Takeaways from The CLM & Business Insurance 2017 Construction Conference

Laura Paton, Sarah (Wetmore) Butler, and Patrick Norris proudly represented Copeland, Stair, Kingma & Lovell, LLP at the 2017 CLM & Business Insurance Construction Conference in San Diego this week.  Both Laura and Sarah were selected to speak as panelists.  Laura’s panel focused on properly reserving your rights to later disclaim coverage subsequent to the Heritage Communities decision and Sarah’s panel discussed tips on drafting an enforceable settlement agreement.  Here are a few takeaways from each presentation:

Reserving your Rights:

  • Be timely in sending out your ROR – the sooner the better!
  • DON’T use the “cut and paste” method inserting huge chunks of the policy    into a letter without substantive explanation
  • DO provide a thorough analysis of the reasoning for the reservation and discuss how the facts of the case apply to the policy provisions
  • DO include notice as to any special remedies you may later pursue like submitting special interrogatories or requesting a special verdict

Drafting your Release:

  • Get it SIGNED!  Under the South Carolina Rules of Civil Procedure, you need a signed writing to enforce settlement
  • DO consider indemnity issues, additional insured claims and potential assignments when drafting the release
  • Understand the difference between a full release, a mutual release, an issue release and a convening not to execute
  • Be wary of timing requirements and be careful in proof reading the settlement documents for proper inclusion of parties and claims

Insufficient Reservation of Rights Bars Insurer’s Suit For Reimbursement For Settlement of Non-Covered Claims

The necessity for a complete and detailed reservation of rights letter was the focus of a recent Court of Appeals decision, in Facility Investments, LP v. Homeland Insurance Co. of New York.  Homeland Insurance Co. (“Homeland”) failed to properly reserve its rights under the uncovered loss allocation provision of the policy issued to its insured, Facility Investments, LLC’s (“Facility”), and thus was obligated to pay the full settlement of $1 million – even though a portion of the settlement was based on non-covered claims.

Facility was sued for negligence, fraud, and intentional misconduct arising from the care of a patient in its nursing home.  Based on exclusions in Homeland’s policy, Homeland reserved its rights for losses arising out of allegations of fraud, malice, or violations of State and Federal regulations.  But, Homeland did not include a reservation of its rights to pursue claims for breach of contract, recoupment, allocation or contribution under the uncovered loss allocation provision of the policy.

During discovery, the plaintiff developed evidence of fraud by Facility, and demanded payment of the $1 million policy limit.  Three days before the expiration of the time limited demand, Facility requested Homeland settle within the policy limits.  Facility notified Homeland that there were significant charting problems and special damages exceeding $800,000.

Homeland offered to settle for the policy limits, but requested Facility contribute 50 percent of the settlement pursuant to the uncovered loss allocation provision.  Additionally, Homeland stated it would pursue recoupment of this sum if Facility did not pay its share.  When Facility refused, Homeland sent a reservation of rights regarding its intent to pursue claims under the uncovered loss allocation provision, including breach of contract, recoupment, allocation and contribution.

After funding the settlement, Homeland sued Facility to recover the portion of the settlement attributable to the non-covered losses.  Facility’s motion to dismiss was denied, but the Georgia Court of Appeals reversed.

The Court of Appeals stated that when Facility refused to contribute to Homeland’s proposed settlement, Homeland had two options: (1) deny coverage or (2) seek immediate declaratory relief.  The Court held that since Homeland defended and settled the underlying suit with knowledge of the uncovered claims, but failed to timely reserve its rights pursuant to the uncovered loss allocation provision, Homeland waived any right to seek reimbursement for the uncovered amounts of the settlement.