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Policyholders:  Beware of Non-Waiver Agreements

6/5/2016

1 Comment

 
When presented with a new claim, insurance companies often issue a reservation of rights letter to the policyholder.   Alternatively, some insurers will issue a non-waiver agreement.  In issuing a non-waiver agreement, insurers are attempting to preserve potential coverage defenses by getting the policyholder to agree that the insurer may undertake an investigation of the claim or defend the policyholder while preserving the right to later contest coverage.  A typical non-waiver agreement may read:
 
                         It is hereby agreed by and between the Insured and the Company that any action
                         taken by the Company, by and through its representatives, and at such time and
                         in such manner as it deems advisable, in investigating said accident, shall not
                         operate in any way as a waiver, or invalidate any of the conditions of said policy nor
                         any of the rights of either party here to under said policy; and in the event any suit
                         has been or shall be filed against the Insured growing out of a said accident or
                         occurrence should the Company elect to defend said suit, such defense by it shall
                        not be construed as a waiver of any of the conditions of said policy. 
 
                         Nothing herein shall be construed as a waiver of any rights which the Insured has under
                         said policy.
 
See Shelby Steel Fabricators Inc. v. United States Fid. & Guar. Co., 569 So.2d 309, 311 (Ala. 1990) (the non-waiver agreement language quoted in this case).
 
Unlike reservation of rights letters, non-waiver agreements are bilateral.  In agreeing to a non-waiver agreement, it can be argued that the policyholder consents to the terms of the insurance company's agreement to defend.  Policyholders are under no obligation to enter into a non-waiver agreement with their insurance company and an insurance company cannot force the policyholder to do so in order to provide a defense. 
 
When a policyholder receives a non-waiver agreement from an insurance company, the policyholder should decline to enter into the non-waiver agreement.  Then, the policyholder should request that the insurance company issue a reservation of rights letter that informs the policyholder, in detail, of the insurance company's coverage position. 

1 Comment
Charles Ford
6/10/2016 10:10:06 am

I personally think the sue of non waivers in place of reservation of rights is a great idea. The later then puts the insured in an adversarial relationship with the carrier and the former does not. The insured also does not incur the cost to answer the reservation of rights and the legal process involved in that ends as well.

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    Authors

    Lori Siwik and Mark Siwik are the founders of SandRun Risk.  They apply the principles of vertical leadership and lean six sigma to the discipline of risk management.  From time to time they share their blog with guest authors who write about important risk management principles.

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