This case involved an insurance coverage dispute from an automobile accident involving an employee of defendant Century Waste Services, LLC (“Century”). The employee was driving a vehicle owned by a manager’s mother, which was a vehicle not covered under the insurance policy issued to Century by United Specialty Insurance Company (“USI”). The trial court had ruled that USI was not required to indemnify Century for this accident. In the case of United Specialty Insurance Co. v. Century Waste Services, LLC, 2023 N.J. Super. Unpub. LEXIS 2097 (App. Div. Nov. 20, 2023), the issue on appeal was whether USI was estopped from denying coverage because USI’s reservation of rights letter did not inform Century that it could accept or reject USI’s assigned counsel.
This accident happened when a manager employed by Century asked another employee to drive from Elizabeth, New Jersey to Bronx, New York to pick up a check from a Century customer. The employee was given permission by the manager to drive a vehicle owned by the manager’s mother. However, the employee was involved in a car accident on the way to pick up the check.
The passengers in the other vehicle sued Century, the Century employee who drove the borrowed vehicle, and the owner of the borrowed vehicle to recover damages for injuries they suffered in the car accident. Thereafter, USI’s claim administrator sent a letter to Century advising it had retained counsel to defend Century in the underlying action. The letter also advised Century that, if Century chose to retain its own attorney, it would be at its expense.
GEICO was the borrowed vehicle’s insurer and assigned counsel to defendant both the vehicle’s owner and the Century employee driving the vehicle at the time of the accident.
USI wrote to Century offering to continue defend it in the underlying lawsuit, subject to a reservation of rights. The letter stated as follows:
“If we do not hear from you to the contrary, we will assume that you consent to the retention of Meaghan Lipton, Esq., for this matter.”
Century did not object to USI’s continued representation in the underlying action.
Thereafter, USI filed a lawsuit seeking a declaratory judgment that USI did not owe Century a defense or indemnity in the underlying lawsuit. USI filed a motion for summary judgment in the declaratory judgment action. Century filed a cross-motion for summary judgment, seeking to require USI to provide a defense and indemnify Century in the underlying lawsuit. The trial court heard both motions and denied them both.
Thereafter, USI filed a second motion for summary judgment, seeking a declaratory judgment that it did not owe Century a defense or indemnity in the underlying suit. Again, Century cross-moved for summary judgment and opposed USI’s motion. This time, the trial court entered an order granting USI’s summary judgment motion and denying Century’s cross motion.
In making its ruling, the trial court reasoned that there was never any coverage for Century on the underlying action under the USI policy in the first place and that Century cannot be allowed to create that coverage through estoppel. The court made a determination that the letter from USI reserving its rights was not insufficient simply because it did not include “certain magic words.” Further, the court determined that Century had suffered no prejudice.
Century appealed this ruling and contended that USI should be estopped from denying coverage because the reservation of rights letter did not contain the required language “to inform Century it could accept or reject the offer of a defense,” and also because Century incurred prejudice as a result of USI’s control of the legal defense.
The Appellate Division explained that estoppel is a doctrine applied at law and in equity for the purpose of precluding a party “from asserting rights which might perhaps have otherwise existed . . . as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worst.” The Court also noted that the “predominant view” is that a loss which is not within the coverage of a policy cannot be bought within such coverage by invoking the principles of waiver or estoppel.
In this matter, Century did not dispute that the borrowed vehicle did not qualify as a “covered auto” under the USI policy. Its argument rested on the principle of estoppel, which in turn hinged on whether Century was properly informed of its right to choose either to consent to legal representation by the lawyer provided by USI or to retain its own attorney at its own expense.
The Appellate Division noted the well-settled law that “without the insured’s consent or circumstances that suggest the insured acquiesced in the insurer’s control of the defense, an insurer will be estopped from later disclaiming coverage.” Further, the Court noted that reservation of rights letters have been regarded as “proper defense mechanisms for insurance companies.”
In this situation, the Court found that it was dealing with a variation of acquiescence by silence. It noted that there are no magic words that need to constitute a valid reservation of rights. In this case, the Appellate Division was satisfied that “if we do not hear from you” language in the reservation of rights letter adequately communicated that Century had the option to reject the use of the attorney by USI. The Court inferred that Century elected not to exercise its option to retain its own counsel when it chose not to advise USI that it did not want its interest represented by the attorney retained by USI. Thus, the Appellate Division concluded that Century had consented to allow the attorney retained by USI to control the defense of the underlying lawsuit.
Under these circumstances, the Appellate Division found that Century failed to provide a basis upon which to apply the estoppel doctrine. Further, the Court found that Century had not suffered any prejudice. It was unable to show how the case would have been handled differently had it chosen to retain a different attorney at its own expense. Thus, the Appellate Division affirmed the trial court’s ruling that USI was not estopped from denying coverage because of the lack of specific language in its reservation of rights letter.
