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An insurance carrier must continue to defend a snow and ice removal company after it failed to provide enough specificity about known coverage defenses in a reservation of rights letter, the Pennsylvania Superior Court has ruled.

In a case captioned Selective Way Insurance v. MAK Services, the frontline appeals court decided on a 2-1 vote that the carrier's boilerplate reservation of rights letter wasn't effective since it failed to note a specific exclusion on the policy that clearly pertained to the case. The decision reversed a summary judgment ruling by the Montgomery County Court of Common Pleas in favor of the carrier.

According to Haggerty, Goldberg, Schleifer & Kupersmith attorney James Haggerty, who represented the plaintiff, MAK Services, the ruling expands and underscores state law requiring carriers to put their insured on notice through reservation of rights letters.

"The well-reasoned decision represents a victory for insureds in the commonwealth," Haggerty said in an emailed statement. "Insurers may not generally reserve rights and accept the defense of claims only to later abandon their insureds without having given proper notice of all known coverage defenses."

The dispute stems from a personal injury lawsuit that arose after Oscar Gordon slipped and fell on ice at a property where MAK Services had provided snow and ice removal. Selective Way, which had sold a policy to MAK Services, initially agreed to defend the company on the claims, but, 18 months after sending its initial reservation of rights letter, decided to disclaim the coverage, citing an exclusion in the policy for any injuries resulting from snow and ice removal.

According to Judge Mary Jane Bowes, who wrote the majority opinion, the broad language, coupled with the fact that the exclusion, while obvious, was only mentioned 18 months after the initial letter, was enough to show that the lack of specificity prejudiced MAK Services.

"While the language in Selective Way's letter may have sufficiently apprised MAK Services that future exigencies might affect coverage it provided no notice whatsoever of the existing coverage issue appearing on the face of the policy, i.e., the snow and ice removal exclusion," Bowes said. "Any complete review of the policy would have immediately revealed the existence of this exclusion. Such a revelation which would have vitiated any obligation that Selective Way had to defend or indemnify MAK Services with equal speed. Instead, the boilerplate language relied upon by Selective Way obfuscated this absolute defense to coverage, and caused MAK Services to reach the reasonable conclusion there was no pressing need to secure back-up counsel."

Judge Jacqueline Shogan joined Bowes, but Judge Eugene Strassburger dissented, saying he thought MAK Services failed to prove it had been prejudiced by the initial letter.

"In the instant case, MAK Services has not claimed lost evidence or witnesses, or that it would have handled its defense differently," Strassburger said. "Rather, all the record indicates is that Selective Way provided free legal representation to MAK Services for 18 months. That does not establish prejudice."

Bowes, however, said in a footnote that Strassburger's approach, if "taken to its logical conclusion," would "heavily incentivize" carriers to send similarly broad letters to all its claimants.

"Under the specific circumstances of this case, it is unclear to us how a party that receives incomplete and misleading information from the insurance company can be said to have adequately consented to anything," she said.

According to Bowes, despite clear language in the policy disclaiming coverage for any injuries stemming from snow and ice removal, the reservation of rights letter broadly reserved all rights "under applicable law, insurance regulations and policy provisions that may become relevant." The letter also asked MAK Services not to discuss the case with anyone other than its attorney or Selective Way's representative.

Bowes added that, while broad, the letter was not the only deciding factor in the case, and warned that the ruling did not mark a new paradigm where carriers must raise all potential coverage defenses. However, the lack of specificity, she said, showed a lack of investigation that ultimately prejudiced the insured.

"The snow and ice removal exclusion was evident on the face of the policy, and the certified record reveals that Selective Way admitted to having actual knowledge of the exclusion from the outset," Bowes said. "Despite such knowledge, Selective Way waited 18 months to raise the policy exclusion, and provided no further intervening notice to MAK Services that it would have to mount a defense to the Gordons' civil action on its own."

Jeffrey Quinn of Dickie, McCamey & Chilcote, who represented Selective Way, did not return a call seeking comment.