No Estoppel Exists For MCS-90 Reimbursement Claim
January 04, 2012
The 2nd District Appellate Court recently held that the doctrine of estoppel did not apply to prevent an insurer that paid an insured's prior claim on an uninsured vehicle, from denying coverage and obtaining reimbursement from its policyholder for a subsequent claim on the same uninsured vehicle, despite the insured's argument that the insurer's payment of the first claim created uncertainty about coverage for the second claim. Clarendon National Insurance Co v. All Modes, Inc. No. 2-11-0302, 2011 IL App (2d) 110302-U (Rule 23 Order, 2d Dist. Dec. 23, 2011).
The insurer, Clarendon National Insurance Co., was represented by Dean S. Rauchwerger, Michael S. Errera, Allison K. Ferrini and Joseph J. Ferrini of Clausen, Miller P.C. Steven Carlson and Christopher Riordan of Von Briesen & Roper S.C., of Milwaukee, represented the insured, All Modes.
Background
Clarendon issued a common carrier motor insurance policy to All Modes. As required by the federal Motor Carriers Act, 49 U.S.C. Section 13906(f), the policy contained an MCS-90 endorsement that required Clarendon to pay third parties for damages caused by All Modes even if the vehicle involved in the accident was not listed and, therefore, was not covered by the policy. When Clarendon made such a payment, All Modes was required under the MCS-90 endorsement to reimburse Clarendon.
In early 2006, an All Modes employee caused a rear-end collision while driving an All Modes truck, resulting in $115,000 in damages. The truck involved was not covered under the policy because it was an alleged substitute vehicle being used by the company in place of a covered vehicle temporarily out of service.
The person injured in the collision brought suit, All Modes notified Clarendon and Clarendon paid the $115,000 pursuant to a reservation of rights to seek reimbursement on the ground that the vehicle was not covered. Clarendon then brought suit against All Modes to collect back its payment and the circuit court granted Clarendon summary judgment for reimbursement.
Following entry of judgment, All Modes discovered what it deemed "new evidence" that Clarendon had paid a claim on a minor traffic collision in 2005 involving the same truck. As a result of the 2005 collision, Clarendon paid about $8,000 even though the truck at that time, as in 2006, was not covered under the Clarendon policy then in effect. Clarendon in 2005 did not seek reimbursement for the claim nor issue a reservation of rights.
Based on such evidence, All Modes moved to reconsider and argued that Clarendon should be estopped from seeking reimbursement for the 2006 claim because, by not seeking reimbursement or reserving in 2005, Clarendon led All Modes to believe that the truck, in fact, may be covered under the policy. The circuit court agreed to consider the "new evidence" but following reconsideration, denied All Modes relief from the original judgment. All Modes then took this appeal.
Estoppel standards
In an opinion by Justice Ann B. Jorgensen, the 2nd District affirmed. She initially considered the nature of the estoppel doctrine and noted that its function is to preserve rights, not create new ones, and that it cannot generally be used to increase coverage under a policy.
She observed, however, that, as recognized by Nationwide Mutual Insurance Co. v. Filos, 285 Ill. App. 3d 528 (1996), the estoppel doctrine has been used in some instances to create coverage where 1) an insurer misrepresents the extent of coverage, thereby inducing the insured to purchase coverage that does not cover the disputed risk and 2) the insurer defends an action on behalf of an insured without a reservation of rights, when the insurer had knowledge of facts that would give rise to a coverage defense.
Reservation in same action
Jorgensen then assessed whether the second exception should be expanded to cover the facts here and she concluded that it should not. She said that the exception, as recognized by Nationwide, applies only where the insurer defends an action on behalf of an insured and fails to issue a reservation of rights "in that action." (Emphasis by the court.)
Here, Clarendon did reserve its right to deny coverage and seek reimbursement in the 2006 action. None of the case law relied on by All Modes, where the exception was applied, involved an insurer's failure to reserve rights in connection with a prior action or occurrence.
Detrimental reliance
In addition, Jorgensen said, application of the exception requires the party asserting estoppel to have been reasonably induced to act to its detriment, through unequivocal evidence. All Modes' only claim here was that Clarendon's 2005 failure to reserve rights left it "unaware" of the truck's status.
Such a claim is insufficient to establish detrimental reliance because All Modes was in possession of the Clarendon policy, which showed that thetruck was not covered. All Modes' affidavit, in addition, appeared to demonstrate that All Modes was in fact aware of the truck's uncovered status because the affidavit stated that the truck was a "substitute" for another.
Required notification
Finally, Jorgensen observed that All Modes cited no case law requiring an insurer to notify its insured that a particular accident is not covered by a given policy where the insurer chooses to pay the claim in the absence of coverage. Even if such notice were required, however, Clarendon's supposed mishandling of the 2005 claim was not before the court and could not be linked to the 2006 claim through estoppel.
The court, therefore, affirmed summary judgment for Clarendon.
Key point
An insurer's failure to reserve its rights in connection with a prior claim or accident will not estop it from reserving its rights and/or denying coverage in connection with a subsequent claim or accident.
