Non-Waiver Agreements and Reservation of Rights
After you report a claim, your insurer will typically undertake an investigation of the claim before advising you whether, in its opinion, the claim is covered by your policy. The insurer’s investigation may take several months if not longer. Coverage can be denied for many reasons such as late reporting, exclusions in the policy, breach of a condition by the policyholder or misrepresentation by the policyholder.
One of the first things your insurer may ask you to do after you report the claim is to sign a non-waiver agreement. From the insurer’s perspective, the purpose of the non-waiver agreement is to prevent you from arguing, at a later date, that over the course of the insurer’s investigation of the claim, you were led to believe that the claim would be covered, and consequently, the insurer is precluded from denying coverage.
The problem with non-waiver agreements is that they usually go much further than merely reserving the insurer’s right to deny coverage at a later date. A non-waiver agreement can significantly affect your rights under the policy, and give the insurer rights it does not have under the policy or at common law. For example:
The non-waiver agreement may provide for a division of defence costs between the policyholder and the insurer where there are covered and non-covered claims in the same action. In the absence of such a term, such a solution may not be readily available to the insurer which may be responsible for most of your defence costs.
Where claims are covered and others are not, the non-waiver agreement may purport to impact your right to be represented, at the expense of your insurer, by separate counsel, for the purpose of ensuring that the conduct of the defence by counsel appointed by your insurer is not geared towards reducing covered claims and inflating non-covered claims.
The non-waiver agreement may give the insurer the right to settle the lawsuit or incur other costs to defend and investigate the claim without your consent and the right to claim these amounts back from you. If, for example, the insurer subsequently determines there is no coverage, you may be left in the position of indemnifying the insurer for the settlement or other costs despite having had no input. In the absence of such a term your consent would be required before you would be liable to indemnify the insurer for these amounts.
The above are only a few examples of how non-waiver agreements can claw back your rights under the policy and give additional rights to your insurer. From the policyholder’s perspective, there is no obligation to sign a non-waiver agreement. The insurer can protect itself by issuing a unilateral “reservation of rights” letter, whereby the insurer states that by virtue of investigating the claim, it is not admitting coverage or waiving its rights to deny coverage in the future. Insurers typically issue these letters when faced with a refusal to execute a non-waiver agreement. Another alternative available to the insurer is to go to court to obtain a declaration of the respective obligations of the parties under the policy up front. Many of these applications are denied on the basis of being premature. Determinations about what is covered or not under the policy can usually not be made until after the trial of the underlying claim.
When you receive either a reservation of rights letter or a request to sign a non-waiver agreement, a simple response underlining the following could be appropriate:
acknowledge that the you will fully co-operate with the insurer pursuant to your obligations under the policy;
advise that you expect the insurer to honour its obligations in good faith under the policy just as you intend to honour your obligations; and
invite the insurer to expressly set out what basis it has for being concerned that this claim may fall outside of coverage.
The advantage of having the insurer set out its concerns about, and ultimately its position on, coverage in writing is that an insurer may subsequently be deemed to have impliedly waived its right to rely on any reason to deny coverage which were not previously raised with the policyholder.
Remember, preserve the insurance coverage you paid for by obtaining legal advice before executing a non-waiver agreement.