- A Reservation of Rights Letter is Ineffective When it is Untimely and Not Specifically Addressed to the Additional Insured
- July 14, 2015 | Author: Allison L. Krupp
- Law Firm: Marshall Dennehey Warner Coleman & Goggin, P.C. - Camp Hill Office
- Erie Insurance Exchange v. Lobenthal, et al., 2015 PA Super 78 (Pa. Super. Ct. April 15, 2015)
In this unprecedented and highly impactful case, the Pennsylvania Superior Court held that two separate reservation of rights (ROR) letters were ineffective as to an additional insured because they were addressed to the named insureds and were sent seven months after the underlying complaint had been filed. Significantly, the RORs had also been sent directly to the additional insured’s counsel. Regardless, the Superior Court held that this was insufficient notice, since it was addressed to the named insureds, as opposed to the additional insured directly. This decision is significant on multiple levels. First, it stresses the importance of diligently and timely issuing ROR letters to any and all insureds or potential insureds. Second, it obligates the insurer to specifically address the ROR letter to the specific insured to whom it applies—not merely the named insured on the policy. Finally, it stresses the importance of identifying in the ROR letter the applicable policy exclusions and provisions upon which the insurer is relying. In this case, the Superior Court considered that the first ROR letter did not reference the policy’s controlled substances exclusion, upon which the insurer was relying.
In the underlying case, the Boyd defendants had filed a tort claim against the defendants Lobenthal and Miller with respect to injuries Kory Boyd had sustained in a motor vehicle accident. Kory Boyd had been riding as a passenger in a vehicle operated by defendant Miller. Counts two and three alleged that defendant Lobenthal had negligently permitted the possession and consumption of controlled substances by defendant Miller at a property owned by defendant Lobenthal’s parents. The underlying court overruled defendant Lobenthal’s preliminary objections, finding that her liability turned solely on whether she had furnished controlled substances to Miller.
Erie filed a declaratory judgment action, and the trial court ruled in favor of Erie, holding that it had no duty to defend or indemnify Lobenthal with respect to the claims brought by the Boyds in the underlying suit. On appeal, the Superior Court considered that Erie had issued two ROR letters—one before the underlying complaint had been filed and another after the complaint had been filed. Both letters were addressed solely to defendant Michaela Lobenthal’s parents, who were the named insureds on the policy, and neither letter mentioned Michaela, who had now attained majority status. The letters were also sent to Michaela’s counsel. The Superior Court held that: Michaela was entitled to independent notice of Erie’s reservation of its rights to disclaim liability; notice to the named insureds and defense counsel was ineffective as to Michaela; and the letter, which was sent seven months after the complaint was filed, was untimely. As a result, the trial court’s decision was reversed and remanded in favor of Ms. Lobenthal.
This case will inevitably have an extensive impact upon the viability of ROR letters, particularly where they are not addressed to a specific insured and where a court has deemed them untimely.