TITLE TORT AND INSURANCE LAW
BY RONALD M. SANDGRUND, LESLIE A. TUFT, AND THOMAS L. ROBERTS
TORT AND INSURANCE LAW
This article examines how waiver and estoppel apply in cases involving insurance contracts.
Colorado has long applied waiver and estoppel principles to insurance contracts. This article summarizes the leading waiver and estoppel cases, discusses the application of these principles to insurance versus other contracts, and examines current trends relevant to applying these principles.
"Waiver is the intentional relinquishment of a known right or privilege."1 Whether a party has waived its rights "may be determined as a matter of law only when the material facts are not in dispute . ..; otherwise, waiver is a factual determination .. . "2 Waiver does not require consideration or detrimental reliance by the insured.3 Waiver may be explicit, where "a party directly states its intent to abandon an existing right,"4 or it may be implied by a party's unambiguous conduct that clearly manifests an intent not to assert the right, or is inconsistent with assertion of the right.5
In the seminal Colorado case Hartford Live Stock Insurance Co. v. Phillips, the insurer issued a property policy insuring a bull, with an exclusion for any loss resulting from the death of any bull "not in absolute health when this policy is delivered... ."6 The parties did not dispute that the bull was in poor health when the insurer delivered the policy or that it died as a result of preexisting disease or injury. The trial court ruled that the insurer "had sufficient knowledge that the bull was suffering from a physical ailment, and that by issuing the insurance policy without a thorough investigation" of the bull's condition, it waived the policy's coverage limitations.7
The Colorado Supreme Court reversed the judgment, holding,
[T]he doctrines of implied waiver and of estoppel, based upon the conduct or action of the insurer, are not available to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded there from .... Thus, while an insurer may be estopped by its conduct or its knowledge from insisting upon a forfeiture of a policy, the coverage, or restrictions on the coverage, cannot be extended by the doctrine of waiver or estoppel. . . . [T]he doctrine of waiver cannot be invoked to create a primary liability and bring within the coverage of the policy risks not included or contemplated by its terms.8
This proposition that implied waiver and estoppel generally cannot bring within coverage risks not included by a policy's terms has been repeated often and applied to many kinds of insurance policies in cases like Hartford that involve a claim of implied, rather than express, waiver.9 Notwithstanding this weight of Colorado authority, insurance contracts typically provide that any policy modification, which would seem to include express waiver, must be made in writing and signed by the insurer's authorized representative.
Hartford also held that an insured may avoid a coverage forfeiture arising from the insured's failure to comply with policy conditions if the insurer waives such noncompliance.10 Thus, Hartford distinguished between the effect of implied waiver on a coverage forfeiture resulting from an insured's noncompliance with policy conditions versus the conferral of coverage not contemplated by or excluded under the policy.
Two distinct estoppel theories—equitable estoppel and promissory estoppel—may affect enforcement of insurance contracts. Equitable estoppel (estoppel in pais ) applies when
1. the party to be estopped by its conduct knows the facts;12
2. the party to be estopped intends that its conduct be acted upon, or acts so the party asserting the estoppel is justified in believing the conduct is so intended;
3. the party asserting estoppel is ignorant of the true facts; and
4. the party asserting estoppel detrimentally relies on the other party's conduct.13
As with waiver, Hartford held an insured may rely on equitable estoppel to avoid a coverage forfeiture despite the alleged breach of a policy condition, but not to "bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded therefrom ... ."14
Promissory estoppel applies when
1. a promisor makes a promise "that the promisor reasonably should have expected would induce action or forbearance by the promisee or a third party";
2. "the promisee or third party reasonably and detrimentally relied" on the promise; and
3. the promise "must be enforced ... to prevent injustice."15
Promissory estoppel claims usually involve an allegation that an insurer or its legal agent promised, but failed, to issue a policy on certain terms.16
Breach of Policy Conditions and Coverage Forfeiture
As noted above, under Hartford, even though implied waiver and estoppel generally cannot bring uncovered or excluded risks within a policy's coverage, both doctrines may excuse an insured's breach of policy conditions and avoid coverage forfeitures. The distinction between the proper avoidance of a coverage forfeiture based on waiver or estoppel and an improper expansion of covered risks can be difficult to discern, and sometimes is a "mere matter of phraseology."18
Colorado courts have applied waiver and estoppel under certain circumstances to excuse insureds from providing late notice of claims, untimely payment of premiums,20an inaccurate representation in a proof of loss,21 and failing to obtain an insurer's consent to settle.22
Treatment of Insurance Contracts Versus Non-Insurance Contracts
Many Colorado cases hold that'" [a]n insurance policy is a contract which should be interpreted consistently with the well settled principles of contractual interpretation.'"23 General contract law provides that "when a party to a contract h as refused to comply with the contract on a particular basis, any other possible basis for refusal is waived." Thus, it seems to follow that when an insurer denies coverage on particular grounds and later seeks to deny coverage on other grounds, waiver and estoppel might apply depending on the facts, such as the state of the insurer's knowledge (waiver) and prejudice to the insured arising from the insurer's conduct (estoppel).
However, in Extreme Construction Co. v. RCG Glenwood, LLC, the Colorado Court of Appeals observed that "[o]ne exception to the applicability of the estoppel doctrine in contract actions concerns insurance contracts."25 The Court noted Hartford's distinction between applying waiver and estoppel doctrines to insurance contracts depending on whether the insured seeks to obtain coverage not available under a policy, or to avoid forfeiture of a policy's benefits due to noncompliance with policy conditions. The Court held that in cases involving the construction of an ambiguous contractual provision unrelated to coverage, equitable estoppel "can preclude a party from contesting a particular interpretation of that provision," if all of the elements of the doctrine have been satisfied.26 Thus, some differences appear to exist in Colorado between applying waiver and estoppel principles to insurance and non-insurance contracts. Why this distinction exists is less clear.
Why the Hartford Rule?
Colorado courts have not fully articulated why they apply implied waiver and estoppel differently depending on whether the insured tries to obtain coverage not available under a policy or to avoid a forfeiture of the policy's benefits due to noncompliance with policy conditions. Instead, this Colorado rule simply follows what for many years has been the majority rule (although, as discussed below, this rule may be eroding). The main rationales courts have cited for the rule are that (1) courts cannot create a new contract for the parties, (2) estoppel should not require an insurer to pay a loss for which it charged no premium, and (3) courts should not impose a risk upon an insurer that it might have declined.27
Hartford's central holding ("doctrines of implied waiver and of estoppel, based upon the conduct or action of the insurer, are not available to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded") is a direct quote from 29'A American Jurisprudence Insurance § 1135 (1960), the only authority on which the case relied. That legal encyclopedia's current edition now includes the following more nuanced discussion:
There are some cases that support the view that, either expressly or...