The “That’s For Me To Know and You to Find Out” Approach to Reservation of Rights Letters Rejected in Missouri

He drove a blue Volkswagen Rabbit to the United States Supreme Court for many years. He wrote so many lone dissents in his first years on the court that he was dubbed the “Lone Ranger”. Years after he became Chief Justice, William Rehnquist added four gold stripes to the sleeves of his judicial robes, in tribute to the Lord Chancellor character in the Gilbert and Sullivan operas he loved. When his health declined and the press asked him when he planned to retire, he responded, “That’s for me to know and you to find out.”

Though characteristically blunt of the former Chief Justice, the form of Justice Rehnquist’s dodge to the retirement question-- “That’s for me to know and you to find out”-- did not originate with him. Actor Kyle MacLachlan (whose television credits include the cryptic, high-brow Twin Peaks and equally inexplicable yet low-brow Desperate Housewives) played a college student in the 1986 crime-drama Blue Velvet. In it, MacLachlan’s character deftly used the phrase to avoid responding to a cheeky comment about his intentions (“I can't figure out if you're a detective or a pervert”). In Edward Albee’s 1962 play Who’s Afraid of Virginia Woolf,[1] the character George, an associate professor of history, uses the phrase at a drunken post-party to deflect a question about whether he and his wife Martha have children. (Spoiler alert: they did, a son-- but is he real or fictional?).

Beyond Justices of the Supreme Court and fictional characters in plays and movies, the phrase “That’s for me to know and you to find out” seems to be enjoying a renaissance among young people. Those individuals in the “Internet Slang, Chat Texting & Subculture” reportedly use the acronym “TFM2KAU2FO” as a shorthand to reference the phrase while using their smartphones or other mobile devices. The Urban Dictionary recognizes the phrase and defines it to mean “[m]ind your own [expletive omitted] business”.

For years, a number of liability insurance companies have approached reservation of rights letters in this manner. When an insurer questions whether a lawsuit may be covered by its liability policy, the company can decide to provide its policyholder with a defense against the lawsuit but reserve its rights to decline coverage a later time. It often communicates that decision to its policyholder in letter form (i.e. the reservation of rights letter). The level of detail and explanation in such letters can vary from carrier to carrier.

One insurance company approach to these reservation of rights letters has been to describe the allegations of the lawsuit, quote the relevant policy language at issue in the coverage dispute, and then conclude with a sentence or two that the insurance company reserves its rights to decline coverage at a later time. The letter often provides little analysis or explanation as to how or why the quoted policy language may or may not apply to the claim at hand. In other words, the insuring company is telling its insured, “That’s for me to know and you to find out.”

This minimalist approach to reservation of rights letters ran into a buzz saw in the Missouri Court of Appeals for the Western District’s September 2, 2014, opinion in Advantage Buildings & Exteriors, Inc. v. Mid-Continent Casualty Company. That case was a declaratory judgment action filed by a commercial general liability carrier (Mid-Continent Casualty) to determine if it had any insurance coverage obligations for an underlying construction defect lawsuit filed against its insured Advantage Buildings (a product supplier to the underlying construction project). According to the court, Mid-Continent Casualty’s reservation of rights letters to Advantage Buildings “generally discussed the nature of the underlying lawsuit and set forth various provisions of [the insured’s] general liability policy.” The court said that the letters did not “clearly and unambiguously explain...how those provisions were relevant...or how they potentially created coverage issues”. Again, so TFM2KAU2FO.

The Western District in Advantage Buildings held that a liability insurer that assumes the defense of its insured should “promptly advise the insured of any grounds on which it appears that all or any part of that asserted liability might not be covered.” Specifically, the court held that the reservation of rights letter should be “specific and unambiguous”, should “fully explain the insurer’s position...with respect to the coverage issue,” and “must avoid any confusion”. The failure of an insurance company to issue a reservation of rights letter which does so, according to the Western District, “will preclude the insurer from later denying liability due to non-coverage”.

In Advantage Buildings, the court held that Mid-Continent Casualty’s reservation of rights letters were ineffective. As a result, the court did not allow the insurer to assert its otherwise legitimate insurance coverage defenses to the $4.6 million judgment entered against its insured Advantage Buildings in the underlying action.

While the “That’s for me to know and you to find out” approach may have worked for William Rehnquist, Kyle MacLachlan and Edward Albee’s character George, Advantage Buildings makes it evident that insurance companies may not experience the same success in a Missouri court if they employ that approach in their future reservation of rights letters.

[1] The title of the play is a pun on the song “Who’s Afraid of the Big Bad Wolf?” from Walt Disney’s Three Little Pigs. Some people draw legal inspiration from goats, others look to wolves. Watch this space.

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Kerri Forsythe

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