In the event that the insurer continues its investigation, it could be assumed later that it has waived its right to refuse coverage or that it has prevented it from asserting a refusal. To avoid the pitfalls of renunciation and confiscation, insurance companies have long used non-waiver agreements. A non-waiver agreement can help delay their decision to confirm or deny coverage. In the New Brunswick Court of Appeal decision of Pembridge Insurance Company v. Speaking, the Court considered whether an insurer could file a third-party opposition that contradicted the defence filed on behalf of its insured. The court concluded that an insurer that defends itself as a legal third party enjoys the same protection as if it had a valid non-waiver agreement or a binding reserve letter: if a policyholder receives a non-waiver agreement from an insurance company, the policyholder should refuse to enter into the non-waiver agreement. Next, the policyholder should require the insurance company to issue a reserve letter informing the policyholder in detail of the insurance company`s coverage position. Suppose a borrower is continuously in arrears and the lender does not charge a late fee for five months. If default-related charges are part of the contractual agreement, the lender reserves the right to charge them at any time if the borrower is in default. In addition, it allows the insurer to subsequently claim compensation from an insured person for any costs or other amounts paid in the settlement or judgment under the claim, in the event that the non-coverage is subsequently established.
For example, if an insurer defends the claim and pays a settlement amount, but later determines that the damage was not covered by its policy, the insurer could claim the settlement costs from the insured. The following are examples of circumstances in which an insurer may request a non-waiver agreement to allow for an ongoing determination of coverage: As a general rule, an insured person should not complete a non-waiver letter. There is no downside to not signing and the negative consequences for the insured, if a letter of non-waiver is signed, will likely outweigh the consequences for the insurer if it is not. Insurers tend to be cautious in creating these documents to ensure that these requirements are met, although in some cases it is known that insurers prepare them in a hurry and without details. A court cannot rely on an agreement if the relevant criteria are not met. In Zurich Assurances v. Crawford, the court did not execute the agreement and concluded that the agreement had been drafted in such a way that the parties were not in an equal position of agreement at the time the document was signed. A compelling reason for an insurer to enter into a non-waiver or execute a reservation declaration is to retain control of the dispute. In theory, however, insurers are only responsible for the cost of claims disputes that clearly match the coverage provided by the policy. In reality, insurers are often required to pay costs that are shared based on the percentage of liability. In conflict situations, the insurer runs the risk of becoming fully responsible for legal fees and risks losing its ability to appoint and hire a lawyer.
While these are legitimate concerns of an insurer, the courts have concluded that these rights are replaced by the rights of an insured. For example, one of these decisions was rendered by the Supreme Court of British Columbia in 1989 in Carter v. Kerr. One of the most interesting and valuable aspects of a non-waiver agreement for an insurer is that it allows the insurer to investigate a claim and defend a lawsuit, while retaining its right to deny coverage. The value of a non-waiver agreement is that it allows the insurer not to risk breaching its duty to defend itself. It also preserves the time needed to investigate and possibly refuse to report at a later date. However, in certain circumstances, the court authorized the insurer to rely on a letter of reservation. The letter must be carefully drafted to conform to the format accepted by the courts and must contain the same information as required for non-waiver agreements (see page 2 of this document). In Hersh v. Wawanesa Mutual Insurance Co., where a letter of reservation was accepted, the court noted: The jurisprudence on non-waiver agreements is such that a validly constructed non-waiver agreement should include the following: If one party to a contract temporarily releases the other from its contractual obligations, the non-waiver provision is in effect to ensure that the apologetic party continues to work on its Right…
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