Presented by the Insurance Services Practice Group

Superior Court Warns Insurers: Be Specific in RORs and Update Them When Necessary

In Selective Way Ins. Co. v. MAK Servs., 2020 Pa. Super. LEXIS 342 (Pa. Super. April 24, 2020), MAK Services, a snow and ice removal company, obtained a liability insurance policy from Selective Way Insurance Company through its insurance agent. The policy included a snow and ice removal exclusion. In 2011, the claimant slipped and fell on ice that was in the parking lot of the Valley Forge Marketplace, a client of MAK Services. After the claimant sued MAK, Selective Way entered defense counsel on MAK’s behalf and issued a general reservation of rights (ROR) letter without citing the specific snow and ice removal exclusion. Eighteen months latter, Selective Way filed a declaratory judgment action, arguing that the exclusion applied to preclude coverage. The trial court ruled in favor of MAK, but the Superior Court reversed. The Superior Court majority held, in essence, that Selective Way’s investigation was inadequate since the coverage question was obvious on the face of the underlying lawsuit. The court also considered that, absent sufficient specificity, the insured was lulled into a false sense of security and did not retain personal counsel. The court stated that a reservation must be timely and “fairly inform the insured of the insurer’s position.” The court pointed out that Selective Way’s ROR advised, in part, that the underlying lawsuit constituted a “potentially covered claim” and that the letter’s lack of specificity estopped Selective Way from relying on the coverage defense. While prejudice remains an element, the Superior Court held that prejudice is presumed in such circumstances.

Judge Strassburger dissented, finding that there was no prejudice. There was no evidence that the defense was altered in any way by the delay. At the end of the day, the only impact on MAK was that it had been provided with a free defense for eighteen months.

The key takeaways are that insurers must be as specific as possible when preparing ROR letters and issue multiple and updated RORs if additional coverage issues subsequently emerge. Otherwise, they may be estopped from doing so.



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