CINCINNATI INSURANCE COMPANY v. ALL PLUMBING, INC. SERVICE, PARTS, INSTALLATION, 1:12-cv-00851

Background

Cincinnati Insurance issued a commercial policy (primary and excess parts) to All Plumbing for 3/3/2006–3/3/2007; claims concern alleged unsolicited TCPA faxes.
Two related putative class actions were filed in D.C. Superior Court: Love the Beer (served Nov. 2010) and FDS Restaurant (Dec. 2011).
Cincinnati sent a reservation-of-rights letter and assumed defense in the Love the Beer matter (Dec. 2, 2011).
Cincinnati retained counsel and defended the separate FDS action but did not provide All Plumbing a separate reservation-of-rights specific to FDS; later filed this declaratory-judgment action seeking a ruling it owes no duty to defend FDS.
The district court previously held Cincinnati failed to properly reserve rights as to FDS and, because it assumed the defense without a reservation, a rebuttable presumption of prejudice attached; summary judgment for defendants was entered on that basis.
Cincinnati moved for reconsideration/clarification; the court denied reconsideration but clarified two points about coverage defenses (deductible and excess coverage).

Issues

Issue	Cincinnati's Argument	All Plumbing / FDS Argument	Held
Whether a reservation of rights in Love the Beer covered FDS	Reservation in Love the Beer (a putative class) necessarily reserved rights as to similar subsequent suits by putative class members	FDS: Love the Beer never was a certified class; FDS was not a party, so separate action needed a separate reservation	Denied: reservation in Love the Beer did not automatically cover the separate FDS action; separate suits require separate reservation unless class is certified
Whether insurer rebutted presumption of prejudice from assuming defense without reservation	Cincinnati: no prejudice because the FDS case was in its infancy and disclaimer followed shortly	FDS: insurer exercised control over defense (filings, removal, oppositions) and failed to reserve, so presumption of prejudice stands	Denied: insurer failed to rebut the rebuttable presumption of prejudice; summary judgment affirmed on that ground
Whether insurer can assert a $1,000 deductible under Primary Coverage despite failing to reserve rights	Cincinnati: deductible is not a coverage defense but a shifting of risk; thus deductible survives even if insurer defended without reservation	FDS: insurer’s failure to reserve rights waives coverage defenses including deductible	Held for Cincinnati: insurer may assert the $1,000 per-claimant deductible under Coverage A despite lack of reservation
Whether insurer can assert defenses under Excess Coverage part despite no reservation on Primary	Cincinnati: excess duty triggers only after exhaustion of underlying limits; no present duty to defend under excess, so no estoppel or implied waiver	FDS: single policy contains both primary and excess; insurer’s actions preclude asserting excess defenses	Held for Cincinnati: prior ruling does not preclude Cincinnati from asserting coverage defenses under the Excess Coverage Part

Key Cases Cited

Athridge v. Aetna Cas. & Sur. Co., 604 F.3d 625 (D.C. Cir. 2010) (insurer’s control over defense can give rise to a rebuttable presumption of prejudice)
National Union Fire Ins. Co. of Pittsburgh v. Aetna Cas. & Sur. Co., 384 F.2d 316 (D.C. Cir. 1967) (insurer must affirmatively show nonprejudice when it assumed defense without reservation)
Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (U.S. 1983) (commencement of a class action may toll statute of limitations for putative class members)
American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (U.S. 1974) (class action tolling principles)
Liberty Mut. Ins. Co. v. Travelers Indem. Co., 78 F.3d 639 (D.C. Cir. 1996) (discussion of excess insurer’s duty to defend being triggered after exhaustion of underlying insurance)
National Elec. Mfrs. Ass’n v. Gulf Underwriters Ins. Co., 162 F.3d 821 (4th Cir. 1998) (endorsing view that excess insurer’s duty to defend is not triggered until primary insurance is exhausted)
Chemstar, Inc. v. Liberty Mut. Ins. Co., 42 F.3d 1399 (9th Cir. 1994) (defending without reservation does not waive insurer’s right to assert policy limits or deductible)
Children’s Hosp. Nat’l Med. Ctr. v. St. Paul Fire & Marine Ins. Co., 670 F. Supp. 393 (D.D.C. 1987) (duty to disclaim or reserve rights is part of duty to defend; no obligation to speak for excess coverage when primary coverage not implicated)