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Waiver, Estoppel, Notice to Insured, & Grounds for Declaring Void

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Waiver and Estoppel

Although the concepts of “waiver” and “estoppel” are usually lumped together, they are totally different concepts that, when applied. They may result in similar conclusions by a trier of fact but they are different.

Waiver is a “voluntary relinquishment or abandonment—express or implied—of a legal right or advantage.”[1] The person who is found to have waived a right must do it knowingly, with knowledge of the existing right and the intention of forgoing the right.

Estoppel, on the other hand, requires that a court create a bar that “prevents one from asserting a claim or right that contradicts what one has said or done before or what has been legally established as true.”

To establish estoppel, the insured or insurer must produce evidence that:

1. there must be a false representation;

2. it must be made with knowledge of the facts;

3. the other party must have been ignorant of the truth;

4. it must have been made with the intention that it should be acted upon by the other party; and

5. the other party must have been induced to act upon it.”[2]

The theory behind the rule of estoppel, when applied to an insurer, is that the insurer is estopped to declare a policy void when the insurer has been fully compensated.[3]

When void is considered absolutely void the insurer need only take such action as will avoid waiver and estoppel.[4]

The doctrine of waiver works against an insurer only when the insurer has knowledge of facts constituting a forfeiture. The equitable doctrines of waiver or estoppel may act to bar an insurer’s effort to void a policy where the insurer, with knowledge of facts that support a forfeiture, remains silent and fails to object or declare the forfeiture, cancel the policy, or rescind the insurance within a reasonable time.

The rationale behind this rule is that it is a breach of the covenant of good faith and fair dealing for an insurer, with knowledge of the right to declare a forfeiture, to remain silent. Retaining the unearned premium and failing to give notice can lead the insured to believe the contract is still regarded as valid.[5]