, and the trustee appealed.

The insurer had issued an automobile liability policy to the insured, who later was involved in an accident that seriously injured another driver. The insured reported the accident to the insurer, the insurer assigned a claims adjuster to the claim, and the insured spoke to the adjuster. The injured driver then filed a lawsuit and served the insured with the summons and complaint. The insured called insurer’s toll-free number for reporting claims, which is handled by a third party, and spoke to a representative about his accident and how the injured party was trying to sue him. The insured: (i) told the representative he had not filed a claim, despite the fact that he did and omitted that he already spoke with a claims adjuster; (ii) referenced a report from the injured party’s attorney, but never mentioned he was reading from a complaint; and (iii) spoke to the representative about whether he needed to send a copy of the police report or if the insurer would obtain that, and the representative told him, if he was required to send anything, in the insurer would let him know.

The insured did not file an answer to the complaint, and the state court entered a default judgment against him and set a date for a damages trial. Before the trial, the insured sent copies of the summons, complaint, and notice of damages trial to the insurer. The insurer hired counsel to defend the insured under a reservation of all of insurer’s rights. The court entered a multi-million-dollar judgment against the insured, and the insurer paid the plaintiff the $25,000 policy limit.

Subsequently, the insured filed for bankruptcy, and the trustee sued the insurer in state court for breach of contract, bad faith, and negligence. The insurer removed the case to federal court and filed a motion to dismiss, which was granted by the district court as to the bad-faith and negligence claims. The parties filed cross-motions for summary judgment on the breach of contract issue, and the district court granted the insurer’s motion after concluding that the debtor failed to comply with a condition precedent to coverage and the insurer had no duty to defend or indemnify.

On appeal, the trustee argued that the grant of summary judgment should be reversed because the insured’s obligation to forward legal documents did not require strict compliance and was merely a duty to cooperate. The trustee also argued in the alternative that, even if the insured did not strictly comply with the policy, summary judgment was inappropriate because the insurer waived the defense of noncoverage when the third-party representative spoke with the insured and should be estopped from asserting the defense. The Eighth Circuit disagreed with both arguments and affirmed the district court’s grant of summary judgment because the insured’s duty to forward legal documents to the insurer functions as a condition precedent to recovery and the insured did not fully comply with the policy requirements. Additionally, the Eighth Circuit held that the representative did not waive the policy’s requirements and her actions did not estop the insurer from denying coverage based on noncompliance.

Co-Editors in Chief
Alexander J. Beeby, Larkin Hoffman
Kesha Tanabe, Tanabe Law