Estoppel to Prevent Insurance Coverage Denial If Insurer Controls Underlying Litigation
According to the Eighth Circuit Court of Appeals, an insurer may be estopped from denying coverage under Minnesota law if the insurer defends the insured in the underlying litigation without reserving its right to deny coverage. Minnesota Comm. Rwy. Co. v. General Star Indem. Co. The Eighth Circuit defines this as “assumption-of-defense estoppel,” and reads it narrowly to the circumstance where the insurer has full knowledge of the facts and controls the underlying litigation. Note that Tennessee law is similar, in that estoppel generally may not be used to create insurance coverage where none exists.
The Eighth Circuit indicates that Minnesota law requires an insured to prove five elements in order to invoke the doctrine of estoppel, including that the insurer misrepresented a material fact to the insured. Tennessee does not restrict the application of estoppel to such limited circumstances. Under Tennessee law, estoppel or waiver may apply to prevent an insurer from relying on a policy exclusion based on the insurer’s knowledge of the insured’s risks at the time the policy was issued. See Dallas Glass of Hendersonville, Inc. v. Bituminous Fire & Marine Ins. Co., 544 S.W.2d 351 (Tenn. 1976); Insurance Co. of North America v. Federated Mut. Ins. Co., 518 F.2d 101 (6th Cir. 1975).