By Todd A. Rossi

Does an insurer waive its policy defenses when it breaches its duty to defend?  In Arceneaux v. Amstar Corp., 211 WL 2591701 (La. July, 2011), the insurer breached its duty to defend by issuing a denial of coverage and withdrawing from the insured’s defense.  The insurer’s action was based on the mistaken belief that its policies contained an exclusionary provision when, in fact, the exclusion was no longer effective.  According to the trial court, breaching the duty to defend resulted in a waiver of the coverage defenses.  The Louisiana Supreme Court concluded to the contrary, differentiating between a breach and a waiver.  Waiver is an intentional relinquishment of a known right or power, and occurs when an insurer with knowledge of the facts indicating non-coverage assumes or continues the defense without obtaining a non-waiver agreement to reserve its coverage defenses.  Under those circumstances, the insured is led to believe that the insurer has given up that right and the insured has the right to believe that the insured’s counsel is acting in the insured’s best interest without regard to coverage defenses.  An insurer cannot avoid liability based on a coverage defense if it has defended the insured without a reservation of rights.  To the contrary, a breach of the duty to defend is not a waiver and does not mislead the insured into believing there could be coverage because there is no expressed intent to release its right to deny coverage.  Under such circumstances, waiver principles do not apply.  Consequently, a breach of the duty to defend is not a waiver of policy defenses.