Louisiana Court Of Appeal Holds Policy Sublimit Constitutes A “Coverage Defense” That May Be Waived When The Insurer Defends Its Insured Without Reserving Rights Despite Raising The Limitation In Pleadings

A Louisiana Court of Appeal held that an insurer’s assumption of its insured’s defense without reserving rights waived its right to assert the policy’s “unscheduled driver” sublimit because of Louisiana Supreme Court precedent that an insurer waives coverage “defenses” when it assumes the defense of its insured without reserving rights. Jeffries v. Prime Ins. Co., 2021-0161 ( La. App. 3 Cir 11/03/21); 2021 WL 5102258, 2021 La., App. LEXIS 1630.

A truck driver injured plaintiffs in a car accident, and the plaintiffs sued the trucking company, its driver and the company’s insurer under Louisiana’s Direct Action Statute. The insurer filed an answer on behalf of itself and its insured, which answer contained a copy of the policy and pled the limitations, terms and conditions of the policy; however, the insurer did not issue a reservation of rights letter to its insured. At a pre-trial hearing, the insurer argued that plaintiffs’ damages were limited to the sublimit applicable to unscheduled drivers, and the plaintiffs argued the insurer waived this coverage position under the rule articulated by the Louisiana Supreme Court when it assumed its insured’s defense without reserving the right to assert the sublimit.  The trial court deferred ruling on the waiver issue. The jury found for the plaintiffs but the court did not rule on the waiver issue. On appeal, the court concluded that the insurer’s sublimit position had been waived because the absence of a reservation of rights letter by the insurer led the insureds “to believe the insurer had relinquished its coverage defenses as the insurer continued to defend the insureds while having knowledge of facts indicating noncoverage.”