Affirming a Missouri district court decision, the Eighth Circuit held that a policyholder forfeited general liability coverage by breaching the policy’s cooperation clause. Heubel Materials Handling Co. v. Universal Underwriters Ins. Co., 704 F.3d 558 (8th Cir. 2013).

Heubel Materials Handling Company was named as a defendant in a personal injury suit involving a forklift accident. Heubel did not immediately notify Universal, its general liability insurer, of the suit and instead sought and obtained a defense from Raymond Corporation, the forklift manufacturer, pursuant to an indemnity contract. After a six-month delay, Heubel provided notice to Universal. Universal initially agreed to provide a defense under a reservation of rights. In response, Heubel filed a declaratory judgment action arguing that Universal’s reservation of rights entitled Heubel to control its own defense. Universal then withdrew its reservation and offered to defend Huebel and reimburse prior defense costs, with the requirement that Heubel cooperate in pursuing indemnification against Raymond. Heubel rejected Universal’s offer, arguing that Universal’s requirement that Heubel cooperate in pursuing indemnification against Raymond created a conflict of interest which entitled Heubel to control its own defense. Universal counter-claimed that Heubel’s refusal to cooperate negated coverage under the policy. The district court granted summary judgment in favor of Universal, finding that Heubel breached the policy’s cooperation clause, resulting in substantial prejudice to Universal. The Eighth Circuit affirmed.

Under Missouri law, a policyholder may reject an insurer’s offer to defend under a reservation of rights without running afoul of a cooperation clause. Here, however, Heubel refused Universal’s defense even after Universal withdrew its reservation. The Eighth Circuit held that this constituted a violation of the policy’s cooperation clause. In so ruling, the court rejected Heubel’s argument that its duty to cooperate with Raymond created a conflict of interest with Universal. The court also concluded that Universal suffered prejudice as a result of the breach. In this context, the court predicted that the Missouri Supreme Court would not require a showing of “actual prejudice” in order to deny coverage on the basis of a cooperation clause violation, citing to a Missouri appellate decision which held that “prejudice automatically follows from the denial to the insurer of any opportunity to defend against the claim.”