"Catch -All" Language In Denial Letter Preserves Insurers's Defense In Pennsylvania State Court Action
November, 2008
by Kirk M. Zapp
In 1804-14 Green Street Assoc., L.P., v. Erie Ins. Exchange, No. 1763, 2008 Phila. Ct. Com. Pl. LEXIS 196, (Pa. C.P. Philadelphia County Aug. 21, 2008), a Pennsylvania state trial court judge held that an insurer in a first-party property coverage dispute did not waive the right to raise a policy exclusion as a defense to coverage when the insurer failed to identify the exclusion as a basis of its denial of coverage because the insurer’s denial letter contained “catch-all” language reserving the right to raise other defenses to coverage.
Facts
Water damaged a tenant’s space in a commercial office building. The insurer denied coverage for the tenant’s claim “because the damages relating to the loss were caused by a drain fastener rusting away.” The insurer’s denial letter, which is not quoted in total in the opinion, apparently did not cite to or rely upon a “deterioration exclusion” in the all-risk policy. The denial letter, however, stated: “We do not waive any of the other potentially applicable policy conditions or exclusions that may also apply to your loss. We do reserve any and all rights under the policy."
Analysis
During cross-motions for summary judgment, the insured argued that “the damage at issue is not covered by the Policy because it was caused by or resulted from the deterioration of a support bracket that held an interior roof drain in place.” The insurer argued that the “deterioration exclusion” did not apply because the insurer had not raised it in its denial letter. The insured claimed that allowing the insured to assert the “deterioration exclusion” in its motion for summary judgment would “deprive [the insured] of a reasonable attempt to investigate the applicability of the exclusion since the property was repaired, the roof replaced and the property sold.”
The trial court disagreed. Citing a Pennsylvania state appellate court decision that held that an insurer cannot waive by implication coverage conditions under an insurance policy, as distinguished from those conditions furnishing a ground of forfeiture, the court found no waiver of the “deterioration exclusion.” In support, the court relied on the "catch-all" language in the denial letter that reserved the insurer’s right to raise other issues or defenses that might affect coverage.
Under similar reasoning, the court also found the doctrine of estoppel inapplicable. Because the insurer reserved “any and all rights under the policy” in its denial letter and asserted the exclusion as a defense in its New Matter, the court found no basis for estoppel. According to the court, the insured had notice that the insurer intended to assert the “deterioration exclusion” as a defense and, thus, the requisite prejudice was missing.
Learning Point
When possible, the safest practice when drafting a denial letter is to identify, quote verbatim, and discuss all of the policy provisions that form a basis for the denial of coverage. It is also advisable to include a general statement that you do not waive your rights to deny the claim based on other grounds not included in the denial letter and a reservation of all rights, including right to amend or supplement the denial letter.
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