6.3 WAIVER AND ESTOPPEL
6.301 General Principles.
A. Waiver. Waiver is a doctrine at law where, by a voluntary action or inaction, one intentionally surrenders a right with knowledge of the facts and circumstances that created the right. 37 Waiver applies to any right conferred by law or contract. The owner of the right may waive it expressly, either in writing or orally. 38 A person or party waiving a right must have both knowledge of the facts basic to the exercise of the right and the intent to relinquish the right. 39
A waiver to contest coverage resulting from a breach of the obligation to defend a claim, however, would not arise "if it appears clearly that the insurer would not be liable under its contract for any judgment based upon the allegations" because, under those circumstances, the insurer "has no duty even to defend." 40
B. Implied Waiver. Although some cases refer to "implied waiver," in Employers Commercial Union Insurance Co. v. Great American Insurance Co., 41 the court stated that "[s]ince knowing intent to waive is an essential element of true waiver, it can never arise constructively or by implication. Implied waiver is more precisely estoppel applied." Thus, the terms "implied waiver" or "constructive waiver" probably should be avoided. Where implied waiver is an issue, the Virginia Supreme Court has stated that the party relying on that waiver prove the elements of implied waiver by clear and convincing evidence. 42
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C. Estoppel.
1. In General. While waiver is a doctrine at law that requires a knowing and intentional act to waive a right otherwise held, estoppel is a doctrine in equity which, by operation of law, prevents one whose action or inaction has induced justifiable reliance by another from benefiting from a change of position by that person which caused injury to him or her. 43 The principle that underlies the doctrine of equitable estoppel is that one party whose representations or conduct have induced the other party to a transaction to give him or her an unfair advantage, will not be allowed to make use of that advantage in court. 44
2. Equitable Estoppel. Equitable estoppel, also called "estoppel in pais," prevents one party, whose statements, conduct, concealment, or silence induce another party, who rightfully relies upon such statements, conduct, concealment, or silence to believe in the existence of a state of facts and act upon that belief, from asserting the existence of a different state of facts. This principle requires the second party to have changed his or her position so that he or she would be harmed by the assertion of the different state of facts. 45 A party who has unclean hands may lack standing to assert the doctrine of equitable estoppel. 46
3. Estoppel by Inconsistent Positions. Under the doctrine of estoppel by inconsistent positions, a party is estopped to assert an inconsistent position to the prejudice of another who has been led to rely on his or her initial position. For the doctrine to apply, however, the party to be estopped must have had knowledge of the options open to it and with such knowledge have elected to assume the initial position. 47
D. Estoppel Does Not Create or Extend Insurance Coverage. The general rule is that the coverage of an insurance contract may not be extended by estoppel to include risks expressly excluded by the contract, 48
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as distinguished from preventing an insurer from asserting a right to deny coverage because of a breach of a policy condition. 49 As an exception to the general rule, an insurer waives its right to assert noncoverage as a defense where it assumes and conducts the defense of the insured in an action involving risks excluded by the contract if the insurer undertakes such a defense with knowledge of the grounds for forfeiture and without disclaiming liability and giving notice of its reservation of rights. 50
The doctrines of waiver and estoppel cannot be used to alter the terms of a plan created pursuant to the Employee Retirement Income Security Act of 1974 (ERISA). These doctrines are preempted by ERISA. 51
E. Coverage in Contravention of Public Policy. Equitable estoppel does not create a binding contract of insurance that is in direct contravention of public policy set forth in the common law and statutes. In Hilfiger v. Transamerica Occidental Life Insurance Co., 52 the court held that where the common law and statutes render void a life insurance contract unless the person whose life is insured applies for the insurance or consents in writing to the contract, the insurance agent's knowledge that the insured's son, rather than the insured, applied for the policy did not estop the carrier from taking the position that the policy was void. The court stated that "[t]o apply equitable estoppel in these circumstances also: 'would permit the unreasonable result that [the conduct of an insurance company or its agent] would breathe life into an insurance contract which the General Assembly [for reasons of individual and public protection] intended to have no life.'" 53
F. Participation in Defense of Insured. A liability insurer is not deemed to have waived, or to be estopped from asserting, a defense of lack of coverage by its participation in the defense of an action against its insured where it fairly informs the insured of its position and gives timely notice. An insurer operating under a reservation of rights is not required to
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wait until the conclusion of the litigation to see if it is liable under the policy. 54 But to be effective, the reservation of rights letter should be sent to each named insured and state each coverage provision on which the insurer is relying. 55 Once an insurer has reserved its rights, it may proceed to defend its insured without waiving subsequent efforts to apply policy exclusions based on the discovery of additional information that the insured is not covered by the policy. 56 Additionally, an insurer is not estopped from denying coverage where it undertakes settlement negotiations before issuing a reservation of rights and before a lawsuit being filed. 57
G. Certificates of Insurance. In Mulvey Construction, Inc. v. Bituminous Casualty Corp., 58 the Fourth Circuit held that an insurer is not estopped from denying coverage in cases where the party claiming coverage is listed as an additional insured on an insurance certificate but was never actually added to the underlying insurance policy. In reaching its holding, the court noted that the certificate of insurance at issue had a specific disclaimer stating that it did not alter or extend coverage.
H. Denial of Coverage. In Nationwide Mutual Fire Insurance Co. v. Erie Insurance Exchange, 59 the Virginia Supreme Court held that "an insurer that denies coverage waives any contractual right to participate in a settlement of the claim and cannot later refuse to pay a covered claim on this basis."
6.302 Payment of Premiums.
A. Late Payment of Premium.
1. In General. Although coverage generally will be forfeited where the insured fails to promptly pay the premiums required under the policy, this breach of the policy and any ensuing lapse can be waived by the
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insurer, and the insurer can be estopped from asserting the breach as a defense to coverage. The insured, however, has the burden to establish the applicability of either waiver or estoppel. 60
2. Acceptance. In Home Beneficial Ass'n v. Field, 61 the insured had contracted for industrial insurance with a weekly payment. The terms of the policy provided a grace period of four Mondays. The insured suffered an accidental death five months later. The insured had failed to make timely payments under the policy, and on five of them, the grace period had passed. Although the carrier had a policy prohibiting agents from waiving any forfeiture or from receiving payments beyond the grace period, it was the custom of the agent to accept payments beyond the grace period and credit them when the policy was reinstated. The insurer had actual knowledge of the forfeiture of the policy since it was written in its records.
The court, recognizing that forfeitures are not favored, held that a carrier waives a forfeiture when it accepts an overdue premium with full knowledge of the facts and when, if properly applied, the premium would reinstate the policy. If the insurer is going to object, it must do so at the time it accepts the premium and not when it is required to pay benefits under the policy. It would be inequitable to permit an insurer, with full knowledge of the facts, to keep the premiums under the contract while denying any obligations under the contract.
3. Nonacceptance. In Harris v. Criterion Insurance Co., 62 the court held that an insurer was not estopped from denying coverage to the insured where the insured paid his premium more than 10 days after the cancellation notice and the insurer did not accept the payment. Previously, the insurer had continued the policy without interruption where the payment was received within 10 days of the cancellation notice and would re-establish the policy with a lapse where the payment was received more than 10 days from the cancellation notice. The court found that the insured's alleged reliance on this past conduct was unwarranted. In order for the insured to take advantage of the doctrine of estoppel, he was required to show that he justifiably relied on the insurer's past conduct and that the insurer's behavior misled him into believing that the policy was still in effect. The court distinguished
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Home Beneficial Ass'n v. Field, 63 stating that Field involved a situation where the insurer unconditionally accepted the premium.
B. Offset of Premiums. An insurer is estopped from denying coverage where an agent of the carrier, with real or apparent authority, tells the insured that the overdue premiums will be deducted from monies then owed to the insured. 64...
