Wisconsin Supreme Court: Failure to Issue Reservation of Rights Letter Not Waiver of Policy Provisions Excluding Coverage
The Supreme Court of Wisconsin reversed an Appeals Court decision determining that failure to issue a reservation of rights letter before unsuccessfully defending a claim constituted waiver or estoppel, which required indemnification. The issue arose when an insurer defended a school district against an employment contract suit that demanded wages, but failed to issue a reservation of rights letter. The Supreme Court held that failure to issue a reservation of rights letter cannot be used – by way of estoppel or waiver—to defeat denial of coverage that is justified by policy provisions. In this case, the policy language clearly stated that wages and/or employee benefits were not covered under the policy.