This year I visited insurers across the country putting on my seminar titled “The Definitive Reservation of Rights Checklist: 50 Things that Every ROR Should Have.”  I traveled far and wide, from sea to shining sea, doing the seminar 13 times.  I have it down cold. 

[Let me know if you’d like me to stop by your office in 2020 to do the seminar.  We can discuss it.]

A recent decision from a federal court in North Carolina addressed a few of the key points that I make in the ROR Checklist seminar.

In DENC, LLC v. Phila. Indem. Ins. Co., No. 18-754 (M.D.N.C. Dec. 5, 2019), the court took issue with certain aspects of an insurer’s disclaimer letter.  The decision has several parts and the insurer in fact prevailed on many issues. 

On the issue of the disclaimer letter, the court examined whether it violated N.C. Gen. Stat. § 58-63-15(11)(n) [part of the state’s Unfair and Deceptive Trade Practices Act], which requires an insurer to “promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.”

In essence, this is the “fairy inform” standard that many court’s say an insurer must satisfy when drafting a reservation of rights letter.  The letter must adequately explain why an insurer is providing a defense, but, nonetheless, may not have any obligation to provide coverage to its insured for any damages.  To do so, the letter must tie the facts to the policy language when explaining why coverage for damages may not be owed.  It is not enough to simply set out policy provisions on their own.  The facts that could support the applicability of such provisions must be included.         

The court held that the North Carolina statute had been violated.  The basis was its decision that the letter had the following deficiencies:

“Nothing in the denial letter links ‘the basis in the insurance policy’ for the denial ‘to the facts,’ as required by § 58-63-15(11)(n). The letter does provide a detailed summary of the findings of the inspector it hired, but nowhere are those findings ‘related to’ the policy language. Instead, Philadelphia simply repeats verbatim several pages of what purport to be policy excerpts, and then notes—without explaining how these policy excerpts apply individually or in combination—that Philadelphia will deny coverage because ‘the damage is reportedly the result of long-term water intrusion and deteriorated wood framing,’ arising from construction issues.  There is no citation of any policy provision that uses the phrase ‘water intrusion,’ or that otherwise links water intrusion and deteriorated wood framing to the language of the policy, and no explanation of why ‘long-term water intrusion and deteriorated wood framing’ are not covered losses. The narrative does not address at all the question of coverage or exclusion under the collapse provisions.

Moreover, some of the provisions set forth in the letter were not even part of the policy; several had been deleted and superseded by policy amendments or endorsements. Others patently do not apply to the breezeway collapse at issue, such as those citing flood or steam boilers, and the wrong provision governing collapse was included.”

The decision addresses three of the issues that I discuss in the ROR Checklist seminar: (1) meeting the “fairly inform” standard; (2) not citing policy provisions that are not relevant to the claim; and (3) being sure that policy provisions cited are the correct version.

[There are 47 other things on the ROR Checklist.  Let me know if you’d like me to stop by your office in 2020.]