Avoid Creating Coverage By Estoppel, Waiver & Forfeiture: California
Waiver, estoppel and forfeiture are doctrines on which insureds often rely to try to create coverage outside the terms of the insurance policy. Insureds will often assert that they are entitled to such extra-contractual coverage based entirely on how the insurer handled the claim. But under California law, these doctrines often do not apply, and an insurer can avoid a potential waiver, estoppel or forfeiture by communicating with the insured.
Although the terms are often used interchangeably, the doctrines are different. Estoppel refers to conduct by the insurer that reasonably causes an insured to rely to his detriment. Waiver is an express or implicit intentional relinquishment of a known right demonstrated. And forfeiture is the assessment of a penalty against the insurer for either misconduct or failure to perform an obligation under the contract.”
The general rule under California law is that estoppel and waiver cannot be used to create coverage under an insurance policy where such coverage did not originally exist. In other words, these doctrines cannot be used to create coverage for risks that are outside the scope of the insuring agreement or that fall within a policy exclusion.
A common assertion by insureds to expand coverage is that an insurer that failed to raise a coverage defense in a coverage position letter has either waived or is estopped from asserting that defense. But several reasons may explain why the insurer initially did not raise the coverage defense. For example, it could be that facts supporting a defense were not disclosed to the claims professional until after the claims professional sent the initial coverage position letter.
Waiver in California is not automatic. It rests on the insurer’s intent: “Case law is clear that ‘waiver’ is the intentional relinquishment of a known right after knowledge of the facts.” A waiver may be either express, based on the insurer’s words, or implied, based on insurer’s conduct indicating an intent to relinquish the right. Although waiver generally is a question of fact, proving a waiver is extremely difficult. Where an insurer did not initially include a coverage defense in its reservation, it should do so as soon as it determines the defense may apply, no matter how much time has passed since it issued its initial reservation. Several decisions have ruled that such later-made reservations are effective. One situation where a waiver may apply is when an insurer elects to forgo a coverage defense when so doing could give the insured a right to independent counsel.
Estoppel differs from waiver in that the focus is on the insured’s detrimental reliance. The elements to establish estoppel are that (1) the insurer must be aware of the facts, (2) the insured could reasonably believe that the insurer intended that the insured rely on the insurer’s conduct, (3) the insured must be ignorant of the true facts, and (4) the insured must rely upon the insurer’s conduct to the insured’s detriment. An insurer may be estopped from asserting a policy right or defense even though it did not intend to mislead, as long as the insured reasonably relied to its detriment upon the insurer’s action.  Generally, the doctrine of estoppel cannot bring within coverage risks that the policy does not cover or that the policy excludes. But in limited situations, e.g., when a liability insurer, with knowledge of a potential coverage defense, agrees to defend its insured without reservation of rights, the insurer may be estopped from relying on its coverage defenses (assuming the elements of estoppel are all met).
Where an insurer declines coverage based on one coverage defense, but does not deny on another applicable coverage defense, the insurer should not be estopped from subsequently asserting the second coverage defense, even if the first ground is unsupportable. Because the insurer denied coverage, the insured cannot establish that it relied to its detriment to believe that it would have such coverage.
Forfeiture is a penalty against the insurer for misconduct or the nonperformance of some obligation or condition. To establish a forfeiture, the insured must establish by clear and convincing evidence conduct designed to mislead them; the courts will not impose forfeiture if the insurer did not engage in behavior designed to mislead the insured. Forfeiture does not require that the insured is, in fact, misled. 
The claims professional should be
aware that under California law, the doctrines of waiver, estoppel, and forfeiture
do not apply automatically. The claims professional should understand the rules
regarding the application of these doctrines and be able to apply them to the
claims he or she is handling. In this way, the claims professional may most
effectively be able to determine how best to address any assertions that the
insurer has waived, is estopped from relying upon, or has forfeited any
coverage defense, especially because those defenses may remain available to the
 Chase v. Blue Cross of Calif. (1996) 42 Cal.App.4th 1142, 1151 (Chase).
 Aetna Cas. & Sur. Co. v. Richmond (1977) 76 Cal.App.3d 645, 652-653.
 Advanced Network v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054.
 Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 32-33.
 Id. at 32.
 Aetna Cas. & Sur. Co. v. Richmond (1977) 76 Cal.App.3d 645, 653.
 Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal.App.4th 1165; American Motorists Ins. Co. v. Allied-Sysco Food Services, Inc. (1993) 19 Cal.App.4th 1342, 1350; National Union Fire Ins. Co. v. Siliconix, Inc. (N.D.Cal.1989) 726 F.Supp. 264, 270; Stonewall Ins. Co. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810, 1839.
 See Cal. Ins. Code § 2860.
 Colony Ins. Co. v. Crusader Ins. Co. (2010) 188 Cal.App.4th 743, 751.
 Chase, supra, 42 Cal.App.4th at 1157 (The court stated that “an insurer is estopped from asserting a right, even though it did not intend to mislead, as long as the insured reasonably relied to its detriment upon the insurer’s action.”); Waller, supra, 11 Cal.4th at 34.
 Advanced Network, Inc. v. Peerles Ins. Co. (2010) 109 Cal.App.4th 1054, 1066.
 Miller v. Elite Ins. Co. (1980) 100 Cal. App. 3d 739, 754-56;
 Waller, supra, 11 Cal.4th at 35; see also Stonewall Ins. Co. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810, 1839 (The court found that the insurer was estopped from denying coverage after a delay of 2 1/2 years, which was only three weeks before the trial. The court identified detriment to the policyholder because it had a right to independent counsel, who had no time to prepare for trial.); Granco Steel, Inc. v. Workmen’s Compensation Appeals Board (1968) 68 Cal.2d 191, 200 (The insurer was estopped from denying coverage based on its agent’s representation that coverage would be provided upon insured’s request (which was done).);Fanucci v. Allstate Ins. Co. (ND CA 2009) 638 F.Supp.2d 1125, 1144 (applying Calif. law) (Coverage by estoppel may exist when the insurer makes incorrect representations about the type of coverage that will be provided by a policy.)
 Chase, supra, 42 Cal.App.4th at 1149.
 Id. at 1157 (Citations, ellipses and quotation marks omitted.); Waller, supra, 11 Cal4th at 31