The Complex Commercial Litigation Division of the Superior Court of Delaware recently held that Travelers Indemnity Company (“Travelers”) breached its duty to defend and indemnify plaintiff CNH Industrial America LLC (“CNH”) in underlying asbestos-related lawsuits.

The Court held that, under Wisconsin law (which the Court had previously held applied to the policies at issue), Travelers had a duty to defend CNH.  In Wisconsin, the insurance company assumes the contractual duties of defense and indemnification for claims described in the insurance policy. Moreover, when coverage disputes arise, Wisconsin favors a procedure by which the insurance company defends the policyholder subject to a reservation of rights or intervenes in the underlying lawsuit and requests a bifurcated trial on coverage.  If an insurance company reserves rights, the insured has the right to control the defense.  If an insurer follows these procedures, it runs no risk of breaching its duty to defend.  While an insurer is under no obligation to follow the stated procedures, it does so at its peril. 

Travelers argued that a 1980 Claims Handling Agreement (“Agreement”) precluded coverage.  Travelers entered into the Agreement with CNH’s predecessor, Case.  The Agreement allowed Case, at its option, to manage lawsuits filed against it relating to certain specific insurance policies.  The Court rejected Traveler’s argument regarding the Agreement it was policy specific and did not relate to the policy at issue here.  Moreover, the Court held that while CNH impliedly made a request under the Agreement by defending claims that were covered by the policies subject to the Agreement, as the Agreement did not speak to implied requests or consents.  Rather, the Agreement required Case to make an actual request.  The Court also rejected Travelers’ argument that its efforts to investigate CNH’s successor-in-interest status fulfilled its duty to defend as CNH made it abundantly clear it wanted Travelers to provide a defense.  Travelers’ letters requesting CNH’s corporate status were not equal to a request for clarification providing a defense. 

The Court was also influenced by the fact that Travelers did not follow the “clearly defined” practice under Wisconsin law for contesting the need to provide a defense or to indemnify.  When a question arose regarding the duty to defend or to indemnify, Travelers should have defended CNH subject to a reservation of rights or intervened in the lawsuit. 

The Court was also not persuaded by Travelers’ argument that it was prejudiced by CNH’s failure to comply with the notice and cooperation provisions because CNH purportedly did not provide notice for more than thirty days after service of the underlying complaint.  Under Wisconsin law, an insured’s notice is not deemed untimely if the notice is furnished as soon as reasonably possible within one year.  However, if an insurer consistently maintains no coverage existed, and the timing of a notice would not have changed the insurer’s decision to deny its duty to defend, then the insurer is not prejudiced.  This is exactly what occurred here.