Waiver and Estoppel do not Outweigh Cancellation of Policy
March 25, 2013
The auto policy of the insured was cancelled due to failure to pay the premium. An accident then occurred and the injured party sought coverage, claiming that the insurer still owed defense and indemnity based on the theories of waiver and estoppel. This case is Scottsdale Insurance Company v. Bounds, 2013 WL 937905.
Bounds Trucking had an auto policy and excess liability policy with Scottsdale Insurance. Bounds paid the initial premium but then failed to make any other payments. The insurer cancelled the policy effective December 6, 2007 due to failure to pay the premiums. On January 8, 2008, an employee of Bounds was driving a company owned truck and caused an accident, injuring Overbaugh. Overbaugh sued Bounds and Scottsdale retained counsel to defend Bounds. The insurer also filed a declaratory judgment action seeking a declaration that its policies for Bounds were cancelled prior to the accident and that it had no duty to defend or indemnify Bounds.
Overbaugh contended that Scottsdale waived its right to deny coverage and that it should be estopped from asserting its rights since he relied on the insurer's actions that coverage existed. Overbaugh did not dispute that the policies were cancelled, but he contended that Scottsdale's behavior after the accident amounts to a waiver of any right that it may have had not to defend or indemnify Bounds. As for the estoppel claim, Overbaugh said that a representative of Scottsdale advised him that there was valid coverage for the accident and so, he delayed the institution of litigation in reliance on this advice and he incurred expense in doing so.
The United States District Court, Maryland noted that the doctrine of waiver may operate to deprive an insurer of a right it would otherwise enjoy. However, waiver cannot operate to expand or establish insurance coverage. Since the policies were effectively cancelled before the accident occurred, the doctrine of waiver could not be used to create coverage and Overbaugh's argument failed.
The court then said that as a general rule, estoppel cannot extend insurance coverage where it does not exist. Estoppel may occur only when it does not create new coverage; an extension of coverage may only be created by a new contract. Overbaugh attempted with his arguments to create or extend insurance coverage where no policy was in place and this was not accepted by the court.
The court granted the insurer's motion for summary judgment. Scottsdale had no duty to defend or indemnify Bounds since the policies were effectively cancelled prior to the accident. The doctrines of waiver and estoppel could not overcome the fact of the cancellation of the policies.
Editor's Note: This is one of those “nice try, but …” examples. The policies were effectively cancelled prior to the auto accident. The injured party admitted this and yet he still tried to get coverage based on the doctrines of waiver and estoppel. The U.S. District Court ruled that waiver and estoppel cannot enlarge the risks covered by a policy and cannot be used to create a new and different contract with respect to the risk covered and the insurance extended. There was no coverage for this accident, period.