The district court for the District of Columbia recently ruled an insurer must reserve its rights for each lawsuit, despite the similarities or relatedness of lawsuits for which the insurer has reserved rights to disclaim coverage, at the risk of waiving coverage defenses. Yet, notwithstanding the insurer’s failure to properly reserve its rights, the court held that the insurer still maintains the ability to assert that policy deductibles apply on a per claim, per claimant basis in TCPA cases. Cincinnati Ins. Co. v. All Plumbing, Inc.
, Civil Action No. 12-851, 2014 U.S. Dist. LEXIS 114007 (D.D.C. August 18, 2014).
The coverage dispute arose out of the following circumstances. Cincinnati issued primary and excess CGL policies to All Plumbing. Love the Beer, Inc. filed a putative TCPA class action against All Plumbing and All Plumbing’s principal alleging that unsolicited faxes had been sent to Love the Beer and others. The insured failed to give Cincinnati proper notice of the lawsuit. One year after suit was filed, Love the Beer’s counsel contacted Cincinnati and requested that Cincinnati defend its insured. Cincinnati issued a reservation of rights and assumed the defense. On the same day Cincinnati issued its reservation, Love the Beer’s counsel filed a second TCPA putative class action, on behalf of FDS Restaurant, against All Plumbing. Counsel subsequently forwarded the FDS suit to Cincinnati. Cincinnati retained defense counsel for this second lawsuit, but failed to issue a second separate reservation of rights. The first lawsuit was voluntarily dismissed, as the class was never certified. Five months after assuming the defense of the second lawsuit, Cincinnati filed a declaratory judgment action arguing that it did not owe All Plumbing a duty to defend.
On cross-motions for summary judgment, the court ruled that Cincinnati had waived its right to assert coverage defenses because it failed to reserve its rights relative to the second class action lawsuit. On Cincinnati’s motion for reconsideration and clarification, the court rejected Cincinnati’s position that the initial reservation of rights in the first lawsuit was sufficient and should carry over to the second lawsuit. In relevant part, the court stated that because the class was never certified, the reservation of rights “cannot serve as an eternal and universal notice … that Cincinnati Insurance reserves its rights in any similar, but concededly separate, litigation.” The court further rejected an approach by the insurer whereby it issues a global reservation of rights that purportedly applies to subsequently filed lawsuits.
Peculiarly, the court also determined that Cincinnati failed to present evidence against the rebuttable presumption of prejudice given that it was actively involved in the defense of its insured for five months before filing its declaratory judgment action. Cincinnati’s defense of the insured, consisting of, among other things, filing an answer, moving to remove the case to federal court, and opposing the class certification, was evidence against Cincinnati’s argument that there was no prejudice. However, the analysis did not include any substantive reasoning for how Cincinnati’s conduct was in any way prejudicial to the insured, in either affecting the coverage issues or resulting in the insured to rely on the defense to its detriment, e.g.
, the insured would have done things differently.
On the issue of policy deductibles, the court clarified that the failure to issue a reservation of rights does not otherwise affect Cincinnati’s ability to assert the $1,000 deductible, as deductibles are not considered coverage defenses or exclusions. Rather, deductibles are a means of “shifting a portion of the risk from the insurer to the insured” and speaks to the maximum amount of coverage available. The court also clarified that the waiver of coverage defenses with respect to the primary policy has effect on the excess coverage part of the policy because the excess policy would not be triggered until the primary limits were exhausted, and they had not yet been exhausted here.
This ruling serves as a cautionary reminder as to the level of attention required when faced with multiple lawsuits involving the same or similar facts, issues, and parties. Under such circumstances, insurers would be best served issuing reservation of rights letters for each separately filed lawsuit. However, the court did not join the growing “mob” seeking to exact increasingly draconian punishments against insurers, holding instead that despite the waiver of coverage defenses, Cincinnati could still apply a policy deductible, a potentially dispositive determination in TCPA cases given the statutory amounts recoverable.