In August, 2024, Plaintiff Matthew Galeano was in a motor vehicle accident while riding his motorcycle on I-80. The car that struck him had too little coverage, allowing Galeano to submit an underinsured motorist (UIM) claim to his insurer. Galeano owned an auto policy with USAA for two cars, but not the motorcycle, which had coverage with a separate insurer. Further, the USAA policy’s language expressly excluded UIM coverage for a person, like Galeano, who was operating any vehicle he owned that did not have UIM coverage with USAA. Nevertheless, though admitting he had no UIM coverage for this accident with USAA, Galeano submitted his UIM claim to USAA. Over the ensuing 16 months, USAA sent several letters to Galeano advising him that his claim remained unresolved and asked him to submit medical records for them to assess his injuries. One such letter was a response to Galeano’s “Longworth” letter seeking permission to settle with the other driver. Though USAA’s response alluded to their review of his coverage, it allowed him to settle. Ultimately, relying on the exclusion, USAA denied Galeano’s claim in January, 2026. Galeano sued claiming USAA was “equitably estopped” from denying him coverage. The issue in Galeano v. USAA Gen. Indem. Co., 2026 N.J. Super. Unpub. LEXIS 2333 (App. Div. Oct. 19, 2026) was, despite the admitted exclusion, whether USAA’s conduct and 16-month delay equitably estopped it from denying Galeano coverage.
As its name suggests, equitable estoppel is based in equity, or basic fairness, stating that when one party reasonably relies on another party’s course of action, the other party cannot change that course of action to the detriment of the first party. For insurers, equitable estoppel may apply when a carrier takes control of a claim and, despite knowing it has reason to deny the claim, it fails to advise the insured it may deny the claim with a “reservation of rights,” and after a lengthy delay, denies the claim. In such a case, the insured, without knowing of the potential for the denial of coverage, may avoid or refrain from taking other steps that may improve his position in hopes that the carrier agrees to provide him coverage, to his detriment.
Here, based on the exclusion, USAA filed a motion for summary judgment to allow it to deny Galeano UIM coverage. USAA relied on its response to the “Longworth” letter in which it expressly disclaimed any confirmation of UIM coverage. Galeano’s opposition argued his equitable estoppel claim – that he reasonably relied on potential UIM coverage from USAA because, over the course of more than a year, USAA advising him he may settle his underlying accident in its response to his “Longworth” letter and USAA never mentioned the possibility it would deny coverage. Though admitting he was not entitled to coverage, Galeano argued USAA should have known that from the outset and told him so. Because they didn’t tell him of the possibility, but wanted medical records to review and allowed him to settle, he was in a worse spot because he could not seek other remedies. The trial court weighed the value of the contrasting positions, ultimately denying USAA’s summary judgment motion due to the genuine issue of material fact as to whether USAA’s conduct was equitable. USAA filed an interlocutory appeal, allowing the Appellate Division to review the determination immediately.
The Appellate Division was similarly perplexed with the facts of this case. Its analysis relied on precedent which held that an insurer may be estopped from denying a claim if it assumes control of a claim knowing it has grounds to deny the claim, but does not put the insured on notice that it could deny the claim by issuing a “reservation of rights” letter. The precedent also held that, even if it did not take control of a claim, because an insurer has a duty to investigate claims within a reasonable time, any unreasonable delay may also be also grounds for estoppel. However, another more recent precedent, stated that estoppel did not apply when, though there was a delay, the insurer’s repeated “reservation of rights” letters removed the “reasonable reliance” element from the assessment. Based on the split in the precedents, the Appellate Division emphasized the fact-sensitive nature of the equitable estoppel analysis and did not make an up-or-down ruling. Instead, it sent the matter back to the trial court (“remand”) for further proceedings to determine: a) why did it take 16 months for USAA to identify its exclusion and keep requesting medical records without advising Galeano of the potential denial; and b) if he agreed he was not entitled to UIM coverage, how could Galeano have reasonably relied on USAA providing him that coverage.
Two key takeaways for insurers are, for one, avoid delay. Prepare a coverage analysis early. An unreasonable delay and other handling issues can put otherwise clear policy language into question. Two, if there is any question of coverage, put the insured on notice. Generic language like “evaluating” or “reviewing” coverage without a clear “reservation of rights” language, while actively engaging in coverage determinations like a “Longworth” reply, seems to have kept this case alive.