Waiver Rears its Head: Equitable Subrogation Against “Other Insurance” Waived by Failure to Preserve Rights
Questions of “other insurance” arise whenever two or more insurers could provide coverage for a claim against a common insured. If one insurer is put in the position of settling a claim when other insurers who may also owe coverage do not contribute, reserving and pursing rights against other insurers should never be an afterthought. An insurer recently learned this lesson when it failed to assert rights against another insurer before agreeing to provide coverage for the settlement of a defamation lawsuit against well-known attorney Alan Dershowitz. As a result, the court held that the insurer had waived its claim for equitable subrogation against the other insurer.
PURE, Hanover, and CNA had agreed to defend Dershowitz under a reservation of rights in a lawsuit filed by two lawyers alleging that Dershowitz made defamatory statements about them. PURE’s reservation of rights letter invoked the Expected or Intended Injury exclusion, but made no reference to “other insurance” issues of priority of coverage between the PURE, Hanover and CNA policies. When the parties began to pursue settlement in the defamation lawsuit, PURE began to question the priority of coverage between its policy and Hanover’s policy. But, despite being aware of the issue, PURE funded the settlement without raising the issue or preserving its right to subrogation against the other insurers.
When Pure sued Hanover for equitable subrogation, the District Court for the Southern District of Florida held that PURE waived its right to seek subrogation because it failed to take any steps to obtain a subrogation agreement, indemnity agreement, or in any way disclaim or limit its liability based on “other insurance” available to Dershowitz or priority of coverage between the triggered policies.
The court’s decision should serve as a cautionary tale to insurers: if there is a priority of coverage or other insurance issue, raise it by asserting your right to deny or limit coverage to the insured, as well as your right to recover any payments made on the insured’s behalf that should rightfully be paid by another insurer. If an initial reservation of rights letter did not address the “other insurance,” issue a supplemental reservation of rights to put the insured and other insurers on notice. If other insurance rights and equitable subrogation are an afterthought, they could be waived.
Privileged Underwriters Reciprocal Exchange v. The Hanover Insurance Group, S.D. Fla., Case No. 16-cv-61742