A New Jersey appellate court affirmed a decision that an insured's assent by silence was sufficient to consent to an insurer's choice of counsel in a lawsuit. The case is United Specialty Ins. Co. v. Century Waste Servs., LLC, 2023 N.J. Super. Unpub. LEXIS 2097 (N.J. Super. Ct. App. Div. 2023). Please note that this decision is unpublished and therefore has limited precedential value.
A manager for Century Waste Services (Century) allowed an employee to use a car owned by the manager's mother to go on a work-related errand. The employee was involved in an auto accident. The passengers of the other vehicle sued Century, the employee, and the borrowed vehicle's owner for injuries suffered in the collision.
Century was insured through a policy issued by United Specialty Insurance Company (USI). After the wreck, a claims administrator told Century that USI had hired counsel to defend Century in the underlying suit. If Century wished to hire their own counsel, it would be at their expense. Almost two years later, USI sent another letter to Century stating that USI would continue defending Century subject to a reservation of rights. The letter also stated that, unless USI heard otherwise from Century, USI would assume Century consented to using the counsel hired by USI. Century never objected.
Two months after sending the reservation of rights letter, USI sought declaratory judgment that it owed no duty of defense or indemnity to Century for the underlying action. Shortly thereafter, USI filed for summary judgment. Century filed their own motion for summary judgment seeking defense and indemnity from USI. The company claimed USI's reservation of rights letter did not provide adequate notice that Century could accept or reject the counsel provided by USI, and therefore USI was estopped from denying their claim. The trial court ultimately ruled in favor of USI, stating that the vehicle collision wasn't covered in the first place, and a reservation of rights letter isn't considered inadequate simply because it does not use specific language. Century appealed.
Century did not dispute that the borrowed vehicle belonging to the manager's mother was not covered by the USI policy. However, Century argued the allegedly defective reservation of rights letter had prejudiced their case because USI had controlled the defense. The judges acknowledged the well-settled principle that unless an insured consents to an insurer's control of the defense, the insurer will be estopped from denying coverage at a later time. However, the judges also pointed out that an insurer may infer the insured's consent based on the insured's failure to reject the insurer's defense with a reservation of rights.
The judges referred to an earlier New Jersey case, Northfield Ins. Co. v. Mt. Hawley Ins. Co., 184 A.3d 517 (N.J. Super. Ct. App. Div. 2018), for guidance. The Northfield case centered on an insurer's reservation of rights letter that explicitly disclaimed indemnity but agreed to defend the insured. However, it was ambiguous whether the insured's failure to decline the defense equated consent to the insurer's control of the defense for the underlying action. The insurer's motion for summary judgment was denied.
No such doubt was present in USI's reservation of rights letter to Century. The USI letter stated that "if we do not hear from you, we will assume that you consent to the retention of [hired counsel] for this matter" (emphasis added). The court found that the phrase "if we do not hear from you" clearly expressed that Century had the option to reject the defense provided by USI. Since Century did not communicate express rejection or consent to using the attorney hired by USI, it was permissible for USI to infer Century's acceptance of the defense. Therefore, said the judges, Century had consented to USI's control of the underlying suit.
Summary judgment for USI was affirmed.
Editor's Note: An insurer's defense of an insured subject to a reservation of rights is important. It means the insurer accepts the duty to defend the insured against a lawsuit, but they are not yet certain whether the underlying claim will be covered. In this case, though USI didn't use what the court called "certain magic words" to reserve their rights, the language they did use was sufficiently clear to express their intent.
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