On June 10, 2026, the Supreme Court of Appeals of West Virginia held that an insurer’s offer to “vigorously defend” the policyholder and to pay a potential excess verdict does not lead to waiver of the coverage defenses the insurer reserved at the outset of litigation. In Dye v. Farmers & Mechanics Mutual Insurance Company of West Virginia, — S.E.2d —-, 2026 WL 1678526 (W. Va. June 10, 2026), the Court affirmed summary judgment for the insurer, holding that a homeowners policy’s business exclusion barred coverage for a timber-trespass claim and rejecting the policyholder’s waiver, estoppel, and bad faith theories of liability against the insurer.
The Underlying Claim
In 2015, the policyholder, Andrea Dye, sold the standing timber on her property to a logging company, Jones Hauling. Her neighbors, the Bradleys, visited their property in 2017 and found that it had been timbered. The following year, the Bradleys sued Dye and others for timber trespass and property destruction, seeking treble damages under West Virginia’s timber-trespass statute.
Dye’s homeowners insurer, Farmers & Mechanics Mutual Insurance Company of West Virginia (F&M), agreed to defend her from the Bradleys’ lawsuit subject to a reservation of rights. Within three months after the Bradleys’ complaint was filed, F&M sent a reservation of rights letter that detailed the claims and “assert[ed] a complete reservation of all rights concerning its duty to defend and indemnify.” F&M then intervened in the Bradleys’ lawsuit to seek a declaratory judgment on coverage.
F&M moved for summary judgment, arguing (1) that the Bradleys’ complaint did not identify an “occurrence” as defined by the policy, and (2) that several exclusions barred coverage. After F&M’s motion for summary judgment was denied, Dye asserted counterclaims against F&M for bad faith, violations of the West Virginia Unfair Trade Practices Act, and Hayseeds damages (i.e. common law bad faith damages, including extracontractual damages). The trial court later granted reconsideration of F&M’s motion for summary judgment and concluded that the business exclusion in the F&M Policy applied to exclude coverage for Dye’s claim.
Two Letters Central To Bad-Fath Claims
The Bradleys issued a policy limits demand to Dye in January 2020. During settlement discussions in 2020, two F&M letters became the centerpiece of Dye’s case. In a May 22 letter, F&M’s counsel offered $15,000 to settle Dye’s claims against F&M and promised an excess protection letter agreeing that, if a verdict exceeded policy limits, F&M would satisfy the entire amount of the verdict and “completely protect Ms. Dye from any financial exposure” while it continued to “vigorously defend” her. After the Bradleys issued a settlement demand in the amount of $101,000, F&M sent a letter to Dye on June 4 repeating the promise to satisfy any excess verdict and to keep defending Dye.
Dye’s Bad Faith Theories
Dye argued these letters were an admission that coverage existed, that F&M had abandoned its “occurrence” defense, waived its coverage position, and should be estopped from denying coverage. She also contended that F&M’s conduct was so egregious that its bad faith should extend coverage the policy otherwise did not provide.
Analyzing West Virgina law, the Court found that Dye’s waiver, estoppel, and bad faith theories could not prevail.
Waiver. The Courted noted that waiver requires intentional relinquishment of a known right, and neither letter at issue withdrew F&M’s coverage position detailed in its prior reservation of rights. The Court also noted that waiver cannot create coverage where none is contracted for by the parties. Because F&M’s business exclusion foreclosed coverage for Dye’s claim, coverage could not be created by waiver.
Estoppel. Estoppel exists where a party detrimentally relies on a misrepresentation or concealment of a material fact. The Court found no misrepresentation or concealment in the letters at issue and therefore rejected Dye’s claim that she stopped pursuing coverage discovery in reliance on the letters.
The bad-faith exception. The Court noted that under Potesta v. U.S. Fidelity & Guar. Co., estoppel can extend coverage beyond the policy’s terms when an insurer misrepresents facts at the policy’s inception, defends a policyholder without a reservation of rights, or has acted in bad faith. Dye argued that such exceptions existed, claiming that F&M made misrepresentations to her and the court, took factually contrary positions, made and then revoked promises, withdrew an offer to settle Dye’s claim for attorney’s fees for $15,000, and raised the business exclusion only after discovery closed.
The Court rejected Dye’s bad faith claims, noting that F&M had not declined to defend the policyholder and was continuing to defend the policyholder with independent counsel. The Court reiterated that an insurer “should have the right to defend itself in a declaratory judgment action without risking exposure merely because the strain inherent in litigation discomfits its insured.”
Key Takeaways
The Dye decision affirms that West Virginia law does not let waiver, estoppel, or a bad faith allegations rewrite unambiguous policy exclusions. Waiver cannot create coverage where none exists, while estoppel claims cannot succeed without misrepresentations or concealments of fact. Further, an insurer may pursue a coverage determination against a policyholder while continuing to fund an independent defense of the policyholder without necessarily subjecting itself to bad faith exposure.