I have often talked about this sometimes-overlooked issue: the need for an insurer to send a reservation of rights letter (or disclaimer) to all insureds being defended.  In other words, not simply sending the ROR letter to the named insured, but, also, say the insured’s employees who were named in the suit and also being defended.  There is case law holding that, if an ROR is not sent to all insureds, there is no ROR in effect for the insureds to whom it was not sent – even if it was sent to other insureds, including the named insured.

The insurer did not run afoul of this requirement in Country Mutual Insurance Company v. Jackson, No. 20-150 (E.D. Wash. Jan. 20, 2022).  But it was argued by the insured that it had.  At issue was whether a reservation of rights letter, based on the pollution exclusion, had been sent to all insureds.  The court concluded that it had been.  However, the court’s explanation, of why the insurer had complied with this obligation, provides a lesson in how an insurer could fail to do so:

“Country Mutual argues that its reservation of rights was adequate because the October 15, 2018 letter was properly addressed to the named insured, Inland Northwest Equipment Auction, Inc., in the ‘care of’ Thomas Reinland and that all relevant parties were notified of its contents. . . .

“The Court finds that Country Mutual did not waive its right to assert defenses to coverage on the underlying claims. First, it is evident that the October 15, 2018 letter was properly addressed to its insured, Inland Northwest Equipment Auction, Inc. Country Mutual expressly agreed to provide a defense subject to a reservation of rights to it ‘along with related individuals and entities named as defendants’ in the relevant lawsuits, which includes the Reinland Defendants.  The Reinlands’ argument would have more merit if Thomas Reinland, Kunya Reinland, Ashly Reinland, and Reinland Properties, LLC individually tendered claims; however, they tendered one claim to Country Mutual through their shared attorney. And crucially, there is no dispute that the Reinlands received actual notice of Country Mutual’s agreement to provide a defense subject to a reservation of rights.”