The Importance of Asserting Coverage Denial Before Undertaking Defense
Written by Kristin Lausten
A recent case from the Parish of St. Martin, Louisiana (3rd Circuit) highlights the importance of asserting an insurance coverage denial and issuing a reservation of rights before undertaking defense of the case. See Rivers v. Daigle, 16-805 (La. App. 3rd Cir. 2017), 210 So. 3d 815.
Facts of the Case
On September 22, 2013, a young woman named Megan Daigle, a minor under the age of 18, failed to obey a stop sign and collided with another vehicle, causing injury. Ms. Daigle’s car was owned by her father and was provided for her sole use. However, Ms. Daigle’s parents were divorced and sole custody resided with Ms. Daigle’s mother, Mrs. Allemand.
The injured plaintiff eventually sued and added the mother to the lawsuit, which brought Allstate Insurance Company into the case as a defendant. Allstate was the mother’s insurer. Pursuant to its duty to defend, Allstate hired legal counsel who then, on May 22, 2014, filed an answer on behalf of Allstate, the mother, and Ms. Daigle.
Shortly thereafter in June of 2014, Allstate notified Ms. Daigle and her mother that its policy excluded coverage. Allstate asserted that, while Ms. Daigle satisfied the definition of “insured” under the policy, she was not driving an insured vehicle under the Allstate policy because the car was owned by her father and was provided by him for her use. Therefore, Allstate asserted that its policy did not provide coverage for the accident.
Thereafter, Allstate issued a reservation of rights and hired separate counsel to provide a defense to Ms. Daigle and her mother.
However, under Louisiana law, Allstate acted too late and in the wrong order. Under Louisiana law, an insurer must assert any denial of coverage BEFORE undertaking defense of the case. Otherwise, the policy defense is waived. This is the fate suffered by Allstate.
At the trial level, in 2015, Allstate filed a motion for summary judgment asserting its policy defense and arguing that it did not waive its defense and that its actions did not prejudice Ms. Daigle and her mother. The injured plaintiff argued the opposite. The trial court agreed with Allstate and granted summary judgment.
The Court of Appeals reversed and granted judgment in favor of the , finding that Allstate had waived its coverage defense. Allstate was assessed the costs of appeal and the matter was remanded to the trial court for further proceedings.
Legal Principles
Under Louisiana case law, if an insurer has a coverage defense — like Allstate in the Daigle case — that insurer must obtain a reservation of rights to contest coverage before assuming the defense. Failure to issue the reservation of rights results in waiver of the right to contest coverage unless the insurer is unaware of the coverage defense. Steptore v. Masco Const. Co., Inc. 93-2064 (La. 8/18/94), 643 So.2d 1213. The question of knowledge is a factual one.
Application of the Legal Principles
In the Daigle case, Allstate was held to have knowledge of its policy defense long before the Answer was filed on May 22, 2014.
First, an insurer is charged with knowledge of the contents of its own policy. Youngblood v. Allstate Fire Ins. Co., 349 So.2d 462 (La.App. 3d Cir.1977). The Allstate policy specifically excluded as an “insured auto” a “non-owned auto used by you or a resident relative with the owner’s express or implied permission … [But .. t]his auto must not be available or furnished for the regular use of [you] an insured person.”
Second, the original petition by the injured plaintiff was filed in March 2014 and an amended petition filed in early May 2014. According to the Court of Appeals, upon receipt and review of the petition and amended petition, Allstate had knowledge of the following:
- Daigle was a minor at the time of the accident
- Her were parents were Michael Daigle and Angel Allemand
- The vehicle being driven was owned by the father
- Daigle lived in Thibodaux
- Allemand lived in Morgan City
- The young Ms. Daigle was in the custody of and residing in Morgan City
- The accident occurred in Morgan City
The Court of Appeals held that this information provided Allstate all the notice it needed to conclude that its policy did not provide coverage for the accident. The court also rejected Allstate’s argument that its insureds were not prejudiced.
Lessons
Daigle is a reminder that an insured must assert any and all insurance coverage denials and issue a reservation of rights before undertaking defense of the case.
Contact An Experienced Louisiana Construction Law Attorney
If you are interested in further information about insurance defense doctrines or need legal help or advice, you should reach out to an experienced Louisiana attorney as soon as possible.
The author may be contacted at:
Kristin M. Lausten
New Orleans, Louisiana
Telephone: 504.377.6585
E-mail: kristin@kristinlausten.com
Web: www.kristinlausten.com
This article is provided as an educational service for general informational purposes only. The material does not constitute legal advice or rendering of professional services.