The Louisiana Third Circuit Court of Appeal held that an insurer waived coverage defenses where the insurer failed to timely assert the specific coverage defense prior to the assignment of defense counsel by the insurer via a reservation of rights. See Teresa Jeffries v. Prime Insurance Company, et al., 2021-161 (La.App. 3 Cir. 11/3/21), — So.3d —-.

In Jeffries, Elvis Thompson was driving an eighteen-wheeler owned by Graham Trucking, Inc. which was insured by Prime Insurance Company when he was involved in an automobile accident on March 31, 2017. Teresa Jeffries then sued Thompson and Graham and asserted claims directly against Prime via the Louisiana Direct Action Statute.

Prime assigned defense counsel who answered the lawsuit on behalf of its insured, Graham, and then filed a separate answer on behalf of Thompson. In those answers, Prime pled the limitations, terms and conditions of the policy “as if copied in extenso.” Additionally, counsel assigned by Prime continued to represent all three defendants until days before trial was to begin and no reservation of rights letter was proven to have been received by Graham or Thompson.

“Just days” before the October 7, 2019 trial, Prime filed a motion to continue the trial. Prime’s assigned defense counsel argued that he had a “conflict” in representing all three of the defendants at trial because Prime now sought to exclude coverage on the alleged basis that Thompson was an “unscheduled driver” not covered by policy. The trial court issued a ruling finding “no conflict. If there was a conflict I find that it’s been waived by the insurance company.” The appellate court affirmed.

Jeffries reinforced long-standing Louisiana jurisprudence that an insurer must timely issue a reservation of rights to the insured if the carrier wishes to offer a defense and reserve the right to assert coverage defenses. This rule applies not just to the insured, but to any other defendant who may be owed coverage under the policy and the carrier must be prepared to prove that the reservation of rights letter was actually received by those persons.

Here, Prime hired a single lawyer for all three defendants, no reservation of rights letter was proven to have been received by the insured or to have been sent or received by Graham. As explained by the court in Jeffries, due to the insurer’s actions “…the insured were led to believe the insurer had relinquished its coverage defenses as the insurer continued to defends the insureds while having knowledge of facts indicating noncoverage.”