983 F. Supp. 2d 162
D.D.C.2013Background
- Cincinnati Insurance seeks a declaratory judgment that it has no duty to defend or indemnify All Plumbing and Shafik in the FDS action.
- Love the Beer, Inc. sued All Plumbing and Shafik in DC Superior Court for alleged TCPA violations; Cincinnati defended under reservation concerns.
- FDS Restaurant filed a second putative TCPA class action against All Plumbing and Shafik in DC Superior Court.
- Cincinnati informed counsel for Love of potential coverage bar and later assumed defense of Love action with reservation of rights.
- In February 2012 Cincinnati sent a reservation-letter to FDS’s counsel (not to insured) asserting coverage may be barred; December 2011 letter addressed Love action only.
- The court finds Cincinnati waived its defenses by defending without a proper reservation and delaying coverage disclaimer for five months.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Waiver/estoppel due to lack of reservation | Cincinnati reserved rights in the Love action, preserving defenses in related actions. | FDS contends waiver/estoppel because no proper reservation in FDS action. | Waived; prejudice presumed from defense control without valid reservation. |
| Whether December 2, 2011 letter reserved rights for the FDS action | Letter reserved rights by addressing related Love action; substantially protects insured. | Letter only addressed Love; not a reservation for FDS; no insured notice. | Not a proper reservation for the FDS action. |
| Whether the February 16, 2012 letter satisfied reservation requirements | Letter notified that coverage may be barred, supporting defense control. | Letter was to counsel, not to insured; insufficient as a reservation of rights. | Insufficient reservation; not effective to preserve rights. |
| Prejudice and delay in disclaiming coverage | FDS action was in early stages; delay did not prejudice insured. | Five-month delay plus control actions show prejudice; presumption applies. | Presumption of prejudice established; waiver of defenses. |
| Choice of law | Virginia law should apply as closest to issue. | DC law governs due to DC choice-of-law rules and substantial similarity on key issue. | District of Columbia law applied. |
Key Cases Cited
- National Union Fire Ins. Co. of Pittsburgh v. Aetna Cas. & Sur. Co., 384 F.2d 316 (D.C. Cir. 1967) (preclusion when insurer assumes defense without proper reservation)
- Diamond Service Co., Inc. v. Utica Mut. Ins. Co., 476 A.2d 648 (D.C. 1984) (prejudice from assumption of defense without reservation)
- Walker v. American Ice Co., 254 F. Supp. 736 (D.D.C. 1966) (insurer's defense assumption without reservation leads to prejudice)
- Columbia Cas. Co. v. Columbia Hosp. for Women, 633 F. Supp. 697 (D.D.C. 1986) (insured prejudice elements where insurer delays reservation)
- Capital Specialty Ins. Corp. v. Sanford Wittels & Heisler, LLP, 793 F. Supp. 2d 399 (D.D.C. 2011) (reservation of rights must be prompt and protect insured interests)