                             UNITED STATES DISTRICT COURT
                             FOR THE DISTRICT OF COLUMBIA


 THE CINCINNATI INSURANCE
 COMPANY,

    Plaintiff,
                                                             Civil Action No. 12-851 (CKK)
            v.

 ALL PLUMBING, INC. SERVICE, PARTS
 INSTALLATION, et al.,

    Defendants.



                                   MEMORANDUM OPINION
                                      (October 18, 2013)

        Plaintiff The Cincinnati Insurance Company filed suit against Defendants All Plumbing,

Inc. Service, Parts, Installation (“All Plumbing”), Mr. Kabir Shafik (“Shafik”),1 and FDS

Restaurant, Inc., seeking a declaratory judgment that the Plaintiff owes no duty to defend or

indemnify All Plumbing and Shafik in connection with a class action lawsuit filed by FDS

Restaurants (“FDS”) against All Plumbing and Shafik in the Superior Court for the District of

Columbia (“Superior Court”). Presently before the Court are the Defendant’s and the Plaintiff’s

Cross-Motions for Summary Judgment. Upon consideration of the pleadings,2 the relevant legal

authorities, and the record as a whole, the Court finds that Cincinnati Insurance failed to properly


        1 All Plumbing and Kabir Shafik are not involved in the present action as the Court entered a
Default Judgment against them on September 20, 2012, for failure to plead or otherwise defend this action
although served with summons and a copy of the complaint on June 1, 2012. See September 20, 2012
Entry of Default, ECF No. [14].
        2
          The Court’s decision is based on the record as a whole, but the Court’s analysis focused on the
following documents, listed in chronological order of filing: Pl.’s Mot. for Summ. J. (“Pl.’s Mot.”), ECF
No. [30]; Def.’s Mot. for Summ. J. (“Def.’s Mot.”), ECF No. [31]; Pl.’s Opp’n to Def.’s Mot. for Summ.
J., ECF No. [32]; Def.’s Opp’n to Pl.’s Mot. for Summ. J., ECF No. [33]; Def.’s Reply in Support of Mot.
for Summ. J., ECF No. [34]; Pl.’s Reply in Support of Mot. for Summ. J., ECF No. [35].
reserve its rights upon assuming the defense of All Plumbing and Shafik and is thus now

precluded from disclaiming coverage of any judgment in FDS’ action against All Plumbing and

Shafik.     Accordingly, the Defendant’s motion is GRANTED and the Plaintiff’s motion is

DENIED.

                                       I. BACKGROUND

          A. Procedural Background

          The parties have stipulated to the facts related to the issue the Court is deciding. See

Joint Stipulation of Facts (“Stip.”), ECF No. [27].

          Cincinnati Insurance issued a commercial insurance policy to All Plumbing effective

from March 3, 2006, to March 3, 2007, providing general liability coverage up to $1 million for

each occurrence and $2 million in aggregate. Stip., ¶ 3. In September 2010, Love the Beer, Inc.,

(“Love”) filed a putative class action against All Plumbing and Shafik in Superior Court alleging

that on or about September 22, 2006, All Plumbing and Shafik sent unsolicited faxes to Love the

Beer and others in violation of the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. §

227. Id. at ¶ 6; see Stip., Ex. B (Love the Beer Compl.).

          The Love the Beer action was served on All Plumbing and Shafik on November 5, 2010.

Stip. ¶ 7. Cincinnati Insurance alleges that All Plumbing and Shafik never notified Cincinnati

Insurance of the Love the Beer action, but that counsel for Love contacted Cincinnati Insurance

on November 15, 2011, and asked Cincinnati Insurance to defend the action. Stip. ¶ 12. By

letter dated November 18, 2011, Cincinnati Insurance notified counsel for Love that coverage for

the Love the Beer action may be barred under the policy, asserting that All Plumbing and Shafik

failed to comply with certain of the Duties in the Event of a Claim or Suit conditions of the

Policy. Stip. ¶ 14. On December 2, 2011, Cincinnati Insurance informed All Plumbing and

                                                 2
Shafik that it was assuming the defense of the Love the Beer action pursuant to a full and

complete reservation of rights. Stip. ¶ 15; see Stip., Ex. J (Reservation of Rights letter).

         On December 2, 2011, FDS Restaurant filed a second putative class action against All

Plumbing and Shafik in Superior Court based on the same allegation of unsolicited faxes as at

issue in the Love the Beer action. Stip. ¶ 16; see Stip., Ex. K (FDS Restaurant Compl.). A few

weeks later, Cincinnati Insurance received a copy of the FDS complaint from FDS’ counsel – the

same counsel as in the Love the Beer action. Stip. ¶ 17. Cincinnati Insurance subsequently

chose and retained counsel to defend All Plumbing and Shafik in the FDS action. Stip. ¶ 23.

         On December 22, 2011, Love, in the Love the Beer action, moved for leave to file an

amended complaint to eliminate the class action allegations from the Love the Beer action, limiting

the claims to those of the named plaintiff. Stip. ¶ 18. The Superior Court granted Love’s motion.

Stip. ¶ 19. The Superior Court docket indicates the action was never certified as a class action,

and was voluntarily dismissed by the plaintiff in advance of trial. Love the Beer, Inc. v. All

Plumbing Inc. Serv., Parts, Installation, No. 2010 CA 006880 (D.C. Sup. Ct. dismissed June 11,

2012).

         By letter dated February 16, 2012, Cincinnati Insurance informed counsel for FDS that

coverage may be barred under the Policy due to the “terms, provisions, conditions and exclusions

of the Policy, including the insured’s failure to comply with the conditions requiring the prompt

reporting of offenses, claims and suits.” Stip. ¶ 21; see Stip., Ex. P. Cincinnati Insurance did not

send a separate letter or oral communication to All Plumbing and Shafik that the defense of the

FDS action that was being provided by Cincinnati Insurance was pursuant to a reservation of

rights. Stip. ¶ 22.



                                                  3
       All Plumbing and Shafik removed the action to this court on March 9, 2012. FDS

Restaurant, Inc. v. All Plumbing, Inc., Serv., Parts, Installation, No. 12-394 (D.D.C. removed

Mar. 9, 2012). Before this court, defense counsel for All Plumbing and Shafik filed an answer to

FDS’ complaint, see Defendant’s Answer, FDS Restaurant, Inc. v. All Plumbing, Inc., Service

Parts, Installation et al, No. 12-394 (D.D.C. March 19, 2012); an opposition to FDS’ Motion for

Class Certification, see Defendant’s Opposition to Plaintiff’s Amended Motion for Class

Certification, FDS Restaurant, Inc. v. All Plumbing, Inc., Service Parts, Installation et al, No.

12-394 (D.D.C. March 19, 2012); an opposition to FDS’ Motion to Remand the case to Superior

Court, see Defendant’s Opposition to Plaintiff’s Motion to Remand to State Court, FDS

Restaurant, Inc. v. All Plumbing, Inc., Service Parts, Installation et al, No. 12-394 (D.D.C. April

16, 2012); and agreed to stay the case pending resolution of FDS’ Motion to Remand, see FDS

Restaurant, Inc. v. All Plumbing, Inc., Service Parts, Installation et al, No. 12-394, Minute Order

(D.D.C. April 4, 2012). Judge Rosemary M. Collyer remanded the case to Superior Court on

September 14, 2012. FDS Restaurant, Inc. v. All Plumbing, Inc., Service, Parts, Installation, No.

12-394, Op. & Order (D.D.C. Sept. 14, 2012). The case was reopened by Superior Court in

December 2012.      FDS’ Motion for Class Certification is now pending in Superior Court.

Amended Motion for Class Certification, FDS Restaurant v. All Plumbing Inc. Serv., Parts,

Installation, No. 2011 CA 009575 (D.C. Sup. Ct. Mar. 1, 2012). Cincinnati Insurance filed this

action on May 21, 2012, seeking a declaratory judgment that it has no duty to defend All

Plumbing and Shafik in the FDS Superior Court action. On May 9, 2013, the FDS action was

stayed in Superior Court pending resolution of the present declaratory judgment action. FDS

Restaurant v. All Plumbing Inc. Serv., Parts, Installation, No. 2011 CA 009575, (D.C. Sup. Ct.

May 9, 2013).

                                                4
       B. Motions for Summary Judgment

       The parties have filed Cross-Motions for Summary Judgment. Cincinnati Insurance

requests the Court grant summary judgment in its favor because FDS’ TCPA claims against All

Plumbing and Shafik are not covered by the Policy and because All Plumbing and Shafik

“substantially and materially breached their contractual obligation to timely notify Cincinnati of

the dispute.” See generally Pl.’s Mot. for Summ. J., ECF No. [29]. FDS argues that summary

judgment should be awarded in its favor because the plain language of the Policy obligates

Cincinnati Insurance to provide coverage for FDS’ claims and because any delay in All

Plumbing and Shafik notifying Cincinnati Insurance of the FDS action was not substantial or

material. See generally Def.’s Mot. for Summ. J., ECF No. [31]. FDS also contends that, in any

event, Cincinnati Insurance has waived any defense that coverage is barred under the Policy by

assuming control of All Plumbing and Shafik’s defense without a proper reservation of rights.

Id. at 32. The question of whether Cincinnati Insurance has waived its right to disclaim coverage

of the FDS action is a threshold question. As the Court finds that Cincinnati Insurance did not

properly reserve its rights to disclaim coverage in the FDS action, the Court need not address the

parties’ other arguments.


                                    II. LEGAL STANDARD

       The Plaintiff and the Defendant have filed cross-motions for summary judgment under

Federal Rule of Civil Procedure 56. In determining a motion for summary judgment, “the court

may assume that facts identified by the moving party in its statement of material facts are

admitted, unless such a fact is controverted in a statement of genuine issues filed in opposition to

the motion.” Local Civil Rule 7(h). Here, the parties have filed a Joint Stipulation of Material


                                                 5
Facts, which sets forth the facts relevant to the issue the Court is presently deciding.

       “The court shall grant summary judgment if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.

R. Civ. P. 56(a). When considering a motion for summary judgment, the court may not make

credibility determinations or weigh the evidence; the evidence must be analyzed in the light most

favorable to the nonmoving party, with all justifiable inferences drawn in her favor. Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). “If material facts are at issue, or, though

undisputed, are susceptible to divergent inferences, summary judgment is not available.” Moore

v. Hartman, 571 F.3d 62, 66 (D.C. Cir. 2009) (citation omitted).

                                        III. DISCUSSION

   A. Choice of Law

   Because jurisdiction over the Plaintiff’s claim is founded on diversity of citizenship, the

Court must first determine which state law to apply and, in so doing, must apply this forum’s

choice of law rules – i.e., the choice of law rules of the District of Columbia. Klaxon Co. v.

Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). Under the District of Columbia's rules, the

Court first determines whether a "true conflict" exists between the laws of competing

jurisdictions. GEICO v. Fetisoff, 958 F.2d 1137, 1141 (D.C. Cir. 1992); Sloan v. Urban Title

Services Inc., 689 F. Supp. 2d 94, 105 (D.D.C. 2010). Where no true conflict exists, a court

applies the law of the District of Columbia by default. GEICO, 958 F.2d at 1141.

   In their respective Motions for Summary Judgment, the Plaintiff argues that Virginia law

should be applied to its claims, while the Defendant contends that District of Columbia law is

controlling. However, no true conflict of laws exists in the case at bar as to the issue the Court is

deciding. The law as pertains to the waiver of defenses to insurance coverage in the absence of a

                                                  6
reservation of rights is substantially similar in the District of Columbia and Virginia. See, e.g.,

Norman v. Ins. Co. of N. Am., 218 Va. 718, 726 (Va. 1978); Nat’l Union Fire Ins. Co. of

Pittsburgh v. Aetna Cas. & Sur. Co., 384 F.2d 316, 318 (D.C. Cir. 1967). Indeed, in their briefs,

both parties admit that Virginia and District of Columbia law are “substantially similar with

respect to the issues before the Court.” Pl.’s Mot. for Summ. J., at 16 n.2, 39; see also Def.’s

Mot. for Summ. J., at 16. Accordingly, the Court shall apply the law of the District of Columbia

to the parties’ claims.

    B. Reservation of Rights

    In its Motion for Summary Judgment, FDS contends that Cincinnati Insurance waived its

ability to disclaim coverage under the terms of the Policy because it assumed All Plumbing and

Shafik’s defense without properly reserving its rights. In response, Cincinnati Insurance argues

that it reserved its rights in the FDS action when it provided All Plumbing and Shafik a full and

complete reservation of rights in the December 2, 2011, letter that it sent All Plumbing and

Shafik in regards to coverage concerns in the Love the Beer action. See Stip., Ex. J. Cincinnati

Insurance reasons that since FDS was a member of the putative class of persons identified in the

Love the Beer complaint and the complaint involved the same underlying TCPA cause of action

as alleged in the FDS action, the December 2, 2011, letter reserved its right as to claims asserted

on behalf of every member of the class, including FDS.           Moreover, Cincinnati Insurance

contends that, in any event, the filing of the present declaratory judgment action “adequately

informed All Plumbing and Shafik of the coverage issues” and thus it cannot be estopped from

disclaiming coverage because All Plumbing and Shafik were not prejudiced by any inadequacy

in reserving its rights.

    It is “well settled that an insurer undertaking the defense of an insured against a litigious

                                                7
assertion of an unprotected liability, without a disclaimer of contractual responsibility and a

suitable reservation of its rights, is foreclosed from thereafter taking refuge in the policy

provisions exempting the liability from coverage.” Nat’l Union Fire Ins. Co. of Pittsburgh, 384

F.2d at 318; see also Diamond Service Co., Inc. v. Utica Mut. Ins. Co., 476 A.2d 648, 655 (D.C.

1984) (“a liability insurer assuming and conducting the defense of an action brought against the

insured, with knowledge of a ground of forfeiture and without disclaiming liability and giving

notice of its reservation of rights, is thereafter precluded, in an action upon the policy, from

setting up such ground of forfeiture.” (internal citations omitted)). This rule was created to

protect the insured from being denied the ability to control and manage his or her own case

without delay – most importantly the claims not covered by the insurance company – in the event

the insured may be required to pay any final judgment. See Walker v. American Ice Co., 254 F.

Supp. 736, 742 (D.D.C. 1966); Athridge v. Aetna Cas. & Sur. Co., --- F. Supp. 2d --- , 2006 WL

2844690, *2 (D.D.C 2006). Consequently, when an insurer assumes control of the insured’s

defense without a proper reservation of rights, “prejudice is presumed as a matter of law” “by

virtue of the insurer’s assumption of the defense.” Walker, 254 F. Supp. at 742.

   Cincinnati Insurance contends that the reservation of rights letter sent to All Plumbing and

Shafik on December 2, 2011, shortly after receiving notice of the Love the Beer action and prior

to receiving notice of the FDS action, was a full and proper reservation of rights in the FDS

action. The December 2, 2011, letter, however, cannot serve as a reservation of rights in the

present action because, by its own wording, the letter exclusively addressed coverage concerns

relating to Cincinnati Insurance’s defense of the Love the Beer action.       Despite the many

similarities in the Love the Beer and FDS actions, they remain two distinct lawsuits. Moreover,

contrary to Cincinnati Insurance’s claim, the Love the Beer action was never certified as a class

                                                8
action, consequently FDS was never even a party to the action. Consequently, Cincinnati

Insurance did not communicate to All Plumbing and Shafik a reservation of rights in the FDS

action by its December 2, 2011 letter.

    In its Motion for Summary Judgment, FDS argues that the only potential reservation of rights

letter issued by Cincinnati Insurance in relation to the FDS action was a letter sent by Cincinnati

Insurance on February 16, 2012, to counsel for FDS stating that coverage may be barred under

the Policy due to the “terms, provisions, conditions and exclusions of the Policy, including the

insured’s failure to comply with the conditions requiring the prompt reporting of offenses, claims

and suits.” Stip. ¶ 21; Stip. Ex. P. This letter cannot be considered a proper reservation of rights

in the FDS action because it was sent to the Defendant’s counsel and not to the insured. An

insurer’s obligation to provide notification of its reservation of rights under an insurance policy

is to the insured, not to the party seeking a judgment from the insured. See Walker, 254 F. Supp.

at 742; Diamond, 476 A.2d at 655. The entire purpose of a reservation of rights letter – to notify

the insured that the insurer may disclaim liability so the insured can make their own timely

decision about how they want to defend against the claim – is defeated when a reservation of

rights letter is sent only to opposing counsel. See Athridge, 2006 WL 2844690, at *2. In any

event, Cincinnati insurance does not rely on the February 16, 2012, letter as evidence that it

reserved its rights and, indeed, clarifies that this letter is “distinct from a reservation letter” in its

Opposition to Defendant’s Motion for Summary Judgment. See Pl.’s Opp. to Def.’s Mot. for

Summ. J., at 40 n. 12. Accordingly, Cincinnati Insurance did not communicate any reservation

of rights to All Plumbing and Shafik upon assuming the defense against FDS’ claims and

prejudice to All Plumbing and Shafik is presumed.

    Cincinnati Insurance contends, however, that, even if this Court finds that it assumed the

                                                    9
defense of the FDS action without a reservation of rights, All Plumbing and Shafik were

adequately informed of the coverage issues in the FDS action upon being served with the present

declaratory judgment action on June 1, 2012. Cincinnati Insurance argues that since the FDS

action “was still in its infancy” at the time it filed the declaratory judgment action, All Plumbing

and Shafik sustained no prejudice and, accordingly, Cincinnati Insurance cannot be considered

estopped from asserting any defenses to coverage. The presumption of prejudice that attaches

when an insurer assumes the defense of an action without reserving its rights can be rebutted.

See Nat’l Union Fire Ins. Co. of Pittsburgh, 384 F.2d at 318 (“We consider an application of this

[preclusionary] rule abundantly justified whenever . . . the insurer has not demonstrated

affirmatively that assumption of the defense was nonprejudicial.”); Athridge v. Aetna Cas. &

Sur. Co., 604 F.3d 625, 630 (D.C. Cir. 2010) (“An insured may be entitled to a rebuttable

presumption of prejudice, depending on the amount of control the insurer exercised over the

defense.”). In its opposition to FDS’ Motion for Summary Judgment, Cincinnati Insurance’s

only demonstration that its assumption of the defense without a reservation of rights was

nonprejudicial is that the FDS action “was still in its infancy” when it disclaimed coverage

through its declaratory judgment action. However, a review of the record demonstrates that

Cincinnati Insurance took important actions in defense of All Plumbing and Shafik in the

approximately five-month period between assuming the defense and disclaiming liability.

Notably, the defense counsel chosen and hired by Cincinnati Insurance filed an answer to FDS’

complaint, successfully moved to remove the action from Superior Court to federal court, filed

an opposition to FDS’ motion for class certification, opposed FDS’ motion to remand the case to

Superior Court, and agreed to stay the case pending resolution of FDS’ motion to remand. These

are all important strategic actions in the life of a lawsuit that impacted the availability and nature

                                                 10
of All Plumbing and Shafik’s defenses. Compare with Diamond, 476 A.2d at 656 (no prejudice

found where the only actions undertaken by the insurer were to advise the defendant on

answering interrogatories and to file an answer to the amended complaint).

       Some jurisdictions have specifically found that the filing of a declaratory judgment action

can preserve an insurer’s defenses to coverage even without a prior reservation of rights. See,

e.g., State Farm Mut. Auto Ins. Co. v. Kay, 26 Utah 2d 195, 198 (Utah 1971); Am. & Foreign Ins.

Co. v. Church Schools in the Diocese of Va., 645 F. Supp. 628, 635 (E.D.V.A. 1986). However,

in these cases, the insurer disclaimed coverage only a couple months after assuming the defense

of the case and after only very preliminary actions were taken as part of the defense. In the

present case, Cincinnati Insurance controlled the defense of the FDS action for approximately

five months before disclaiming coverage and, as discussed above, undertook several important

defensive actions. See Columbia Cas. Co. v. Columbia Hosp. for Women, 633 F.Supp. 697, 699

(D.D.C. 1986) (finding that insured’s three-month delay in notifying defendants that it was

reserving its rights was not prompt and raised factual questions material to a finding of waiver or

estoppel). Although it is well settled that “an insurer has a reasonable time to investigate the

facts to determine its acceptance of liability” even after assuming the insured’s defense,

Diamond, 476 A.2d at 656 (internal citations omitted), the five-month delay was not justified by

Cincinnati Insurance’s need to investigate the facts surrounding the FDS action. From the time it

assumed the defense in the FDS action, Cincinnati Insurance knew of potential grounds of

forfeiture and noncoverage. According to Cincinnati Insurance in its Opposition to Defendant’s

Motion for Summary Judgment, prior to assuming the defense in the FDS action, it had already

investigated the facts in the Love the Beer action, which Cincinnati Insurance argues are similar

to the facts in the underlying FDS action, and had identified coverage concerns related to those

                                                11
facts, as evidenced by its December 2, 2011 letter in the Love the Beer action. See Pl.’s Opp. to

Def.’s Mot. for Summ. J., at 39-40. Thus, the five-month delay in which All Plumbing and

Shafik were without notice that Cincinnati Insurance—who was already defending the claim—

would disclaim coverage, was not justified. See Capital Specialty Ins. Corp. v. Sanford Wittels

& Heisler, LLP, 793 F. Supp. 2d 399, 412 n.8 (D.D.C. 2011) (“a reservation of rights is

sufficient as long as the insurer conducts an investigation and analysis with ‘reasonable diligence

and promptly notifies the insured’ once the process is complete.” (citing Central Armature

Works, Inc. v. American Motorists Inc. Co., 520 F. Supp. 283, 288 n.4 (D.D.C. 1980))).

       Accordingly, Cincinnati Insurance has failed to rebut the presumption of prejudice and is

found to have waived all defenses to coverage by assuming the defense of All Plumbing and

Shafik without a reservation of rights. See Columbia Cas. Co., 633 F.Supp. at 699 (holding that

insurer’s delay in reserving its rights and defense of defendant prior to reserving its rights raised

a factual question as to whether the insurer waived or was estopped from disclaiming coverage

on the basis that the insured failed to properly notify the insurer of the underlying claim); Nat’l

Union Fire Ins. Co. of Pittsburgh, 384 F.2d at 318 (holding that, in the absence of a suitable

reservation of rights, the insured was precluded from disclaiming liability on the basis that the

claim was outside the coverage of the policy).

                                       IV. CONCLUSION

       For the foregoing reasons, the Court finds that Cincinnati Insurance’s failure to properly

reserve its rights and five-month delay in disclaiming coverage while controlling important

actions in All Plumbing and Shafik’s defense precludes Cincinnati Insurance from asserting any

defenses to coverage of the FDS action. Accordingly, the Defendant’s [31] Motion for Summary

Judgment is GRANTED and the Plaintiff’s [29] Motion for Summary Judgment is DENIED.

                                                 12
An appropriate Order accompanies this Memorandum Opinion.



                                           /s/
                                        COLLEEN KOLLAR-KOTELLY
                                        UNITED STATES DISTRICT JUDGE




                                   13
