Another Reminder to Reserve Rights: Georgia Estops Insurer From Raising Defenses Not Reserved
Insurance Law Update
In World Harvest Church, Inc. v. GuideOne Mut. Ins. Co., ___ S.E.2d ___, 2010 WL 1739943 (Ga. May 3, 2010), the Georgia Supreme Court concluded that absent an effective reservation of rights, an insurer that defends is estopped from later asserting noncoverage regardless of whether the insured can show prejudice.
In World Harvest, the insured church sought insurance coverage for a lawsuit against it seeking the return of donations that had been procured through a Ponzi scheme. Without issuing a written reservation of rights, the insurer assumed the insured's defense for more than 10 months before finally withdrawing, citing lack of coverage under the policy. In the ensuing coverage litigation, the district court rejected the insured's summary judgment argument, holding that the insurer should not be equitably estopped from denying coverage where it had defended the insured without a reservation of rights, because the insured failed to show that it had been prejudiced during the course of its defense by its insurer. On appeal, the Eleventh Circuit Court of Appeals certified the question: "When an insurer assumes and conducts an initial defense without notifying the insured that it is doing so with a reservation of rights, is the insurer estopped from asserting the defense of non-coverage only if the insured can show prejudice, or is prejudice conclusively presumed?"
The Georgia Supreme Court held that the insured may either be conclusively presumed prejudiced upon the insured's surrender of "innumerable rights associated with the control of the defense..." or, alternatively, "that the loss of the right to control and manage the case is itself sufficient prejudice to the insured."