June 22, 2011
The first case this blog covered was an opinion from the Indiana Court of Appeals, which found that actual notice of a claim was sufficient to trigger coverage under an insurance policy. The Indiana Supreme Court granted transfer in that case and has now issued its decision in
Ashby v. The Bar Plan Mut. Ins. Co., ___ N.E.2d ___ (Ind. 2011), Cause No. 49S04-1011-CV-635. The Supreme Court disagrees with the Court of Appeals' rationale, but reached a similar result.
less..
As we previously described, this case arose out of an attorney's decision to embark on a multi-state crime spree, rather than represent his clients. The clients filed a legal malpractice action against him and notified his carrier of the action. However, the carrier moved for summary judgment, arguing that it was not obligated to cover the claims because the lawyer failed to provide notice and assist in the investigation of the claims. The trial court granted that motion and the Court of Appeals reversed, holding that the carrier had actual notice of the claim and, therefore, couldn't deny coverage based on its lack of notice and cooperation.
The Indiana Supreme Court disagreed with the Court of Appeals' rationale.
Davidson was not obligated by any statute or rule to purchase insurance coverage to protect his clients. Nor was he compelled to obtain professional liability insurance coverage for his own protection. But he elected to purchase the Bar Plan policy to obtain coverage to protect himself in the event of any professional liability claims against him. ...
Neither Ashby nor O'Brien ever informed Davidson of any professional malpractice claim against him, and Davidson did not provide notification to Bar Plan of any such claim. Davidson purchased the policy to provide himself with protection against professional liability claims. It remained his choice as to whether to activate the available coverage protection.
Nevertheless, the Court held that the trial court erred in granting summary judgment to the carrier because there was a genuine issue regarding whether the carrier was estopped from denying coverage.
In the present case, Bar Plan sent written communications to Ashby and O'Brien implying the existence of coverage by providing conventional treatment of their claims by assigning a claim number, seeking further information from the claimants, and inviting further negotiations to work "to resolve your claim." Conspicuously absent was any caution about possible non-coverage due to the absence of written notice from Davidson, the insured. From the designated materials, we find genuine issues of fact as to whether Ashby and O'Brien, and their counsel, were misled to believe that Bar Plan provided professional liability coverage for Davidson with respect to their claims.
The clients would have to show detrimental reliance in order to demonstrate that the carrier is estopped from denying coverage.
In order to entitle Ashby or O'Brien to summary judgment in their favor on the issue of detrimental reliance, the designated materials must establish that, if Bar Plan's initial responses had disclosed their coverage defenses, Ashby and O'Brien would have been able to locate Davidson and persuade him to provide written notification to Bar Plan within twenty days of Davidson's first learning of Ashby's and O'Brien's professional liability claims against him. But this fact is neither conclusively established nor disproved by the designated evidence. It remains an issue for resolution at trial, thus precluding summary judgment in favor of any of the parties on the issue of detrimental reliance.
The Supreme Court's main problem with the Court of Appeals' decision appears to be that the Court of Appeals did not require that the clients demonstrate that the clients detrimentally relied on the insurance carrier's actions when deciding whether there was coverage. Despite the fact that summary judgment is still reversed, this case is a win for the defense bar, as the Court of Appeals' decision made it easier for litigants to invoke insurance coverage.
Lessons:
- An insurance company's duty to cover a claim is not triggered if the only notice the insurer has of the claim comes from the third parties, not the insured.
- In order to demonstrate that an insurer is estopped from denying coverage, the person claiming estoppel must show that he detrimentally relied on the insurance company's conduct that led the person from believing that there was coverage.
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