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(Article from Insurance Law Alert, September 2015)

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The Eighth Circuit ruled that an insurer that has waived its policy defenses is entitled to enforce policy deductibles as a bar to coverage.  W. Heritage Ins. Co. v. Asphalt Wizards, 795 F.3d 832 (8^th Cir. 2015).

Asphalt Wizards was sued in a fax blasting class action.  Western Heritage, its liability insurer, agreed to provide a defense.  Four years later, Western Heritage notified Asphalt Wizards that it was defending subject to a reservation of rights.  Thereafter, Western Heritage sought a declaration that it had no duty to defend or indemnify the class action.  A Missouri federal district court ruled that the insurer had a duty to defend, but not indemnify.  The court reasoned that Western Heritage had waived its defenses to coverage by waiting four years to issue a reservation of rights, but that coverage was nonetheless unavailable because no underlying claim exceeded the policies’ $1,000 deductible.  The Eighth Circuit affirmed.

The Eighth Circuit ruled that a deductible is not a “defense to coverage” that can be waived.  Rather, a deductible is akin to a policy limit, which cannot be waived because doing so would “create coverage where none existed under the policy in the first place.”  In addition, the court held that the $1,000 per-claim deductible applied separately to each fax, rejecting the argument that Asphalt Wizards needed only to meet the deductible amount once each policy year.