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Vol. 3, Iss. 4
March 5, 2014


High Court Provides A Warning On The Wishy-Washy Disclaimer Letter


When it comes to the rules surrounding the issuance of a disclaimer letter, New York is very unique. So, on one hand, the New York Court of Appeals’s decision in QBE Insurance Corp. v. Jinx-Proof, Inc., No. 25 (N.Y. February 18, 2014) could be seen as one whose applicability is limited to the Empire State. But the decision in fact offers a valuable lesson that is also relevant to the other 49.

At issue in Jinx-Proof was a disclaimer letter for a claim involving injuries sustained in an incident in the insured’s bar. An employee of the bar allegedly threw a glass at a customer’s face. The important point, for purposes of discussion here, is that the insurer issued disclaimer letters that the majority stated had “some contradictory and confusing language.” In general, the letters stated that the insurer was disclaiming coverage but they also contained reservation of rights language. The dissent concluded that such language “simply cannot serve to properly advise an insured of his rights and remedies under the policy.”

While the insurer prevailed, and its disclaimer was found to be effective, Jinx-Proof highlights an important point. If an insurer is intent on disclaiming coverage, it should say so in unequivocal terms. Time and time again I see letters that are intended to serve as disclaimers, but use language that contains equivocation in making that point. For example, the insurer states that it is disclaiming coverage and then goes on to state that the exclusion that is the basis for the disclaimer “may apply.” Or, as in Jinx-Proof, the insurer states that it is disclaiming coverage and then reserves its rights to apply the relevant exclusion.

This is what I call the wishy-washy disclaimer. If an insurer is disclaiming coverage, and especially a duty to defend, where it will not be retaining counsel, then it should say so using language that makes that point clearly and beyond doubt. If a decision to disclaim coverage is being made, it is because coverage is not owed – not because it “may not” be owed. After all, if coverage “may not” be owed, then it may also be owed. And the possibility of coverage being owed is what triggers a duty to defend in most states.

 
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