Can An Insurer by Its Conduct Waive Rights Against Another Insurer ?
In Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill. 2d 307, 821 N.E.2d 269, 290 Ill. Dec. 218 (2004), the supreme court reiterated the principles of waiver in the context of an insurer's right to seek equitable remedies against another insurer.
The court articulated that "waiver arises from an affirmative act, is consensual, and consists of an intentional relinquishment of a known right." Home, 213 Ill. 2d at 326.
The court explained that a waiver can be express or implied and can arise from the acts, words, conduct or knowledge of an insurer. Home, 213 Ill. 2d at 326.
"An implied waiver arises when conduct of the person against whom waiver is asserted is inconsistent with any intention other than to waive it." Home, 213 Ill. 2d at 326.
In Home, the insurer seeking equitable subrogation asserted its status as an excess insurer for the first time in the subrogation action. Home, 213 Ill. 2d at 327.
Its position that it was excess was not raised until after the underlying claim was settled.
The insurer never advised the nonsettling insurer of its position that its policy was excess and the insurer had originally agreed to share the cost of defense and indemnity on a 50/50 basis.
The insurer did not advise the other insurer that it would be seeking a full reimbursement of any settlement as an excess insurer. Home, 213 Ill. 2d at 327-28.
The supreme court held that "an insurer by its conduct may waive rights against another insurer." Home, 213 Ill. 2d at 327.
It explained that an insurer desiring to reserve its rights against a second insurer must make this position clear in its correspondence with the second insurer.
It is also good practice to include such reservation language in any settlement agreement or order, and provide a copy of it to the nonsettling insurer. Home, 213 Ill. 2d at 327.
Under these circumstances, the supreme court concluded that the totality of the insurer's conduct was inconsistent with its claim that it would seek a full reimbursement for the settlement from the other insurer.
It held that the insurer was "presumed to know the contents of its own policy and that it was an excess insurer." Home, 213 Ill. 2d at 327.
It originally asserted that it would share in the costs of defense and indemnity on a 50/50 basis and at the time of the settlement sought reimbursement for only half of the settlement costs. Home, 213 Ill. 2d at 327-28.
Therefore, the court held that the insurer waived its right to seek a full reimbursement on the newly identified basis that it was excess. Home, 213 Ill. 2d at 328.