Insurance – Waiver And Estoppel

Insurance attorneys need to know legal issues that will help their clients.
Two common defenses relied upon to prevent an insurance company from avoiding coverage when a judgment has been entered against their insured are “estoppel” and “waiver.” While both theories have been applied by courts to avoid forfeiture of a policy, they normally cannot be applied to change, re-write, or enlarge the risks covered by a policy. This was told us by the Texas Supreme Court in the 2008, case styled, Ulico Casualty Co. v. Allied Pilots Association, and other cases. Stated in a different way, neither waiver nor estoppel can be invoked to bring a non-covered loss within coverage of a policy so as to supply coverage where none exists.
To distinguish between estoppel and waiver, it has been explained that “Waiver presupposes full knowledge of existing rights, while estoppel arises where, by fault of one, another had been induced to change his position for the worse.” This was discussed in another Texas Supreme Court case. It was Massachusetts Bonding and Insurance Co. v. Orkin Extermination Co., Inc., decided in 1967.
Here is something to know – The elements of waiver include:
1. an existing right, benefit, or advantage held by a party;
2. the party’s actual knowledge of its existence; and 3. the party’s actual intent to relinquish the right, or intentional conduct inconsistent with the right.
These elements are cited in the Ulico case above.
Estoppel, as told us by the Ulico case, generally prevents one party from misleading another to the other’s detriment or to the misleading party’s own benefit. Estoppel requires proof of:
1. a false representation of material fact by the insurance company;
2. made with actual knowledge or constructive knowledge of falsity;
3. with the intent that it would be acted upon by the insured;
4. to the insured without knowledge of its falsity; and 5. who relies on it to her detriment.
There are lower appeals courts which have recognized that waiver and estoppel may effectively be raised against the insurance company if it assumes an unconditional defense with knowledge of a valid defense, including non-coverage.
An insurance company may protect itself from claims of waiver and estoppel by defending the insured under a reservation of rights. The purpose of a reservation of rights is to put the insured on notice that a conflicts exists between the insured and the insurance company so that the insured can decline the representation and control its own defense.
There are many legal issues for an experienced Insurance Law Attorney to know and be aware of in trying to help someone with an insurance claim.