Legal Memorandum: Scope of Liability Insurance

Issue: Under South Dakota law, must the conduct giving rise to estoppel occur before or at the inception of an insurance policy in order to estop an insurer’s denial of coverage?

According to the Allied Mut. Ins. Co. v. Dakota Rose, Inc., 43 F. Supp. 2d 1081 (D.S.D. 1999) case, the scope of liability insurance is determined from the objectives of the parties as expressed in the policy.

Although as stated in Dakota Rose, the insurer’s conduct giving rise to estoppel must occur before or at the inception of the policy, but estoppel applies to renewals as well as new coverage.  In fact, Dakota Rose itself, as well as other cases involved policy renewals.  See also, e.g., Boston Ins. Co. v. Barnes, 171 S.E.2d 626 (Ga. Ct. App. 1970); Brady v. Fidelity & Cas. Co., 241 N.Y.S.2d 690 (App. Div. 1963); Saunders v. Lloyd’s of London, 779 P.2d 249 (Wash. 1989) (all holding that questions of fact existed regarding the estoppel effect of the insurer’s acceptance of renewal premiums, thus precluding judgment in the insurers’ favor).

Importantly, the Dakota Rose case also states that the insurer bears the burden to show that the claim for damages falls outside of the policy coverage, and that any doubts as to whether the claims fall within the scope of the policy must be resolved in favor of the insured. 43 F. Supp. 2d at 1084. 

The general rule, simply stated, is that under appropriate facts, acceptance and retention of premiums by the insurer gives rise to a waiver or an estoppel as to arguments inconsistent with such retention.  See, e.g., 17 Couch on Insurance § 239:121 (2010).  […]