Claims Denial Under Reservation Of Rights

Insurance lawyers in Saginaw and other Dallas and Fort Worth areas should be able to discuss with a client the significance of a Reservation of Rights letter from an insurance company and what it means. One aspect of this is discussed in a 2003, United States 5th Circuit Court of Appeals case. The case is styled, Esco Transportation Company v. General Insurance Company of America. Here is some of the relevant information from that case.

Esco’s loaded trailer containing a shipment of clothing for Sam’s Wholesale Club was stolen while it was left unattended on a public street. The tractor and trailer were eventually recovered, but not the cargo. The cargo of clothing was valued at $372,000. Esco submitted a claim for the loss of the cargo of clothing to General Insurance and, prior to receiving a response from General Insurance, filed for bankruptcy protection. General Insurance denied Esco’s claim under the “Unattended Trailer Exclusion” contained in the policy after concluding that there were no signs of forced entry into the trailer. In the denial letter, General Insurance expressly reserved all rights, privileges and defenses under the policy. After Esco filed suit for damages and a declaratory judgment of coverage, General Insurance also asserted that Esco failed to comply with the policy’s provisions for establishing loss. The policy provided that General Insurance would cover the loss “in accordance with the Tariff, Bill of Lading, or Shipping Receipt.” After the lawsuit was filed, Esco’s secured creditor substituted into the lawsuit as the real party in interest. Because neither Esco nor his successor were able to produce any document showing its legal liability, the value of the stolen cargo, or the cargo’s owner, the trial court granted summary judgment in favor of General Insurance. This appeal was filed.
The 5th Circuit Court of Appeals affirmed the district court’s grant of summary judgment in favor of General Insurance, rejecting Esco’s argument that by denying the claim based on the “Unattended Trailer Exclusion,” General Insurance had waived any other defenses to coverage. This appeals court found that in the denial letter, General Insurance did not deny the claim on one ground alone but specifically “reserved all rights, privileges and defenses under the policy.” Addressing the legal liability issue, the court noted that while the policy covered Esco’s legal liability for third party loss and Esco presented a conclusory affidavit indicating that it was required to reimburse Sam’s for the value of the cargo, there was no evidence establishing the basis for Esco’s legal liability. Thus, a condition precedent to the coverage had not been met by Esco’s successor in interest and the court saw no need to address the unattended trailer exclusion.

The bottom line here is that when a claim denial or Reservation of Rights letter is received by an insured from their insurance company, an experienced Insurance Law Attorney must be consulted.