The South Carolina Supreme Court held that an insurer failed to give adequate notice of potential policy positions and defenses in a reservation of rights letter that included only “general denials of coverage coupled with furnishing the insured with a verbatim recitation of all or most of the policy provision [through a cut-and-paste method].” Harleysville Grp. Ins. v. Heritage Communities, Inc., 2017 WL 105021 (S.C. Jan. 11, 2017).
The insurer defended a contractor subject to a reservation of rights to deny coverage. The jury returned a general verdict. The insurer sought a declaratory judgment allocating covered and non-covered damages. The matter was referred to a special referee, who found that, while certain claims were not covered by the policy, the insurer had failed properly to reserve its right to contest coverage and therefore declined to allocate the general verdict.
On appeal, the South Carolina Supreme Court agreed. It held that the reservation of rights letter was insufficient to put the insured on notice what the insurer intended to assert, including the allocation of damages between covered and non-covered losses. The insurer’s reservation of rights letter included only general denials and recitations of all or most of the policy’s provisions. According to the Supreme Court, a proper reservation of rights would have (1) provided an express reservation that it disputed coverage for a specific type of damages; (2) stated that in the event that the insured was found liable in the underlying lawsuit, the insurer intended to file suit to contest various coverage issues; (3) put the insured on notice of the specific coverage issues the insurer planned on litigating; and (4) informed the insured that a conflict of interest may exist between the insurer and insured and that the insured should protect its interests by requesting an appropriate verdict allocating damages.