The opinion of the court was delivered by: GOETTEL
The defendant, Home Insurance Company ("Home"), seeks to dismiss the second, third, fourth, and fifth causes of action of the plaintiff's complaint.
The plaintiff, Whiting Corporation ("Whiting"), is a producer of industrial equipment. It was named as a third-party defendant in 1975 in an action brought in federal district court in Maine by a pulp and paper company against the general contractor that had built its plant in Maine. The pulp and paper company sought $ 22 million in damages in that action, claiming, inter alia, that a piece of equipment manufactured by Whiting failed to meet specifications and was otherwise deficient. In 1978, the pulp and paper company sued Whiting directly, seeking $ 16 million from it.
At the time these suits were commenced, Whiting had four layers of insurance coverage. The first layer was in the amount of $ 250,000 per incident, with a maximum of $ 500,000. This primary coverage was provided by Continental Insurance Company ("Continental"), which also had the obligation of defending claims against Whiting. The second layer of insurance, in the amount of $ 5 million, was provided by Home. There were two additional $ 5 million excess layers on top of this provided by other companies. Whiting settled the suits against it in July of 1979 for $ 671,000. Continental paid $ 250,000. Whiting seeks the remainder from Home in this action, claiming that Home's policy insured Whiting against such losses. (This is the substance of the first cause of action.)
The second, third, fourth, and fifth claims concern the actions (or, more accurately, inaction) of Home during the years the Maine suits were in litigation.
The original suit brought by the pulp and paper plant company was commenced in October of 1974, and the third-party action was commenced in January of 1975.
Upon being served with the third-party complaint, Whiting, through its insurance brokers, notified all four of its insurance carriers. All of these carriers, except Home, acknowledged receipt of the notification. The primary carrier, Continental, retained a Bangor, Maine law firm to defend Whiting. The second-tier excess carrier (which insured Whiting to the extent of $ 5 million for judgments in excess of $ 5,250,000) advised Whiting that it was retaining the same law firm. It also notified Whiting, as did the top-tier excess carrier, that Whiting had the right to employ its own counsel, since the indemnity sought exceeded its total umbrella coverage. At that time, Whiting notified the Bangor attorney retained by its primary carrier that it saw no need to engage independent counsel because there was only a remote possibility of exposure above its total insurance coverage.
Whiting fulfilled all of its formal notice requirements to its insurance carriers and, in September of 1975, notified its insurance brokers, with copies to all four carriers, that it was looking to them for complete indemnification and protection, including the payment of all costs and attorneys' fees.
Nevertheless, for a period of three years, Home did not communicate directly or indirectly with Whiting. Home kept abreast of the litigation, however, by obtaining information from claims agents for the other carriers.
Apparently, as early as March of 1976, Home considered sending a reservation of rights letter to Whiting.
During the middle of 1976, the other two excess carriers, apparently concerned about Home's position, sent formal notification to Home of their exposure and inquired as to whether Home intended to issue a reservation of rights letter. It was not until October of 1976 that Home started to make any extensive investigation of the nature of the claim. By early 1978, it had learned of settlement overtures under which Whiting would be called upon to pay a sum in excess of that covered by the insurance of the primary carrier.
Following the filing of the direct claim against Whiting in March of 1978, and notification thereof, Home sent a reservation of rights letter to Whiting on May 19, 1978. This was forty-one months after Home was first notified of the original suit. At the time the letter was sent, one of Home's employees noted that such a letter should have gone out "quite some time ago." In the reservation of rights letter, Home relied upon a single policy provision, that of exclusion of claims involving defective products sold by the insured.
In June of 1978, the claims agent notified Home's main representative that the chances of successfully denying coverage were less than fifty-fifty, that a settlement would be in the millions, and that it was obvious that Home, as first excess carrier, had considerable prospective exposure. Similar communications were sent by trial counsel. On May 17, 1979, Home declined coverage, but based its declination on Endorsement No. 8 of the policy. Whiting's house counsel immediately wrote to Home decrying this action, pointing out that the litigation had already progressed to a critical point and that Whiting had to decide whether to proceed to trial or to contribute an amount in excess of its primary coverage in order to settle. Whiting advised Home that it intended to seek indemnification for all liabilities and expenses incurred as a result of the disclaimer.
The second and third causes of action concern Home's delay of more than three years in communicating with Whiting, as a result of which Whiting believed its interests were protected to the full extent of the excess coverage and thus surrendered control of its defense. The second cause of action labels this conduct on the part of Home as an estoppel. The third cause of action denominates it a waiver.
The fourth and fifth causes of action arise from the reservation of rights letter of May 19, 1978, which relied upon a particular exclusion and made no reference to Endorsement No. 8. In the fourth cause of action, Whiting claims that the original reliance solely on one exclusion created an estoppel with regard to any other basis for denying coverage. In the fifth cause of action, Whiting contends that this conduct amounted to a waiver.
In moving to dismiss those four causes of action, Home takes the sweeping position that an excess carrier is never obligated to declare its position with respect to coverage until the underlying lawsuit has been reduced to judgment and, consequently, can never waive or be estopped from claiming any defenses under its policy. It is unquestionably true that, as an excess carrier, under its policy terms, Home did not need to assume charge of the defense or settlement of a suit brought against Whiting. Moreover, its liability did not attach until the amount covered by the primary carrier ($ 250,000) had been paid.
Whiting contends, on the other hand, that all insurers, primary or excess, have a duty when notified of a claim to advise the insured with reasonable promptness of their position with respect to coverage. Whiting also argues that, while the obligations of an excess carrier are clearly narrower than those of the primary carrier, who must ...