Failure to issue reservation of rights letter does not waive per claim/per claimant deductible

We previously noted the decision in Cincinnati Insurance Co. v. All Plumbing, Inc., Civil Action No. 12-851 (D.D.C. Oct. 18, 2013)(Kollar-Kotelly, J.), where the Court held that Cincinnati Insurance's failure to properly reserve its rights and five-month delay in disclaiming coverage while controlling important actions in the insureds' defense precluded Cincinnati from asserting any defenses to coverage in the underlying junk fax class action.

In the same case, on August 18, 2014, the Court granted in part and denied in part a motion for reconsideration filed by the insurer.  Significantly, the Court found that the insurer's failure to properly reserve its rights in the underlying tort litigation does not prevent it from asserting the $1,000 deductible with regard to Coverage A under the Policy.

This was a significant victory for the insurer, given that the underlying litigation is a putative class action against the insured for sending unsolicited faxes to the plaintiff and others in violation of the Telephone Consumer Protection Act.  The TCPA provides a private right of action for violations and statutory damages in the amount of $500 for each violation and up to $1,500 for each willful violation. When applied to a large number of faxes in a class action, the damages in these cases can become large.  However, the $1,000 per claim, per claimant deductible mitigates the liability exposure for the insurer.

Coverage A under the Policy provided that a $1,000 deductible applies on a per claim, per claimant basis.  The insurer in its motion for reconsideration requested clarification that, despite the Court's conclusion that the insurer failed to properly reserve its rights in the underlying action, the $1,000 per claim, per claimant deductible still applies with regard to Coverage A. 

The Court agreed with the insurer.  The Court reasoned that a deductible is the portion of the loss to be borne by the insured before the insurer becomes liable for payment. The Court further reasoned that a deductible endorsement is not a coverage defense or exclusion; it is a means of shifting a portion of the risk from the insurer to the insured.  Even where, as here, an insurer assumes an insured's defense unconditionally, the insurer does not waive the deductible endorsement.  Among other authorities, the Court relied on Couch on Insurance for the proposition that "While the defense of the action by an insurer without reservation of rights as to its defense may constitute a waiver of the insurer's defenses, it does not rewrite the policy so as to remove the maximum on the coverage provided."