One question that we field from time to time is – who must get a copy of the ROR? The named insured? Each defendant who will be defended? Some other combination of parties? Erie Insurance was faced with just this issue in the case of Erie v. Lobenthal, et al.

In this case, Erie had issued an auto policy to Adam and Jacqueline Lobenthal. The Lobenthal’s daughter, Michaela, was involved in an auto accident; it appeared that, at the time of the accident, Michaela may have been under the influence of a controlled substance. Erie assigned defense counsel to defend Michaela (who qualified as an insured under the terms of the Erie policy) and issued two reservation of rights letters. The letters were only addressed to Adam and Jacqueline and a separate letter was never sent to Michaela. When it ultimately became clear that Erie had a basis to disclaim coverage (based on the controlled substances exclusion), Michaela objected on the basis that she had never personally received a reservation of rights letter. Erie responded by noting that while true, such an argument placed form over substance since Michaela’s attorney had a copy of the letter and, as a resident in her parent’s household, it was highly improbable that Michaela was unaware of the ROR. The trial court agreed with Erie and awarded summary judgment. An appeal resulted.

The Superior Court reversed the trial court. It held that:
we determine that Michaela, as the defendant, was entitled to notice of Erie’s reservation of its right to disclaim liability. Notice to Michaela’s parents, the named insureds, and to insurance defense counsel provided by Erie, was ineffective as to Michaela.

While the result may seem unfair, the case highlights the reality that form can sometimes matter more than substance as public policy favors ensuring that injured parties are compensated for their injuries.

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